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4.5-Billion Deal Will Bring Interactive TV to Millions

The impact of interactive television on DRTV marketing will be gradual during the next five to 10 years as cable and telecom companies upgrade their systems to handle broadband traffic nationwide. But in less than four years, marketers will have sizable opportunities to begin targeting tens of thousands of “interactive households,” where important technical underpinnings, such as the deployment of digital set-top boxes by cable companies, are already moving forward.

In addition, licensing and branding agreements with independent distributors are expected to make the same standardized digital set-tops units available to consumers through electronics retailers in local malls.

General Instrument Corp., a maker of set-top boxes in Horsham, PA, took another step forward as a key player in deployment of interactive technology last month when it signed agreements to manufacture 15 million set-top terminals worth $4.5 billion for major North American cable operators during the next three to five years.

“We are extremely pleased to be the choice of operators as they deliver the next generation of interactive digital cable technology for their customers,” said David Robinson, vice president and general manager for General Instrument’s Digital Network Systems Business Unit.

General Instruments began making interactive digital cable television systems available in 1996. Since that time it has manufactured and shipped more than 700,000 digital set-top terminals to cable operating vendors across the country. But the recent order for 15 million units represents an encouraging push forward for marketers who have been looking for proof that direct response television is coming, and how many actual households they can count on targeting.

“The technology is very exciting. It’s taking direct marketing right were we want it to go,” said Gina Buttafoco, a partner in Direct Advantage, New York, “but how will consumers respond to it?”

Buttafoco cites important questions direct marketers and brand managers will ask as pockets of interactive households around the country become available for statistically relevant testing.

“I think 15 million is significant as a launch,” she said. “It’s certainly [relevant] enough to me as a direct marketer, but we know that when we run a spot on DRTV it produces a ‘burst’ and a ‘tail,’ meaning many people may be intrigued by something, but they might not make the actual purchase right away.”

She also said advertisers are more likely to be concerned about whether or not the interactive technology will do what brand managers and advertisers want rather than how much circuitry is sitting in the consumer’s living room.

Direct marketers who have been following the roll-out of interactive technology note that different cable companies are vying for different areas of focus. Some want simply to provide video-on-demand and only optional Internet access. Others have designs on being full communication providers offering telephony, interactive shopping, Web surfing and video teleconferencing.

Buttafoco said the degree of interactivity and when it is available to various regions will be very important to marketers thinking about how product advertising and marketing within the design boundaries of an interactive model.

One comforting development for DRTV marketers is the probable emergence of common set-top box technology thanks to the OpenCable Group, a working partnership on behalf of 12 cable system operators that helped to formulate standards for sending data through cable television lines and the next generation of set-top terminals.

In addition, CableLabs, a consortium of some of the largest cable operators, has reached an agreement on the digital parameters for how things such as interactive transactions might be handled using the “finalized radio frequency” segment for Data Over Cable Service Interface Specification (DOCSIS).

With agreed upon formats in place, CableLabs said “cable operators are continuing to develop open technical standards that will accelerate cable’s provision of new digital services.”

Denton Knoff, vice president of marketing at General Instruments, said the development of OpenCable was one of the more significant events affecting the growth of interactivity as well as his company’s relationship to it. “The biggest thing is when 12 different operators got together and placed an order with us,” he said.

The DCT-1000 and DCT-2000 represent the company’s current generation of digital interactive set-tops. Each delivers real-time radio frequency interactivity as well as video-on-demand, Internet access, community networking and electronic program guides.

In the third quarter, GI will introduce the DCT-5000, which offers those same features and also includes PC interconnectivity, PC-enhanced memory and graphics capabilities, video conferencing and numerous bandwidth-intensive interactive applications sure to get the attention of many brand advertisers and direct-to-consumer marketers.

Although General Instruments was the first American company to enter the digital television receiver market, it has formidable competitors in digital set-top box technology from Scientific Atlanta Corp. and Pioneer Corp. Both are well positioned to meet the expected consumer demand and required production standards as set by the national’s most influential cable operators.

“Somewhere between seven and 10 cable companies control 70 to 80 percent of the North American marketplace,” said Bob Van Orden, vice president of product marketing at Scientific Atlanta.

He said Scientific Atlanta plans to offer a digital set-top box receiver, the Explorer 2000, which the company is developing in accordance with the Federal Communications Commission. The company hopes to have a retail version available in consumer outlets by July 2000. He said the unit will be able to be used to browse the Web, and will offer digital sound and a better quality picture.

Meanwhile, Pioneer and Phillips will be offering similar models expected to be made available in retail outlets as well.

Like its competitors, Knoff says the GI’s technology will provide “cable operators with the capability to give consumers a lot more channels, better pictures, Dolby digital audio [and] the ability to do a whole host of interactive features including video on demand and more channels to pick from.”

Despite the sopistication of the most recent boxes, one feature lacking from most units is HDTV support. And even though an optional digital interface for compatibility with emerging HDTV sets and other multimedia appliances is available, it is initially expected to cost “a few hundred dollars” for each adapter provided. At that price point, industry watchers and cable operators wonder how they will sell pricey HDTV technology to consumers who may not respond to interactive systems the way marketers expect.

Knoff said that for many manufacturers in the HDTV world, “there is a recognition that the home theater system” is ultimately what people want. And that in a short time HDTV features will eventually become common in most set-top box systems. “Some of these features will be integrated over the next year or two,” Knoff said.

In the meantime, Knoff said GI will continue working with the OpenCable Group as the technology progresses, regardless of what bumps in the technological road are presented by the marketers eager to deployed customized home shopping systems or consumers asking questions about HDTV.

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