Technologies: Digital Killed the Web TV Star
Computer retailers only have a year or two to make their money from the masses before the cable and satellite firms pile in, writes Andrew Charlesworth
Back in the early 90s, analysts were predicting that the PC was going to sweep away the domestic TV in a few years. The pundits foresaw a binge of ?convergence?, where TV would go digital quickly and the natural vehicle for digital entertainment was the home PC.
?The PC is converging with the TV like the motorcar converged with the horse-drawn carriage,? said one analyst, who will remain anonymous to spare his blushes.
It hasn?t quite worked out that way: we still watch broadcast TV and analogue video tapes on our TVs and VCRs, but we work, play games and surf the Web on our PCs. The fact is, when it comes to home electronics, discrete devices still have the edge over PCs.
The PC is a bit like a Swiss army knife. Stuck on a mountain side with only a can of survival rations between you and starvation, you?d risk losing the top of your thumb and use the appropriate pull-out tool. But at home in the kitchen you?d use a dedicated tin opener.
Thus, you can watch TV on a PC, but it?s better on a 27in Nicam stereo TV made for the job. And you can play games on a PC, but they?re better on a console (because you don?t have to diddle around with Active X controls and allocating memory to Real Dos mode).
Compaq and ICL believed the 1992 predictions and tried to sell PC TVs for a couple of years. Both machines flopped. Compaq surrendered first, only to return this year accompanied by Gateway 2000 as its competitor. Leftover ICL PC TVs can still be seen lingering sadly in dusty shop corners.
Yet with more powerful processors, more memory and better software, PCs can overcome their limitations. But such a machine would be too expensive for most consumers.
If PCs had been cheaper over the past five years ? say #500 all in for a top-notch multimedia machine ? then the analysts? predictions of 1992 may well have come true. Instead of 10 to 15 per cent of UK households owning one, 80 to 85 per cent would. Then it would be worthwhile for entertainment companies to distribute more digital content because there would be an audience to receive it ? and pay for it.
But computer firms can?t make money selling such machines for #500. In fact, they can?t make money selling top-notch machines for #1,500 once they sell them through 40 per cent margin retailers, which have returns policies that make the Treaty of Versailles seem generous.
Those analysts looked at the 1992 volume of sales of PCs into US homes and assumed the same would happen here. It didn?t. Admittedly the home PC market has enjoyed double-digit growth for the past few years, but it hasn?t mushroomed the way some said it would. Now growth is slowing to one per cent, according to the latest IDC and Dataquest reports, particularly in mainland Europe.
Only 20 per cent of European households can afford a #1,500 PC and of those 20 per cent, many that would want one have bought one already. Cheaper PCs may reboot the cycle, adding maybe another 10 per cent of Europe?s households to the potential market. But cheaper PCs are like a mirage that shimmers on the horizon, always coming but never here. Although there is a fair chance that a well-specified multimedia PC may cost a mere #700 by Christmas, by then the next round of software will be with us and will require a #1,500 machine to run on.
The device which many believe will throw the consumer market headlong into the digital era is Web-enabled TV.
According to market research, average TV viewing hours fell in the US for the first time ever in the back half of 1996, as wired Americans forsook the living room TV for browsing the Web on a PC in their dens. Web TV promises to bring the Web into the living room.
Analysts at Jupiter predict that by 2002, non-PC devices will account for 22 per cent of the consumer online market through the addition of 13 million US households.
So who are all these customers that are going to buy Web TVs? ?Anybody who has a TV and a telephone line and wants to get on the Net,? says Jamie Minotto, business development manager at Netproducts, which sells the Acorn-made Netstation through retail in the UK.
Consumer interest in the Web has been building rapidly. It is now impossible to go into a newsagent and not find a publication running an article about the internet; many ads carry Web site addresses; and Web access is advertised on the side of buses and given away on the front of magazines.
But is the Web ready for consumers? Anyone with experience of the Web as a home user (rather than from the privileged position of a company ISDN line) knows that most of the time online is spent watching Windows? hourglass rotate. When you do get there, the Web?s basic components are a certain amount of academically useful information, an increasing number of corporate sites providing information about specific companies, a few places to buy things, pornography, multiplayer games and some e-zines and miscellaneous ?infotainment? sites, most of which could be just as easily presented ? and often are ? in another medium. But more than all the rest put together there is a limitless supply of boring tripe. Oh, it is also useful for email. Is this really the stuff of consumer entertainment?
?By Christmas your grandma will be surfing the Net looking for her lost knitting patterns and the latest Club Med brochure,? said Herman Hauser at the launch of Netstation. Mind you, Hauser also said Netstation would be out in time for Christmas 1996 and it arrived in July.
The Web of today isn?t ready for consumers, but the content will be there tomorrow. The TV makers believe this ? some of them have signed up ARM to put its chipset in their tubes. Netscape believes it; the company is in negotiation with TV makers to OEM a cut-down version of Navigator 4. Oracle believes it; it has merged its network computer arm with Navio to address the consumer market with what Oracle calls Enhanced TV, which combines broadcast and Web content.
Bill Gates obviously believes it too ? Microsoft?s purchasing and deal-making patterns have all followed this direction recently. The Redmond software giant paid $425 million in May for WebTV, a company that makes set-top boxes to Web-enable TVs. It struck a deal with Progressive Networks, which provides the streaming software that will enable audio and video to move across the Web as easily as Web pages do now. And the content of MSN is becoming increasingly ?channelised? into TV-like programming schedules.
?Content will play an important role in people?s decision to stay online,? says Minotto. ?It won?t stop people having a go, but lack of it will drive people away. Without good content, people will just use the Net for email, but that?s no good to anybody because we need to keep people online looking at those ads and clicking through.?
Net Channel, Net Products? online service, has struck a series of agreements with content providers. Associated Newspapers provides its UK Plus search guide; Burton comes to the party with online shopping from Debenhams, Top Shop, Dorothy Perkins, Principles and Innovations; online versions of Vogue, GQ, Tatler and World of Interiors come courtesy of Conde Naste; likewise, Web editions of Viz, Bizarre and Fortean Times are supplied by John Brown Publishing; Emap provides databases for Bargain Holidays, What?s New and What?s On; and classified ads can be accessed from EPS?s Auto Hunter, Job Hunter and Property Hunter services.
Eventually this will lead to two very different internet communities. One will comprise today?s Netheads; the people Minotto calls ?the Grateful Net?, who remember how the Net used to be ? chaotic and non-commercial. The other will be a pay-per-view audience that consumes commercial content presented like TV channels courtesy of the likes of Rupert Murdoch and Bill Gates.
How will this content reach the consumers? Microsoft has splashed out $1 billion for a 12.5 per cent stake in Comcast, the biggest cable TV company in the world.
Cable is the infrastructure on which the Net will be delivered to the consumer, which has many advantages. Selling Web access on its own to consumers is no easy task in Europe ? ask Compuserve, ask AOL. Cable companies could offer it as part of their entertainment portfolios.
However, cable companies lost a lot of money recently on interactive TV trials and are wary of signing big cheques for anything remotely connected with the interactive world. Warner canned its interactive TV pilot last summer and wrote off $700 million; Deutsche Telekom followed suit in the autumn and flushed away a modest $26.5 million; Videotron went big on interactive TV trials in England in 1995, and now it is merging with Cable & Wireless.
It seems subscribers are all for partaking in free interactive TV trials, but less than enthusiastic when it comes to paying for the service.
Cable could do wonders for consumer Net access. The joke is that WWW stands for World Wide Wait ? not something consumers will be willing to put up with, especially if they are being charged by the unit of online time. Cable modems, running at 10Mbps will help, and bottlenecks can be partly avoided by cable companies caching popular sites at their end, turning the wait to whizz. But have you ever tried getting a cable modem from your cable firm? ?If the cable companies woke up and found out it was the 20th century, that would be something,? says Minotto.
They are stirring. Telewest is conducting cable modem trials connecting Kent and Essex schools; KDD and MCI are plugging cable modem Net access in Japan; France Telecom and Lyonnaise Communications (France?s largest cable company) tested Intel cable modems in Paris late last year; and a consortium of cable firms in Canada is signing speed-hungry Netizens for $55 a month.
This year, according to Ovum, UK cable companies are expected to turn over $90 million from interactive services. So what? But by 2002 that revenue should be a shade under $3 billion. In Europe, only Germany will be a bigger market at $5.5 billion; France will account for $1.1 billion. It looks like when they do wake up, they will find it is the 21st century.
Yet fast delivery speed is only one half of the equation. ?It?s great to have stuff at blistering speed, but it needs a superfast channel in both directions, otherwise how do you answer back?? asks Minotto.
For most countries, the answer is using the PSTN as a back channel, which means reverting to 28.8Kbps ? on a good day.
In terms of Net TV boxes, the one marketed by WebTV (now Microsoft) and made by Sony and Philips went on sale in the US after Comdex Fall at just over $300. About 100,000 have sold so far. WebTV has a manufacturing agreement with Pace Micro, Europe?s largest maker of satellite decoders. Others on the market include Mitsubishi?s Diamond Web and New Com?s Web Pal. But the first to market in this country was Space Station from Northwood Laboratories ? the manufacturing arm of mail-order and retail outfit Software Warehouse.
On a reconnaissance trip to CeBit last March, Software Warehouse staff saw the WebTV box and, in the best entrepreneurial spirit, said ?we could do that?. Three months later the result was Space Station, running Windows 95 on a 586 chip and selling for a #99 deposit, plus #27.95 a month for Soft Net Gold, a Net access and software utilities package from the ISP Soft Net. Sadly it is no more.
?It didn?t take off as well as we thought it would, so we?ve discontinued it,? says Brian Heathcote, marketing director at Software Warehouse. ?It seems the Gold service was not the right approach. It needs to be a #399 box, not a lease.?
But Space Station is likely to reappear in a different guise before Christmas. ?We anticipate set-top devices to be commonplace,? says Heathcote. ?It needs Joe Public to be comfortable with it and for there to be the right kind of content to browse through between TV programmes.?
After a long delay ? first it was Christmas 1996, then it was Easter 1997 ? Netstation launched in July, that peak month for staying indoors and watching TV. Nevertheless, Minotto predicts he?ll sell 15,000 this year, 75,000 next year and 150,000 in 1998.
Netstation costs #299.99 including VAT (#100 less than its target price when it was first announced), plus #14.95 a month for Net Channel, which provides access and content services. Tempo, Hamleys, Harrods and Toys R Us have stocked it, and it has found its way into catalogues such as Innovations.
The pieces of the Web TV jigsaw are out of the box, but no one is making a picture of them yet. Indeed, there are a lot of bits to be added in that vast expanse of blue that every puzzler leaves to last ? the sky.
In addition to the cable networks, there are no less than 15 satellite communication schemes in the offing. These include: Hughes? Spaceway, AT&T?s Voice Span, GE?s Star, Loral?s Cyber Star, Motorola?s Millennium, Lockheed Martin?s Astrolink, Cellular?s Vision, Echo Star, Morning Star, Netsat 28, Orion, Pan Am Sat, Societe Europeenne des Satellites (SES) and Eutelsat. If all these get off the ground (pun intended) there will be another 70 satellites by 1999, all offering multi-megabit bandwidth.
the final frontier
Last but not least, Bill Gates? Teledisc project plans a further 840 low-orbit sputniks offering gigabit bandwidth. As long as all these pieces of multimillion-dollar space hardware don?t collide, there will be bandwidth a-plenty for hooking consumers into the Net.
But that doesn?t necessarily mean lots of boxes for computer and consumer electronics retailers to sell. There may be a year, at best two, in which to sell set-top boxes to Web-enable TVs. But in the long term, all the money will go to the cable and satellite operators offering monthly hassle-free packages of hardware and services ? of which Net access will be just one. So perhaps it would be best to diversify into space hardware.