Question No. 1 in Chicago: Deploy What and Roll It Out How Quickly?

Cable World, June 9, 2003

Byline: PAUL KAGAN

When you walk the floors and hang in the hallways of McCormick Place this week, you won't have to listen closely to hear the Tower of TechnoBabel. It will come at you from every corner of the NCTA convention, sounding like this:

"How much do you charge your subscribers for high-definition?"

"How many services did you say you can push through a $50 set-top?"

"If I offer my subs DVR, will it cannibalize my VOD?"

"Where can I buy a bandwidth shovel to mash a hundred more channels - and HD - through a 750-MHz funnel?"

And the forever question:

"If on-demand isn't truly interactive, what is, and do enough people care?"

Cable's programmers will show up in force, so it's no surprise the CableLabs' HD Pavilion will be in the center of the floor. Operators are engaged in a war with satellite dishes on their video flank and high-speed telephone wires on their data side. With growing legions of digital tiers, new advances in streaming media and the most beautiful TV pictures in history encroaching on American homes, it may seem, during this show, as if content is what it's all about. But that Mother of All Media Battles can't really be waged until more technological ammunition has been issued to the troops.

Operators are being asked when they will take a stand against oppressive network pricing, but I don't expect it to happen this year. A more logical timetable is after Comcast completes its AT&T upgrade, Rupert Murdoch owns DirecTV and all sides have healed the wounds left by the bear market and credit crunch. That brings us back to the more pressing decisions about technologies: which ones to deploy, and how swiftly to roll out.

These weapons of mass construction need to be wheeled into place because of a word you're liable to hear a lot during this convention: loyalty. Like the frequent fliers that airlines are trying to steal from one another, broadband subscribers, long left to their habits, are being gradually lured into a swap meet. So this week at the show, operators are stalking the hardware and software that will keep subs in the fold.

Microsoft, as a result, is unveiling its new TV Foundation Edition, a euphemism for that which it didn't have a couple of years ago: a platform for low-end boxes, as well as the upper crust. It hopes to loosen TV Guide's heretofore iron grip on navigation with a user-friendly interface and something operators haven't seen since the days of the Full Service Network in Orlando in 1995: a virtual storefront for marketing on-demand services.

There's some new intellectual property in this one, but it's built to be practical, with merchandising opportunities brimming from the edges of the underlying guide.

Whether or not TV Foundation is the go-to model operators crave, it's a big story that Microsoft has come down from an earlier vision of what viewers probably wanted, and is now focused on what the MSOs say they need in order to gain and keep customers. Listen close: The guys from Redmond are finally talking ARPUs.

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I'm a big believer in leveraging the base product, and when it comes to stickiness - the end-product of loyalty - cable will eventually turn to interactive TV, that ever-elusive killer app. There are a lot of hard-working people with vision peeling away layers of ITV camouflage, but most of the industry and almost all of the public haven't exactly broken out in a rash of recognition. Still, it's the new medium with many lives that won't go away.

To analyze where ITV is now and where it's heading, I'm moderating an intriguing panel on Tuesday afternoon (June 10) with James Ackerman of OpenTV, Moshe Lichtman of Microsoft, Ryan O'Hara of Gemstar-TV Guide and Matt Miller of ESPN. We'll run the gamut of options from games to ads to polling, betting and t-commerce, and try to gauge what it will take for yet another foundation platform to finally gain MSO acceptance.

Analyst Paul Kagan writes exclusively for Cable World. He is an active investor and money manager and often owns securities mentioned in his columns. He owns shares of Comcast, OpenTV and Gemstar-TV Guide. He may buy or sell before and after the columns are published, and his positions may change at any time. Information in his columns does not represent a recommendation to buy or sell securities, nor is it a solicitation of any securities transaction.