May 27, 1997 7:00 AM PDT
Net TV race still wide-open
TV manufacturers, consumer electronics manufacturers, network broadcasters, TV programmers, and other constituencies were worried. As Monego put it: "We are used to open standards and choice; programmers are used to creative control. We don't like being locked into anybody's idea of TV programming and viewing dictated from Redmond, Washington."
But most analysts say smaller players such as NetChannel don't have to worry, at least for now. The Internet TV market has not yet become a two-horse race in spite of bravado from industry stars such as Oracle (ORCL) chairman Larry Ellison and WebTV Networks chief executive Steve Perlman. Ellison last week forged a deal with Netscape Communications to merge Netscape's Navio division with Oracle's Network Computer Incorporated (NCI).
"Sure there's room for other players," said Greg Blatnik, an analyst at Zona Research. "I don't know that the starting gate is open yet, so it's hard to say we have a race. We do have two large behemoths lining up against one another to battle and see if they can push others out of the ring."
"It's a mistake to discount smaller players that may not have the media-worthy clout that Netscape, Navio, NCI, and Microsoft have," agreed Jae Kim, analyst with Paul Kagan and Associates.
No one questions that Oracle and Microsoft have the resources to get into the game. Nor does anyone question their eagerness to play for keeps in the mass market.
Indeed, their enthusiastic embrace of Internet TV is reminiscent of their avid pursuit in 1994 and 1995 of "interactive TV," where both spent millions on a market that never materialized.
So, analysts are warning not to count out the smaller players, which include NetChannel, which is merging with ViewCall; CatchTV, which provides Web links for TV programs and commercials; Spyglass, which is creating browsers and electronic programming guides for Internet TV manufacturers; and Diba, another designer of Internet appliances.
In fact, the true players, Kim suggests, are consumer electronics firms that already sell TVs and other devices to mainstream consumers.
"In the consumer marketplace, it's a game of volume as to what's going to win," agreed Ken Greer, marketing manager with Thomson Consumer Electronics, which markets TV, audio, and telephone systems under the RCA, GE, and ProScan brands.
"When you have the brand strength that Thomson has, you can drive that volume," Greer added. By early August, Thomson expects to have $299 TV set-top boxes with keyboards in retail stores.
Kim questions whether consumer electronics firms, which have sacrificed fat profits to build their brands with consumers, really want to deal with the software giants.
"Do these consumer electronics firms want to relinquish some of their branding and let Microsoft ride on their coattails into the living room?" he asked rhetorically. The giants of consumer electronics would rather work with smaller companies that are happy just to do deals, not compete for consumer mindshare, he said.
Philip Levinson, vice president for business development of CatchTV, says the notion that Oracle and Microsoft can dominate the Internet TV space underestimates the complexity of the market. It also ignores the different business strategies being pursued by WebTV and Navio-NCI.
NCI designs the set-top boxes, licenses the designs and software needed to operate them, offers a browser, and lets manufacturers and other service companies handle the rest.
WebTV does that but also requires consumers to use WebTV's Web browser and to subscribe to WebTV for Internet access, bundling both the product and service.
"I don't know anybody else who has that proprietary, totally vertically integrated end-to-end solution," said NetChannel's Monego. WebTV's manufacturers get revenue from the hardware boxes themselves, a low-margin business, while WebTV in its current incarnation gets the continuing revenue from the service. NetChannel's deal with Thomson is somewhat similar, but it lets the set-top manufacturer get part of the service and advertising revenue too.
Microsoft's model is complicated by its current drive to become not just a software company but a content company too, particularly in its partnership with NBC, the MSNBC cable channel and Web site.
"MSNBC both helps and hurts Microsoft in this space," said Levinson. "It helps that Microsoft is not just a technology company but is now clearly a media and content company too. They understand some of the forces at work in the TV space. However, Microsoft's ability to partner with other major forces--News Corporation/Fox, Disney/ABC, Westinghouse/CBS--is questionable."
Nor has Oracle or Microsoft yet made inroads with cable set-top box manufacturers, an area where Spyglass has found some success selling its browser components.
Levinson reckons Wink Communications and @Home, the Internet access service from cable giant TCI, will influence how the cable set-top market evolves.
Ross Rubin of Jupiter Communications notes that the consumer television market is vastly different from the PC world where Microsoft has played.
"Microsoft creates pretty much the sole functionality of PCs, but TVs already have functionality," Rubin said. "This is an incremental thing that software companies have to fit into devices with existing functionality."
"WebTV is taking the PC experience and giving it to you on a TV set," Thomson's Greer, a WebTV competitor, said.
Monego, Thomson's content and access partner, thinks computer software companies don't understand enough about consumer psychology and behavior to deliver what the average family expects from a TV experience.
"It's not about the Internet and it's not about surfing and searching," said Monego. "People in front of a TV set expect organized, compelling programming brought to them. We're aimed at the 85 percent of households that don't have an online service today. We're bringing them highly individual programming that looks like TV."
Van Baker, a Dataquest analyst, agrees.
"Oracle and Netscape don't have real strengths in the consumer space, so [their success] will largely be dependent on how effectively they can anticipate and bring something to market that the consumer is really going to appreciate."
But, Baker warns, no one should rule out either Microsoft or Oracle.
"There certainly is the potential for them to be the dominant platform from their dominant span of control because of strength of their hardware, browser, and content platform," he said. "WebTV has the biggest span, and Microsoft has the capability to bring some things to market on that platform."