PC-TV's Evolutionary Wars

The nation's 100 million household televisions are fast becoming the direct link between consumers' wallets and the infotech industry.

These PC-TVs could also become the central control system for the burgeoning home-automation market, a source of massive revenues for television manufacturers or computer makers, and the front door to the nation's cybermalls.

In short, the much-ballyhooed convergence of the infotech industry will likely take place in the Jones' living room -- giving PC-TV manufacturers a tollbooth at the consumer's entrance into cyberspace.

The market for PC-TVs will reach $26 billion by 2001, up from $1.2 billion in 1994, according to "U.S. Interactive Television Markets," a recent report from Frost &amp Sullivan Inc., a market analysis company. PC-TV advertising and services, such as on-line charges, will be worth an additional $12.9 billion by 2002, according to a second Frost &amp Sullivan report, "U.S. Market for Interactive Television Consumer Services and Advertising."

The expectation of such massive revenues explains why the various industry players are racing to develop their PC-TV products, compete for allies and deploy legions of lobbyists in Washington to disable their opponents' business strategies.

The Battle for Standards

In Washington, the central battle is over the design standard for digital TV broadcasts. In this fight, which is expected to be settled next April by the Federal Communications Commission, the computer companies are arrayed against the television manufacturers in search of any technical or legal advantage they can gain.

The television makers have banded together as the Grand Alliance in support of a technical standard that combines roughly 18 different technology approaches. This new high-definition TV standard, developed by the TV-dominated Advisory Committee on Advanced Television Services, has won initial approval from the FCC despite opposition from the computer industry, which has formed the rival Computer Industry Coalition on Advanced Television Service.

Each side flings its arguments back and forth. The television makers say the new HDTV standard must build upon existing non-digital TV technology, ease transition costs for consumers and companies, and must be nationwide so digital TVs can receive digital TV signals whether they are located in Deadhorse, Alaska, or Key West, Fla. The HDTV standard "will make life simple for everyone," said Ed Korenman, an executive at the Arlington-based Consumer Electronics Manufacturers Association, whose members include TV makers such as Thomson Consumer Electronics Inc., Indianapolis, Zenith Electronics Corp., Glenview, Ill., and Sony Electronics Inc., Park Ridge, N.J., which has announced plans to start production of desktop computers equipped with television capabilities.

In response, the computer industry says the standard supported by the TV industry would lock in place 1940s technology and freeze innovation because it relies on outmoded Japanese technology and limits the quality of TV images. It would also raise the cost of digital TVs, delay their widespread use and benefit foreign television makers while hurting U.S. computer companies. "It is a grab bag of 18 different mandated formulas... [and] prohibitively high production costs may keep digital TV receivers out of reach for average consumers and slow the rate at which digital broadcasting becomes viable," said Robert Stearns, technology chief for Compaq Computer Corp., Houston. For example, the standard requires TV programs to fit a screen with a width-to-height ratio of 4:3 or 16:9 and include either 480, 720 or 1,020 lines of pixels. The screen ratio governs the shape of images, and the number of lines limits the quality of the image. Computer companies say they want the freedom to vary the screen as they wish and include as many or as few lines as they wish.

Use of the HDTV standard will cost consumers $91 billion in seven years, according to a paper sent to the FCC by the Computer Industry Coalition on Advanced Television Service, operated from the Washington law offices of Levine, Blaszak, Block &amp Boothby. But consumers would save $47 billion if the FCC supports the computer industry's rival approach -- a stripped-down HDTV standard that would cost consumers only $44 billion to adopt, said the computer coalition.

The stripped-down HDTV standard, called the base-line format, would allow all digital TVs to receive a basic signal -- just as all phones have a standard dial tone -- while enabling manufacturers to develop competing PC-TVs with extra bells and whistles.

This high-stakes fight is drawing additional players, including software and on-line companies such as Redmond, Wash.-based Microsoft Corp., communications companies such as AT&ampT, Basking Ridge, N.J., and also the Hollywood companies that make movies and TV programs for PC-TVs. These players are also making their case outside the FCC in the media, the White House and Congress. Jack Krumholz, Microsoft's representative in Washington, said the company has "serious concerns" that the HDTV standard would hinder the convergence of computers and televisions.

Larry Chernikoff, the Washington representative for the Los Angeles-based Directors Guild, said Hollywood directors want the standard modified to allow wider pictures than the 4:3 or 16:9 pictures required by the HDTV standard. "We think the standard has some problems," he said.

To win their case, computer industry executives hope to win over Rachelle Chong, one of the four FCC commissioners. The executives said they may sway her opinion, partly because she is from Northern California, home of the Silicon Valley infotech industry and neighbor to Hollywood's movie manufacturers.

FCC Chairman Reed Hundt has publicly backed the HDTV stand, while also criticizing reliance on a single standard. One possible compromise, said Hundt, could be the temporary imposition of the HDTV standard, allowing the TV industry to incorporate digital technology in its products. The standard would later be lifted, allowing freer competition, he said. "Government-mandated television standards... may reduce consumer choice and prevent the timely introduction of new technology," Hundt said in May.

Even if the FCC decides to back the HDTV standard, the computer industry may have alternative solutions. For example, it could ally with the cable industry to create a rival dissemination standard based on coaxial or fiber optic cables, which already transmit TV programs to the majority of the nation's households. Also, FCC regulators don't control signals from direct broadcast satellite systems, which can transmit hundreds of TV channels to consumers' homes.

Understanding the Technology

The rush to market PC-TVs has yielded a wide variety of devices, appliqu?s and complete PC-TV systems.

First, computer companies are upgrading PCs to mimic TVs by installing better sound and video systems. For example, Compaq's new Presario PC uses video technology developed for video-arcade games and sound technology developed by home-stereo manufacturers.

A variety of manufacturers are offering low-cost devices that use TVs to help consumers get cheap access to the Internet. For example, the Webster device being developed by Viewcall American, Atlanta, and the NC device being developed by Oracle, Redwood Shores, Calif., both use the consumer's TV to keep their purchase price under $300.

Game makers such as Bandai Digital Entertainment and Sega of America are also developing devices to work alongside TVs and the Internet, partly because there is a growing demand for multiplayer video games. The Internet offers an obvious meeting ground for game players located in California, Montana or Maine. To meet this demand, Apple Computer Inc., Cupertino, Calif., is working with Bandai to sell the $600 Pippin TV appliqu?.

WebTV, Palo Alto, Calif., has allied with TV makers Sony and Phillips Consumer Electronics Co. to market a set-top box that allows easy access to the Web via the company's WebTV Network, a subscription-funded on-line service. The first WebTV set-top boxes will be available this fall.

If consumers want more, they can pay $3,500 for the Zenith/Diba Inteq Netvision PC-TV, which also includes a 28,800 bits-per-second modem, a high-capacity Ethernet port for use with the cable modems now being bought by the cable TV companies. NetTV Inc., San Rafael, Calif., has sold almost 1,000 PC-TVs, which cost between $3,000 and $4,500, said spokesman Kevin Long. NetTV's Worldvision devices include a Pentium computer chip, Microsoft software and a custom-built, large-screen TV.

Similar high-end products are also being marketed by Gateway 2000, Sony and Thomson.

Additional, better and more expensive combinations of the TV and the PC are on the way. In May, Compaq and Thomson announced a partnership to jointly develop new products that "combine the ease of use of consumer electronics with the interactivity of personal computers," according to a company statement.

Compaq is the world's largest seller of personal PCs, taking in $14.8 billion in 1995 revenues. Thomson sells TVs, video recorders and video cameras under the RCA, ProScan and GE brands. It also sells terminals for the 200-channel RCA digital satellite system.

Thomson is also the prime contractor in the development of a digital TV system intended to deliver 100 channels of programming to consumers in the areas of Bell Atlantic, Nynex and Pacific Telesis.

One common problem is that the first generation of PC-TVs can't show Web pages with the same clarity as computers, partly because TV screens have fewer lines and fewer pixels. That is one of the technical problems that will slow the advance of the low-cost machines, according to a study released by Forrester Research Inc., Cambridge, Mass.

However, the higher quality PC-TVs -- and steady price reductions -- may overcome these consumer-acceptance problems.

Even if the problems are overcome, hardware makers fighting for shares of the PC-TV business must look over their shoulder at rivals such as Microsoft Corp. and entertainment companies such as Time Warner Inc.

Time Warner recently bought Turner Broadcasting System Inc. for $6.7 billion, making it the world's largest entertainment company. Time Warner owns many magazines and newspapers, the nation's largest cable company, Tele-Communications Inc., as well as the Home Box Office cable channel and the New Line movie studio.

Similarly, Microsoft's operating systems are included in PC-TVs, giving CEO Bill Gates instant access to the Jones' living room. Company officials are also trying to dominate the Web. They have rapidly branched out by creating MSNBC television network and funding digital-movie studios, electronic shopping malls and digital newspapers.

Microsoft and entertainment companies such as Time Warner won't want to cede access to customers to PC-TV makers such as Compaq or Sony, and will use their control over software and programming to elbow their way into the Jones' living room.

PC-TV makers also must watch for flat-panel TV technology being developed by companies such as Pixelvision, Acton, Mass.

The television makers could be pushed out of the PC-TV business by inexpensive, flat-panel displays whose designers promise inch-thick, window-sized video screens. To avoid this, television makers and computer companies are also developing flat-panel displays.

Alliances

Soap operas, video games and Web data can all be viewed through PC-TVs. But PC-TVs can also provide a front door to cybermalls, such as the electronic shopping page created by Washington-based MCI Communications Corp.

Industry analysts say consumers are buying little through on-line shopping services, but they also predict a rapid increase as new security features and customer acceptance rise. Any increase in cybershopping could only benefit PC-TV makers, which would then be in a position to guide shoppers toward particular cybermalls if the cybermall is willing to pay an up-front fee.

Similarly, PC-TVs could win a central role in the emerging market for home-automation kits. These kits allow homeowners to control the electronic devices in their house. Thus a consumer could program his coffee maker to start at 7:30 a.m., redirect his home phone calls to his office between 8:30 a.m. and 5:30 p.m. or command the pool heater to begin working when the price of electricity fluctuates 10 percent below average.

Tricia Parks, president of Parks Associates, a Dallas-based consulting company, predicts this home-automation market could grow to $2.6 billion in 2000, up from $1.2 billion in 1996.

The prospect of such growth has lured computer companies such as Armonk, N.Y.-based IBM Corp. and Compaq into the market, which is already occupied by home-automation companies such as Novell Inc., Provo, Utah; Echelon Corp., Palo Alto, Calif.; X-10 USA Inc., Coster, N.J.; and Intellon Corp., Ocala, Fla.

To ease their entry, computer companies have adopted home-automation standards controlled by these companies. For example, X-10 is also developing products for IBM, Packard Bell Inc., Chatsworth, Calif., and Hewlett-Packard Co., Palo Alto, Calif., that would allow their computers to act as a central control station within a house.

For example, IBM has developed its Home Director software, which will soon be bundled within its Aptiva consumer PCs. The Home Director uses low-cost plugs made by X-10 to transmit signals via electrical wiring to various devices, such as light, heaters and alarms. Microsoft and Compaq are developing similar home-automation products.

The home-automation market has also attracted alarm companies and the recently deregulated utility companies, neither of whom want to be dependent on a rival company to build a home-automation control station. Public Service Electric &amp Gas Co., Newark, N.J., is working with AT&ampT and other companies to equip 500,000 homes with free electronic billing and power-management systems built on Intellon's technology.

With all the industry technologists and lobbyists converging on the Jones' living room, expect a tight squeeze and expect that some companies won't get through the front door.