Here come cable-ready DTVs. Operators can either invest in a centralized platform now or miss the boat.

BY WES HOFFMAN The recent NCTA-CEA agreement on cable-ready digital TVs gives cable operators reason to be optimistic about the ability to create a long-overdue retail counter-presence to satellite competitors. But it also creates a fork in the road. One way leads, despite the promise of plug-and-play, to continued spending on expensive, proprietary in-home equipment. This would enable the delivery of the new television services needed for new revenue to only half of digital subscribers. As a result, it probably also leads to continued skepticism from Wall Street and depressed stock prices. The other way leads to the ability to deliver unlimited new services to all digital subscribers while getting out from under the costs and constraints of proprietary set-tops forever. It opens up a huge market opportunity and the kinds of returns Wall Street is looking for. The good news about the agreement is, of course, that consumers who can’t be bothered with set-tops, yet want all the benefits of cable television, will be able to buy cable-ready DTVs. That’s critical since, historically, even when MSOs have given set-tops away, no more than 50% of subscribers have taken them. The bad news is that the DTVs many people will buy at major electronic outlets like Best Buy and Circuit City will allow access to only a limited range of services. As we’ve seen in the personal computer industry, cutthroat price competition in the consumer electronics market means manufacturers will shave every penny they can from costs. Most new TVs will have just enough processing power and memory to run an electronic program guide. Sure, there will be a point-of-deployment interface to allow conditional access to premium programming, but there won’t be any way to order VOD. It’s not just that cable-ready DTVs will initially be unidirectional (a return path will be included in later versions of the specs), but that the average TV may never have the capacity to support local processing of interactive content like self-service ordering, online customer support, games and t-commerce. Souped up DTVs may offer more capacity but will create additional challenges for cable operators accustomed to uniform run-time environments. Additionally, software requirements will change repeatedly during the historic 15-year TV life cycle. Will consumers have to upgrade their TVs every few years? In the end, cable operators may be forced to offer set-tops that enhance cable-ready DTVs — to the 50% or so of subscribers who may be willing to take them. Aren’t we back where we started? Alternatively, MSOs can make a modest investment in a centralized delivery platform that operates on standard PC hardware and software from the head-end. Such a platform will enable them to prepare for the coming of cable-ready DTVs by eliminating reliance on thick set-top processing power. MSOs can use this type of platform right now to deliver full multimedia and two-way, real-time interactivity — including TV-centric online customer support — to currently deployed thin set-tops. When cable-ready DTVs appear in stores, MSOs can deliver the same wealth of services to them, no matter how little memory and processing power they’re equipped with. A device is nearing the market that can transmit clicks from a standard remote control or any other input source using DOCSIS or the existing cable modem return path, enabling true two-way interactivity in the first generation of DTVs. Once cable-ready DTVs come with a built-in return path, MSOs won’t have to spend another dime on consumer premises equipment to deliver interactive multimedia applications. At that point, the cable industry finally moves beyond the stubborn 50% penetration point into a potential 100% market. For the first time, operators will be able to offer unlimited new services, not just to households that will tolerate a set-top box but to all digital subscribers. Clearly MSOs have a huge opportunity in front of them, and a critical choice to make. Down one path — more disappointments with proprietary technology and limited markets. Down the other — a market double in size that can be served with open-standards-based technology, at a fraction of today’s cost. Wes Hoffman is president and CEO of ICTV, which has established strategic relationships with cable operators, programmers and third-party application developers.