Tiers of Interactive Gear
AT&T ropes new iTV players, strategy
By Karen Brown
from the June 18, 2001 issue of Broadband Week
After snacking for more than a year on various interactive TV options, AT&T Broadband has decided iTV is like eating potato chips--you can't have just one.
So the MSO is changing its interactive TV strategy from a single advanced product based on the powerful, expensive Motorola DCT5000 digital box to a three-tiered approach with advanced, midrange and basic options. That means shifting the immediate focus to developing interactive products for its existing base of simpler digital boxes--including some 3 million Motorola DCT2000s--and adding a mid-range set-top to the lineup.
It also is something of a demotion for Microsoft Corp., which has been forced because of technical snarls to delay delivery of its upper-end Microsoft TV middleware platform for the DCT5000. Under AT&T's new strategy, that deployment still is scheduled for later this year, but in a downsized mode with fewer interactive bells and whistles. Most notably, the cable modem embedded in the box will be left dormant.
"The thing that was driving us was a focus on customers, services and the market," AT&T chairman and CEO C. Michael Armstrong said in explaining the strategy at last week's National Cable and Telecommunications Association convention. "The thing people seem to enjoy is fuller expressions of entertainment, rather than bringing Web sites to TV. There's an opportunity to serve customers with new applications and to do it with the 3.1 million set-top boxes that we've got installed."
Left unsaid was that it took AT&T two years to arrive at this new strategy, following the much-hyped 1999 unveiling of its partnership with Microsoft along with now-stalled plans to deploy Windows-powered iTV offerings in several "showcase" markets.
While some might blame the changes on delays in Microsoft's platform, the strategy shift has more to do with the evolution of interactive TV since then, according to Karl Ofsentjuk, AT&T Broadband's vice president of product development.
"The focus of AT&T is not on abandoning the advanced platform," he says. "It's just a question of focusing at this time and what we think the near-term needs are from a competitive set. It doesn't mean we won't roll out an advanced set-top box at some point, but now we are more focused on the resources we have."
The rise of personal video recording and the idea of a hard drive integrated in its digital set-tops also prompted AT&T to rethink its iTV development path. A cooling economic climate also was a factor, Ofsentjuk says.
"The situation is more of us looking at the kinds of things we want to do with the 5000 platform and how much we could execute with what we had in front of us," he says. While the existing DCT2000 base originally were not the focus for interactive services, "the existing plant has more life that we had anticipated."
A major task now will be developing middleware for the already-deployed DCT2000s. AT&T has interactive TV on the DCT2000 using Worldgate Communications Inc.'s platform in Cedar Falls and Waterloo, Iowa, and in Tacoma, Wash., but that server-based system does not use set-top middleware.
AT&T reportedly is testing a middleware design from Microsoft archrival Liberate Technologies Inc. with a small group of employees.
Also on the "to do" list is ordering mid-range set-tops from an as-yet unnamed vendor. AT&T is now talking to major box vendors--including Motorola, Philips Electronics, Matsushita (Panasonic) and Sony Corp.--about a new mid-range box that likely would include a hard drive for PVR capabilities.
While the shift may be disappointing for the advanced interactive TV product, it is not a setback for Microsoft, according to Ed Graczyk, director of the Microsoft TV platform group.
"They are still hugely committed to the whole iTV opportunity," Graczyk says. "They are still big believers in the promise and the return on investment that the advanced platforms will bring. But I think you also hear them say they have learned a lot and seen a lot in the last year or so around a couple of trials they've done, and they've seen the success of products like UltimateTV and VOD and digital video recording, so they want to incorporate particularly PVR as part of their product vision, whereas that perhaps wasn't there before. In the near term, a bigger focus on the low and midrange--not that there still isn't a focus on the advanced--but that the advanced is a little further out in their vision."
In 1999, the software giant invested $5 billion in AT&T Corp. in exchange for a commitment to deploy a minimum 7.5 million copies of its interactive TV middleware on AT&T Broadband set-tops. That commitment remains intact, although it is unclear how it will play out in AT&T's new multiple level interactive strategy or if the commitment will be renegotiated.
"We're not at all concerned about losing AT&T as a client," Graczyk says. "We're happy to be engaging on this broader study with these other devices. It's a little disappointing not to see the advanced stuff roll out in as big of a quantity as early as initially thought. But we can take a long-term strategic view of things."
Another shift for AT&T Broadband covers interactive platform development. Up to now, the MSO has assigned staff to help jump-start interactive TV development among vendors--even providing the computer coding for products such as electronic programming guides. With the interactive TV plan now more firmly established, the MSO will give vendors that responsibility.
Microsoft now also apparently will have to share the screen with the likes of Liberate. Graczyk says that is not a major concern because Microsoft always knew that AT&T wanted a multivendor interactive TV business.
"Our deal with them is for seven and a half with an option for up to 10 million licenses for Microsoft TV," Graczyk says. "But they've got at the last count 15 million subs. So by definition it's not exclusive, because the other boxes will be running something."
It is, however, yet another mark in a turbulent development cycle for Microsoft TV. Graczyk maintains the difficulties in creating an interactive TV product for AT&T are not scaring off potential Microsoft customers. Concurrent with AT&T's strategy shift, Microsoft announced an iTV deployment with Portugal's TV Cabo, and Graczyk says more deals are in the works.
"I think there will be some who have either similar concerns or are in situations like AT&T that want to focus more on the low end than the high end today because that makes sense for their market, and others that will take a totally opposite approach," Graczyk says. "Our product line spans the whole range of them and it's been designed that way on purpose because no matter what, you have different situations in different countries."
Microsoft does have products to fit simpler digital set-top boxes, which are often called "thin clients." Its new Access Channel Server, a system that bases much of the interactive TV function in headend servers, already is at work in Mexico's Cablevision (CVC) and will head into trials with Israeli MSO Matav Cable Systems Media Ltd.
Although Microsoft may be finding more fertile ground for its iTV products initially overseas, Graczyk says the future looks good for U.S. deployments.
"We've no doubt that the U.S. may be slower moving today," he says. "We've no doubt the U.S. becomes the bigger marketplace at some point in the next few years."
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