Time-Warner, the second-largest cable TV company in the US, is about to spend $5bn (3.3bn) on completely rebuilding its cable networks, including the massive 1 million-home system that serves New York City.
Time-Warner has just placed an order for 1 million digital set-top boxes, at a cost of about $400 (264) each, to replace its existing hardware in 12 million customers’ homes. And it is talking boldly about a revolution in television and telecommunications.
All this on the strength of a two-year experiment in Orlando, Florida, in which 4,000 households have been connected to Time-Warner’s Full Service Network. Besides conventional TV, they can use their sets (which are equipped with a special remote control) to shop, bank, play games, find out what’s on in town and order take-away pizzas and postage stamps. They can also call up news and other programmes to watch whenever they like. And, for $2.95 or so a time, they can watch some of the latest films whenever they want – stopping and starting them, fast forwarding and rewinding them, just as if they were watching them on video.
This last facility – known as video-on-demand – has proved the “killer application” for the new technology. US cable companies already offer “pay-per-view” films, but these start when the cable company chooses. Video-on-demand enjoys “buy rates” that are four or five times higher than conventional pay-per-view. Potentially, it is a hugely profitable business.
It is also hugely expensive. To provide these services for its 4,000 customers, Time-Warner has had to install nine super-computers and a great deal of other very expensive hardware and software at its local cable distribution centres.
Four years ago, these computers cost $500,000 each. And, although the prices are coming down rapidly, Time-Warner says it will be another two years before it becomes economical to offer video-on-demand to subscribers in other parts of the country.
For now, the best it can do is “near video-on-demand”, which is similar to the services proposed by BSkyB in Britain. With such a system, 100 or so channels are given over to the top ten movies, each title showing on several channels, but with staggered start times so that the viewer is never more than ten or 15 minutes away from the start of a film.
Other major US cable companies are thinking of following Time-Warner’s lead, though they are also trying to find ways of doing it with less expensive technology. But while it is video-on-demand that is expected to drive take-up of the new digital services, the “revolution” is coming by way of the other functions the system is capable of performing.
Scientific-Atlanta, which has designed Time-Warner’s new digital set-top boxes, prefers to call them Home Communications Terminals. That’s because they are, in effect, computers – manipulating digitally encoded TV signals just as a computer manipulates data. Given the enormous data-carrying capacity of the cable system, these terminals can offer super-fast access to the Internet and truly “interactive” services.
In any case, in Orlando, Time-Warner has found that subscribers are not that interested in home shopping for luxury goods (and the margins on postage stamps and take-away pizzas will never be high enough to justify the necessary investment in technology).
But it’s early days yet. Who knows what new ways people will find to use the technology? And who knows what new kinds of services – such as instant access to Internet Websites with background material on news items – will be devised by a new generation of technologically literate whizzkids?
In the future, we may do things on our TV sets that we used to do on computers, and vice versa. The teenagers of Orlando have already discovered the delights of playing video games from the sofa, rather than hunched over a screen two or three feet away.
And, of course, all the time we spend doing other things with our screens will be time not spent watching conventional television – including the new digital satellite and digital terrestrial channels I wrote about two weeks ago.
Britain’s cable companies are also gearing up to invest in interactive technology. The sums required are less daunting than for US cable operators because UK networks are newer. Nonetheless, such outfits will have to invest heavily in “head-end” technology, digital set-top boxes, the programmes themselves and – not least – marketing.
They are not exactly over the moon about this because they are already spending billions of pounds on wiring up Britain (they are past the halfway mark, but only just) and none of them are anywhere near the point of making a profit. What’s more, their existing marketing and customer service is notoriously bad. Fewer than a quarter of the homes passed by cable actually subscribe and one-third or more of those that do drop out each year.
The cable companies’ priority should be to improve on that, rather than embarking on another huge investment – an investment which is, necessarily, speculative.
Nonetheless, they believe interactive services probably represent their last and best hope of turning cable television into a real business. The ability to send data rapidly and robustly in both directions is, they believe, their USP. It is something that BSkyB’s digital satellite service, which is having to rely on BT’s phone lines for a “return path” for its interactive services, cannot match.
Whether customers will want these services is, of course, another question entirely.