Interactive TV's unclear picture - the real future of the telecommunications revolution - Cover Story

0 Comments | Insight on the News, Dec 20, 1993 | by Philip Chalk

Summary: Telephone and cable television companies have been forming alliances and taking other steps to ready themselves for the interactive TV market. But the overriding questions are whether consumers really want or need such conveniences as 500 television channels and whether the communications "revolution" is as close at hand as futurists say.

Like giddy prospectors amid rumors of far-off riches, America's entertainment, telecommunications and consumer-electronics gurus are betting billions on a distant gold mine. "Interactive television" has come to mean far more to these multimedia mavens than merely two-way communication through the family-room tube. Having announced the impending marriage of several basic appliances - telephones, televisions, computers, videocassette recorders and compact disc players - corporate strategists are retooling entire industries in anticipation of vast new markets and profits.

But with only cobbled-together or piecemeal versions of interactive TV actually available, neither the loftiest techno-visionary nor the lumpiest couch potato can answer the big question: Will we really want it?

Indeed, the only revolution so far has been in acquisitions and mergers, particularly among the Baby Bell telephone companies and cable television companies. The two industries are both monopolies - one regional and the other local - but both claim the new arrangements will bring competition to the marketplace.

Barred by the Cable Act of 1984 from delivering video programming over their lines, Baby Bells are also prohibited from owning cable systems in the areas they serve - much as media companies can't own a newspaper and a TV station in the same market. But by merging with cable companies, Baby Bells (and other telecommunications businesses) can offer video in areas outside their phone networks.

Or, to look at the deals from the reverse angle, debt-laden cable companies, fearful that dwindling cash flows will restrict their opportunities at a crucial moment, are equally eager to gain access to the Baby Bells' fiber-optic lines, which can carry far greater amounts of digitalized information than coaxial cable can. (Nynex, Atlantic Bell and Pacific Bell have announced plans to lay miles of fiber-optic cable in anticipation of offering video programming.) For once, corporate synergy seemed to make sense: Fiber-optic phone lines would become the much ballyhooed "information highway," and coaxial cable systems would serve as access roads to local neighborhoods and as driveways to homes.

In the past 10 months, alliances and buyouts have occurred faster than a speeding byte:

* U S West acquired 25 percent of Time Warner's entertainment division, which includes the country's second-largest cable company.

* Southwestern Bell purchased two small cable systems near Washington, Bell Atlantic's home turf, and is rumored to have committed $1 billion toward a deal with Cox Enterprises, the sixth largest cable system in the country.

* BellSouth bought a 22.5 percent stake in Prime Management, a Salt Lake City-based cable company.

* Nynex invested $1.2 billion in Viacom Cable, which in turn is trying to merge with Paramount, the movie company.

* Most spectacularly, Bell Atlantic and cable giant Telecommunications Inc., or TCI, announced the biggest media merger in history, a deal involving a reported $33 billion.

But fashioning mammoth corporate empires may be far simpler than shaping basic delivery systems - hence the growing number of small-scale tests to gauge public interest in interactivity. Bell Atlantic, for example, has created Stargazer, a "video-on-demand" service for residents of Alexandria, Va. Chief Executive Officer Ray Smith cites industry research which boasts that despite an average 7.1-mile round-trip to the video store, Americans spend $12 billion renting cassettes for their VCRs. Stargazer allows subscribers to order the same movies over the phone lines and still manipulate them - pause, rewind, fast forward - in conventional ways. New York Telephone, too, is testing a "video dial tone" service to 2,000 apartments in Manhattan, featuring a home shopping channel with interactive links to local stores.

Some tests have backfired. After GTE Chairman James L. Johnston told residents of Cerritos, Calif., that the company's government-approved four-year interactivity project in their suburb would "shape future telecommunications for the whole century," expectations ran high. And the company did fine-tune and commercially release a shopping and information service called Main Street, now in use in cable systems on both coasts. Nevertheless, the test failed to attract a large number of subscribers - something GTE says it never intended it to do - and the critics gave Main Street bad marks.

The fact is, while tests provide basic information about consumer likes and dislikes, interactive prototypes are technologically backward. Almost all provide "near video-on-demand," in which a limited number of movies are shown at staggered times. In one joint enterprise involving U S West, TCI and AT&T, a bell reminded technicians to load tapes within three minutes after an order was received. Suzanne Shao, owner of Cerritos Hills Florist, says she was one of the first merchants to appear on-line with Main Street, but she received "only a handful of orders" each year through the system. When customers placed orders by computer, she said, GTE's service center relayed them to her by fax.