Industry group may ‘create the future’ for multimedia services

Despite popular opinion, the First Cities initiative — a multimedia feasibility project sponsored by the MCC research cooperative — is far from being “just another industry consortium.” In fact, First Cities is not really a consortium at all. Now 13 member companies strong with some significant announcements pending (see accompanying story on First Cities members, p. 8), First Cities is a well-organized, serious joint venture into both the near- and long-term markets for multimedia technologies and services into the home.

The media had only a brief feeding frenzy over First Cities when it was announced in October, but they may have overlooked the initiative’s significance. The combined influence of the companies involved has great potential actually to do what many companies dream of — that is, to create the future.

First Cities is operated via a set of organizing principles — most central being its definition of “commitment” — which may actually allow the group to accomplish more than serving as a cross-industry tea party. And unlike most consortia in the world of technology, it’s actually designed to become a profit center.

Beyond Trial Cities. Organized by the Microelectronics and Computer Technology Corp. (MCC), an Austin, TX-based R&D cooperative founded to help the U.S. regain its competitive edge in information technology, First Cities started out as “Trial Cities” in 1988. The name change in 1991 signaled a fundamental shift in the group’s charter from lab experiments to real-world applications — especially noteworthy since the group’s original focus was the potential for interactive high-definition TV services.

As it became clear that HDTV would have no dramatic impact on consumers until at least the turn of the century, First Cities began investigating the market potential of nearer-term services that could be built on top of technologies and infrastructure already in place. It eventually decided to focus on developing a local service architecture for delivering multimedia applications that was independent from the transport mechanism (such as coax cable, copper or fiber phone lines, satellite, cellular, etc.).

The group then decided to focus on providing specific applications, including multimedia teleconferencing, interactive games, entertainment on demand, shopping and transaction services, customized multimedia information, distance learning and health care.

FIRST, LET’S FIND OUT IF THERE’S A MARKET

The project will be deployed in three phases. Phase I, just about to come to a close, was not so much designed to answer the question, “Is there a marketplace for multimedia and interactive entertainment products?” but to answer more specifically, “How can we make a business for multimedia and interactive entertainment products?”

Anyone involved even peripherally in the digital media industry today would answer “yes” to the first question, but would likely stumble over the second. So MCC vice president and First Cities executive director Bruce Sidran says the group decided to base Phase I’s activities around the seven specific application areas mentioned above, building a business plan that included an initial outline of a delivery architecture for home multimedia. It also began the discussion of organization and operation, ownership and participation in the project as it continues.

The results of that research, he says, will be announced at a board meeting in Cupertino, CA, this month. If “all signs point to yes,” as the Magic 8 Ball says, then First Cities is in business. If the results show the time isn’t yet right to build a business on home multimedia, the project will be halted immediately. “By the end of [1992], we’ll make a decision about whether to proceed to Phase II,” says Sidran. “But so far, all signs look good.”

Next, distribute and deploy. Assuming the signs continue to look good, Sidran says Phase II will begin in early 1993 to build the system software, architecture and infrastructure for various transmission media, and will begin testing applications and services in various sites around the country as soon as possible. The idea, Sidran says, is to “allow a free flow of products and services in order to measure market response.” Once the trial sites are up and running, they will become an ongoing, living market test.

“One of our goals is to develop an architecture that accommodates lots of different technology platforms,” says Sidran, who served as the director of advanced television research for Bellcore before joining the First Cities project. “We’re including fiber, cable TV, twisted pair [standard copper phone wire] and ADSL [asymmetrical digital subscriber line, a potential video transmission protocol], terrestrial broadcast, microcellular, satellite broadcast.”

Changing old business models. Sidran is particularly interested in hybrid solutions. “You can do really interesting things from a technology point of view when there’s a lot of infrastructure already in place, if [these industries] can change the ways they do business together,” he says. Part of Phase II’s mission is to blueprint some of these business-to-business connections, such as how to marry a phone network with a cable network when one charges per transaction and the other charges a monthly fee.

After the architecture is designed, Phase III will move the project out of trial sites and into commercial operation by early 1995, with applications and services running over all transmission systems, and integrating various equipment types with the system’s infrastructure.

THE IDEA IS TO OBSOLETE YOUR OWN TECHNOLOGY

Sidran says First Cities is designed to whip together these solutions as quickly as possible; the idea is agility with a technical edge. “Technology gets you into the game,” he says. “Whether you sell hardware or software, you can always come out with it faster and cheaper and better. Reality is, the difference between the best and the worst solutions isn’t much, maybe 10 to 20 percent. But having technology is like having power in the wall. You’ve got to have it to get started.”

In the future that First Cities envisions, market staying power won’t have much to do with the lifespan of products. “If you’ve got a good idea, you’ll have competition. And competition will work to obsolete your best ideas,” says Sidran. “Those companies that will be successful will have the mechanisms in place to obsolete their own technology faster.”

Cash, and commitment. Having a detailed plan of action sets First Cities apart from most other cross-industry groups, but there are other things as well.

For example, companies are expected to contribute more than cash as part of their membership agreements. “Originally, the fee structure was set up to be commensurate with other MCC programs and reasonably priced for medium to large companies,” says Sidran. But this setup changed as the business plan began to take shape to allow smaller companies to participate more comfortably.

Create a business, not a plan. “It was very important to me to structure things in such a way that I was getting a commitment,” Sidran says. “We need some cash, but the major thing is the commitment to carry forth and do something. We’re trying to create a business, not just a plan, for companies that provide goods and services.”

Thus the cash required to join is “relatively small” (though Sidran wouldn’t say how small), more of an administrative fee. In addition, some in-kind contributions of equipment or manpower are expected.

The three most critical. But Sidran says there are three other commitments that are “absolutely most critical”: first, the services of a senior-level executive for the First Cities board of directors, each member can be assured that each company is buying in at the very highest level; second, the services of a mid-level technical manager to sit on the program technical advisory board; and third, each company must commit one employee full time to serve on the group’s various task forces. “The key thing for us is that the work be done by the member companies,” not by outsiders, Sidran says.

Interestingly, some members of First Cities don’t seem to want it known that their membership entails such a commitment. US West, for one, downplayed the significance of its membership. “We get involved in a number of interesting projects like First Cities,” says US West spokesperson Steve Holder. “Our commitment is for the initial planning stages. Depending on how things go, we may or may not continue with it.”

NOT BANKING ON BIG CHANGES IN WASHINGTON

Despite the fact that the new Clinton-Gore administration in Washington is likely to sprinkle fairy dust on high-tech, “return to competitiveness” programs such as First Cities, Corning’s David Charlton, chair of the First Cities regulatory policy task force, says none of the group’s work is predicated on changes in regulatory policy or any influx of government funds.

“There’s been no talk about politics — none at all,” says Charlton. “First Cities’ intent is to not depend on any policy change to operate. We’ll find a way to operate in whatever policies are current.”

“We decided to see if we could build a self-sustaining business plan and get the job done,” Sidran confirms. “Pragmatically, this kind of approach dramatically increases our chances for success.”

Not blind to helping hand. However, do not be lulled into thinking that First Cities is blind to the potential helping hand it could get from the U.S. government. For example, Sidran says the group has taken steps to become more involved in the development process of the National Research and Education Network (NREN) initiative, the $1 billion high-speed fiber-optic network that will link research institutions and universities by 1996 (see Vol. 1, No. 5, p. 8). And he’s already met with Ken Kay, executive director of the Computer Systems Policy Project (of which Apple is a member), an influential lobbying group comprising executives from the top U.S. computer companies.

In addition, Sidran is acquainted with the goals of the Electronic Frontier Foundation, which has proposed that government extend the NREN from these esoteric realms to the public sector. EFF cofounder Mitch Kapor has been a vocal lobbyist for this so-called National Public Network —a network that is not remarkably unlike what First Cities is proposing to create without government intervention or funds (see Vol. 1, No. 5, p. 8).

However, it certainly isn’t beyond the realm of imagination that the Federal Communications Commission (which regulates such networks) might be able to lower a few policy and/or financial barriers. A little governmental nudge could provide First Cities with sufficient impetus to connect its de facto public network with the NREN, thereby accomplishing the EFF’s and First Cities’ goals.

A CROSS-INDUSTRY PROFIT CENTER IS BORN

Probably the most significant difference between First Cities and the array of today’s technology consortia is that it is designed to become a profit center.

“First Cities is definitely a ‘non-traditional’ program within MCC,” says Sidran. “MCC’s charter is [only] to increase the competitiveness of its members. Ultimately, we’re hoping to become a commercial provider of technology.”

A catalyst and facilitator. Sidran says the group hasn’t defined all the terms of the relationships by which members will reap financial rewards from First Cities’ success, if indeed it is successful. He says there will be a variety of ways to generate revenue from the group’s collaborative work —perhaps including preferential treatment in terms of contracts — but believes that member companies didn’t join with the thought of making money off First Cities directly. “The major goal is to expand the market for their own goods and services,” he says.

Sidran says the role of First Cities is primarily as a tool company and “catalyst/facilitator” for companies that own and operate networks. “We won’t own wire or copper or glass,” he says. “Our products are goods and services, and our customers are people who own networks. If our product line is hardware and software to facilitate that, if we develop a gateway and all that goes along with it, then we’ll sell that to whoever comes along as a customer.”

Those “other customers” may end up being competitors to individual First Cities members, or they may actually become members themselves, depending on whether Sidran and/or the First Cities board deems them appropriate. “There may be good reasons to have competitors participating in First Cities,” he says. “This should not be viewed as an impediment to joining.”

It’s super network! It seems First Cities will then operate as vendor for a kind of superset of a network operating system. Its products will be specifications and interface definitions for all of today’s existing networks — fiber, cable TV, the phone system and all its various transmission protocols, terrestrial broadcast, microcellular, satellite broadcast and various combinations — which it will then freely license to anyone who wants to use them.

“Given the set of companies in First Cities, which aren’t relying on the group as a major revenue stream, there’s a good chance this will happen,” says Sidran. One of the best potential benefits of being part of First Cities is that members will get first dibs on the tools. “Time to market is the name of the game,” says Sidran. “A little advantage equals a lot of revenue.”

WHY NO CABLE OR CONTENT COMPANIES?

A glaring omission in the member lineup to date is that there are no large cable operators such as Viacom or TCI, nor are there any actual information providers (i.e., movie studios or publishing houses), video game or multimedia developers. One large cable concern said it hadn’t joined First Cities because “it’s just a phone company thing,” but Sidran says that’s absurd and that significant outreach is under way to make sure such firms are included.

“There’s lots of discussion going on,” he says. “We’ll see some significant announcements soon — it’s a little premature just yet — not just about cable, but about intellectual property companies, too. Without them, we’d only be building an elaborate store with nothing to put on the shelves.”

Protecting intellectual property. One reason for their reticence might be the lack of direct expertise in data protection on the First Cities roster, though Sidran says the group is “well aware” of the importance of that particular issue. “I realize from my days as a broadcaster that this is a sensitive topic, and we have lots of people working on the problem,” he says. “On one hand, engineers have convinced [rights owners] that digital technology allows for unlimited perfect copies. On the other hand, unless this information is cheap, quick and accessible, we won’t see widespread dissemination of this stuff on the networks.”

‘MARQUEE NAMES’ AS PHASE II BEGINS

Sidran says we should expect to see some “marquee names” in cable and content join First Cities, though what they bring to the table may not be what you’d expect.

“A company like Viacom, in particular, is interesting,” says Sidran. “We tend to think of them as a cable company, but they say they’re an intellectual property company.” He says that companies such as Apple Computer will also provide a wealth of connections into the content community, as will North American Philips, via its extensive CD-ROM and CD-I developer connections.

If Phase II gets the green light, First Cities’ new business plan will be made available to potential investors. “We think lots and lots of companies will have a reason to participate in the next phase,” Sidran says, because it will give them a place to test their ideas for goods and services in an actual user environment, something that is difficult to find today.

“As the trial sites provide a free flow of products and services, the market for them will accelerate,” says Sidran. “People will want to use them, for one thing, and a market will develop just by virtue of their participating in the trials.”

Interestingly, Sidran says it’s not yet clear whether companies must actually be First Cities members to put their services on trial networks.

ENORMOUS POTENTIAL, BOTH UPSIDE AND DOWNSIDE

Sidran’s enthusiasm for creating hybrid networks is certainly compelling, and if we can trot out the well-used clichĂŠ, it’s an idea whose time has come. In many ways, what First Cities is trying to accomplish is the ultimate proof of concept of what we’ve been calling the “convergence of industries” since Seybold’s first Digital World conference in 1990.

However, let us not underestimate, first and foremost, the importance of Phase I. How First Cities comes to its conclusions about the viability of a home multimedia market will be of paramount importance as it moves into Phase II. So far, the group hasn’t said much about how it is reaching its conclusions. If it does indeed announce that it is going forward with Phase II, some hard questions should be asked.

Assuming the group does move into Phase II, the real nitty-gritty, as with any kind of collaboration, is the willingness of its members to work together. It will not be easy for First Cities members to pick their way through the regulatory, financial and competitive minefields that govern how large-scale networks, multinational corporations and media conglomerates do business together today.

Even if the members manage to succeed at that particular task, they still face the rather daunting challenge of moving their individual companies out of time-worn ways of doing business and into something completely new and very risky.

Despite the required “buy-in” by high-level executives, only a tiny percentage of each company is actually engaged in First Cities work. By the time they reach Phase III deployment, will they be able to say to their shareholders with certainty that collaboration will actually yield cash in the bank? And what about the biggest unknown: What kind of hay will their competitors be making while their work is under way?

Obviously trial sites like GTE Corp.’s Cerritos project, and alliances such as the one between Pacific Bell, Northern Telecom and IBM (to “explore information age telecommunication technologies and applications”), have already taken aim at First Cities’ territory. Though at the moment they are clearly too weighted toward the telephone network, almost all of them are pursuing partnerships in other areas (IBM with Rogers Cable in Toronto, for example). TCI’s recent announcement regarding digital video (see p. 21) may have a significant impact as well. There could be nothing more devastating to the home market than a continuation of the idiocy we see today in the “CD-ROM format wars.” A great effort must be made to be inclusive if a home market is going to flourish.

Up the variety quotient. In addition, the group absolutely must add variety to its membership outside the rather predictable genres of computers, consumer electronics and telephone companies. The addition of a major movie studio is critical, as is at least one large publishing house (more than one of each would be better) and one of the major online information providers such as America Online, CompuServe or Dow Jones. America Online could be a particularly interesting addition, as it is already addressing local markets with services such as Chicago Online (see related article, p. 24).

First Cities will also be crippled without a significant cable player and the blessing of CableLabs, the industry’s R&D consortium. It could also use a couple of wireless data consortia such as Cellular Digital Packet Data or CDPD (see I/O, p. 2) and WINForum (see Vol. 2, No. 6, p. 17), the personal communications network (PCN) group that just successfully lobbied the FCC for spectrum allocation.

Another new member should be the “winner” of the FCC’s digital HDTV proposal. In addition to encountering serious technical difficulties with signal interference, the HD folks can’t seem to “get” the benefits of cooperating, not fighting, with computers and telecom over synchronization and identification of digital data streams.

Keep an eye on the Constitution. Not to belabor the point, but we also think it would be a very, very good idea for First Cities to give a seat on the board of directors to a group such as the Electronic Frontier Foundation and/or Computer Professionals for Social Responsibility. A heterogeneous network such as the one proposed by First Cities poses enormous challenges to individual privacy, free speech and the protection of intellectual property. As the threads of technology are increasingly woven into the fabric of our daily lives, it is vital that we become even more vigilant about these issues.

If First Cities is indeed successful in getting various big cable companies and content vendors to sign on, and makes the protection of civil liberties an equal priority, not only the group but the changes it brings about may be of historic magnitude. Each member of First Cities brings a world view and perspective with potential to make the whole more significant than its individual parts.

As Apple’s Mike Liebhold says, “The interesting thing about First Cities is that you have such a diverse community, which helps us to develop a much more holographic view. Our problem set is so enormous that we all come to the table with a myopic view. We see things from the computer view, telco sees it from theirs, the information industry from theirs.”

But with time, companies will stop “protecting their own” and begin to realize that there’s a lot more money to be made — and influence to be peddled — by collaborating. “After rounds and rounds of meetings on business cases, we’re trading stories with each other to understand the larger sets of issues,” says Liebhold. “It gives us all an excellent sense of the multi-disciplinary approach and helps us understand the evolving market, even independent of the business proposition being developed.”

Denise Caruso