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Channel Surfing

When his daughter called from London the other night, Ken Plants hit the "pause" button on the remote. Nothing remarkable there-except that Plants, who lives near Myrtle Beach, S.C., wasn't watching his movie on a VCR, DVD, or even one of those new personal video recorders that advertise they can suspend TV to let life go on. No, Plants paused his television itself. Phone call over, he resumed the movie without missing a flicker. If he had, he could have rewound to catch up.

Who hasn't longed for a little more power over the boob tube? Network execs have controlled what we watch, and when, while we fought back with clumsy VCRs and movies rented from the local store. Soon many of America's living rooms should be able to get what Plants has-interactive television, the long-awaited, two-way systems that can break the tube's tyranny over timing. Initially, systems will offer mostly on-demand movies and cable channels, such as HBO. One day, they could cover all programming, including news, sitcoms, and sports. They might even offer the shopping, game, and chat features we associate with the Internet. Already for Plants, a retired teacher from Michigan, movies on demand mean "getting more of the television that I want, and more importantly, when I want it."

The added control comes via the cable industry, which is "gaga" over video on demand, says Josh Bernoff, who has studied the market for Forrester Research. The companies want some of the $8 billion spent on video rentals last year, and they hope to lure more customers to cable and its premium services. It's a big gamble for the industry, which has spent nearly $60 billion since 1996 to lay the groundwork for advanced services such as on-demand programming. Already it has quietly made on-demand shows available to about 3 million homes nationwide. This fall, serious marketing gets underway, and homes able to customize TV times could number 8 million by year's end and 18 million by 2003.

Two-way turnoffs

To succeed, on-demand cable must retrain consumers who now rent movies, calm advertisers unnerved by its fast-forward button, and overcome privacy fears-two-way systems track viewing habits. Many consumers also won't stomach cable bills of $200 or more, easily rung up with the monthly fees, a few show rentals, a cable modem, and the extras the companies want to offer, including phone service. And interactive TV is dogged by past disappointments. Scheduled pay-per-view movies never caught on, and more ambitious experiments failed, including Time Warner's Full Service Network in Orlando in the mid-1990s and a 1970s system in Columbus, Ohio, called Qube.

At least at first, the cable companies also will soft-pedal the underlying significance of interactive TV. In effect, it sneaks the Internet into your living room, much as other services are doing for the phone (story, Page 56). About 16 million households already subscribe to digital cable, in which new back-office gear and set-top boxes turn old-style, analog cable signals into ones and zeroes, the language of computers and the Internet. The video comes through sharper and can be compressed to make room for hundreds of channels. But digital set-top boxes have processors and memory; in the future, they will even include a hard drive. It's a small step, technologically, from simply receiving programming on a digital box to interactive TV, in which the box uses Web technology to communicate with video-storing computers at the cable company. Some systems already link to the Web itself for information and may soon add other services like interactive games and shopping. Want the shoes worn by your favorite star? Click here to buy them.

Passively interactive

Cable execs tend to resist the Internet analogy, fearing it will scare Americans who want their television to remain a laid-back, some would say vegetative, experience. Most viewers just don't want a keyboard on the couch, says Bernoff at Forrester: "We want to control the TV with only one hand, leaving the other free for a beer." So the cable folks will add only a few buttons to help users navigate the new services. "We've tried to design a product that is as passively interactive as we could," says Michael Willner, CEO of cable provider Insight Communications.

Techno hubris was the undoing of earlier interactive TV efforts, like Qube. Launched in 1977 with gear too expensive to be profitable, Qube's remotes let customers answer multiple-choice questions. "Touch the button now" encouraged viewers to play along with game shows or select the name of a baby girl on the news (Elizabeth easily beat Linda, Bernadette, and Mary). The system died in the mid-1980s.

Cable firms, meanwhile, earned a reputation for old gear and shoddy service. Then, satellite TV operators descended with hundreds of channels, and cable scrambled for its digital answer. "We pulled even, and now for the first time, video on demand is getting us a step ahead of satellite," says Dave Watson, head of marketing at Comcast, soon to be the nation's largest cable operator if it succeeds in buying AT&T's system. So far, the cable industry has launched on-demand services in about three dozen communities, mostly small or suburban; bigger cities, including New York, Los Angeles, and Philadelphia, should get the service this fall.

Insight is going a step further in Columbus by offering local event and restaurant listings on its interactive system. Maneuvering through the on-screen guides can be awkward. But John Dobbie, a salesman who lives in a Columbus suburb, says that when a relative recently asked for the date of an Ohio State game, it was easier to find on Insight's system than by booting up the PC. "Besides," adds his wife, Sheila, "the TV was down here with us, while the computer's upstairs."

Tom Brokaw, anytime

For now, video offerings are limited by the hard-drive space on network computers, usually to 200 to 300 movie titles. Some systems also include shows from premium channels like HBO and Starz. The cost for digital service is about $10 to $15 a month on top of the standard cable fee, plus an additional $5 monthly rental for the digital box. Each movie costs $2 to $5 per rental, which typically lasts 24 or 48 hours. Subscribers to HBO or Starz might have to pay another $5 or so for their on-demand shows. Some operators, notably Comcast, plan to lure subscribers with free programming including some news, meaning viewers get Tom Brokaw anytime they want.

Studios worry that on-demand TV will cannibalize the rich rental market. Those that have signed on-about half the majors, including Fox and Universal-bargained for a bigger cut of the take, and they only release movies to on-demand 45 days after stores get them. "None of the studios were rushing to us, so they could hold out for a better deal," says CEO Steve Brenner of inDemand, a supplier of on-demand programming. Some studios also are studying the possibility of bypassing stores and cable altogether, selling directly to consumers over the Internet.

Advertisers, for their part, worry that the 30-second commercial might get fast-forwarded into oblivion. Glenn Britt, chairman of Time Warner Cable, plays down the fear. "They said the same thing about VCRs and that TV remotes were going to mute all commercials," he says. Still, ads might have to be tailored to household viewing habits in order to draw eyes. And two-way TV's ability to track those habits raises fears that the data could fall into the wrong hands.

Technical, financial, and legal fights may cause interactive TV to stumble, but its arrival is all but certain, says Steve Vonder Haar, a market analyst with Interactive Media Strategies. "Around 2010," he says, "people are going to think that interactive television is the latest overnight success."


David Lagesse, USNews.com. June 10, 2002

Copyright © 2002 U.S. News & World Report. All rights reserved.