• TELEPHONE COMPANIES TAKE THE LEAD

A year-end surge in phone company commitments to installing broadband networks has radically altered the “digital superhighway” landscape. It now looks as if the high-speed digital communications infrastructure will be rolled out much faster than almost anyone thought. And — big surprise — it looks as if it may be the phone companies rather than the cable companies that set the pace.

While all the attention has been focused on the upcoming cable company trials and on mega-deals between telcos and out-of-territory cable companies, the telephone companies are upgrading their existing plant to support video dial tone and other interactive services. These telco plans for implementing full-service networks dwarf what has been announced by Tele-Communications, Time Warner and all other cable operators combined.

All told, the total regional Bell operating company commitments call for high-speed connections to be available to 800,000 households by the end of this year, 4 million by the end of 1995 and 9 million by the end of 1996.

• GORE OUTLINES TECHNOLOGY POLICY

The Clinton Administration plans to submit legislation to Congress in February that will establish new ground rules for telecommunications policy and regulation in the United States.

The plan, outlined by Vice President Al Gore in a speech to the National Academy of Television Arts and Sciences on January 11 in Los Angeles, closely parallels the specific changes to existing rules that are already on the table in the House and Senate. However, it departs from existing legislative proposals in terms of its all-encompassing approach to establishing a new broadband regulatory category.

Most significantly, the Administration’s plan would permit the telephone and cable companies to enter each other’s businesses, lift long-distance service and manufacturing restrictions on the Bell operating companies and establish rules for defining and covering the costs of universal service. Also, telephone and cable companies would have the choice of remaining regulated under the existing Title II (telephone) or Title VI (cable) regulations, or electing to become Title VII companies and be governed by a new, common set of regulations that appear to remove the distinctions between them.

• I/O
Brian Hammerstein proposes model for future online services.

• CHANNELS
Thoughtful distribution planning is critical to success.

• APPLE DEBUTS ONLINE SERVICE
EWorld to deliver interactive services, shopping, software.

• BELL ATLANTIC VIDEO SERVICES
Partnerships, subsidiary likely future models for RBOCs.

• ZIFF-DAVIS’S NEW NETWORK
Online service aimed at computer professionals and publishers.

• MNI ROLLS OUT MUSICNET
Company develops navigation systems for new media services.

• BRIEFS
Viacom merges with Blockbuster, ups Paramount bid; Compton’s patent reviewed; Spry & O’Reilly’s Internet-in-a-Box; Surveys review interactive media growth; Digital Ocean’s wireless nets; Electronic white boards; Audio CD mastery on the Mac.

• EVENT
The fourth conference on Computers, Freedom & Privacy in Chicago.

>FOCUS
TELCOS TAKE THE LEAD
Technology, investments fuel network deployment

A year-end surge in phone company commitments to installing broadband networks has radically altered the “digital superhighway” landscape. It now looks as if the high-speed digital communications infrastructure will be rolled out much faster than almost anyone thought. And — big surprise — it looks as if it may be the phone companies rather than the cable companies that set the pace.

Pacific Bell opened the floodgates in October when it announced that it will replace its entire existing copper wiring with a new hybrid fiber/coax network (see Vol. 3, No. 7, p. 3). In early December, Bell Atlantic announced an even more aggressive network development schedule. Officials at Nynex and Ameritech tell us that they are on the verge of naming vendors for major deployment schedules as well.

Together with the full-service network schedule announced by US West early last year, these commitments represent the lion’s share of the telephone industry. The only major carriers still to be heard from are BellSouth, Southwestern Bell and GTE.

Thus, while all the attention has been focused on the upcoming cable company trials and on mega-deals between telcos and out-of-territory cable companies, the telephone companies are upgrading their existing plant to support video dial tone and other interactive services. These telco plans for implementing full-service networks dwarf what has been announced by TCI, Time Warner and all the other cable operators combined.

All told, the total regional Bell operating company commitments call for high-speed connections to be available to 800,000 households by the end of this year, 4 million by the end of 1995 and 9 million by the end of 1996. Given the cost and revenue considerations that underlie this explosion in telco activity, it’s reasonable to assume the as-yet-uncommitted local exchange carriers will soon adopt similar rollout schedules. Allowing for a year’s lag time for the late bloomers, this would make high-bandwidth service available to as many as 4.7 million households by the end of 1995 and 11.2 million by the end of 1996.

This does not mean, of course, that all of these households will be using high-bandwidth services — or that all of the servers and services will be in place — merely that the wiring is available to this many homes. However, no matter how you look at it, this would be a staggering achievement.

SOUND ECONOMICS FOR TELCO NETWORKS

It was not that long ago that the phone companies were telling us that it would take decades for this to happen. And it was less than a year ago that the phone companies were touting the benefits of ADSL (asymmetrical digital subscriber line) video services over existing copper wires. What happened?

Incremental deployment costs. One answer is that the telcos are finding that the new hybrid fiber/coax systems will be so much cheaper to install, maintain and operate than the existing copper-wired system that they can just about justify replacing their existing plant — even for existing telephone and data services.

PacBell, for instance, says that if its fiber/coax system were to be used only for narrowband communication services, it would be 36 percent less expensive than the traditional copper plant to install and 20 percent less expensive to operate. Of course, most of the areas targeted for deployment of this broadband network are already served by copper plant with plenty of life left in it. But even here, the cost of the existing wiring is depreciated over the expected life of the wiring. A percentage of the cost of the new wiring can be charged against the fact that the existing wiring would have to be replaced at some point anyway.

On the operations side, PacBell says its cost of adding new services or connecting new customers will be 76 percent lower with the new automated network, and that it will realize an annual savings of 78 percent in maintenance and repair, representing close to $10 per customer per year. In all, the company says the annualized value of these cost savings comes to $50 per customer.

These new economics suddenly make replacing the existing phone system an enticing proposition. It will not take a lot of revenue from new services to make the new system hugely profitable. For example, for the 360,000 households to be served by the new PacBell network in Los Angeles, the capital cost allocated to establishing the ability to deliver video dial tone services comes to slightly more than $46 million, or $128 per household. It is not clear yet that the Federal Communications Commission will sign off on the cost allocation between “old” and “new” services that yields this figure, but this is a tiny fraction of any previous estimate of the incremental cost of providing interactive broadband services to the home.

ADSL in the interim. The result is that the telcos now regard ADSL transmission of video over existing copper wiring as a short-term, stop-gap measure that will allow them to get some test-market experience in the coming year before the fiber/coax systems are deployed.

REGULATORY CLIMATE FAVORS TELCO MODEL

The phone company projections are, of course, just that — projections. No one knows what the demand will be, how fast it will develop, or what the legal/regulatory environment will be. However, in the wake of Vice President Al Gore’s January 11 policy statement (see p. 8), it looks as if the climate can only get more favorable, rather than less favorable. Any loosening of the regulatory environment should help to accelerate the time schedule.

But even if the systems are rolled out at half the pace projected, they are going to create a huge potential market in just the next three years.

JUST HOW OPEN IS ‘OPEN ACCESS’?

Equally important, this market starts from a very different place than does the cable market. The telco market is — and is certain to remain — a “common carrier” market, with “open” access to all comers. Given these new telco plans and the Administration’s commitment to open access, it is a pretty safe bet that telco common carrier rules rather than the old cable company “gatekeeper” rules will be the model for the future. However, there are likely to be some real, practical restrictions on just how “open” the systems really are.

Gateways. Video dial tone and other services for telco systems are to be provided via what the FCC calls “gateways” established and run by service providers. The phone company itself operates the first-level gateway that opens up access to any number of unregulated “level 2″ gateways through which both traditional and interactive services can be accessed.

The phone company may also (and probably will) operate its own level 2 gateway. Other companies may also operate level 2 gateways — as long as these conform to the interconnect standards established by the phone company (which could turn out to be different for different phone companies). Someone who wants to offer services over the network can set up his own gateway or sign up with the phone company or a third-party gateway provider.

The phone companies are setting up their gateway companies as separate entities that (supposedly) deal with the phone company on the same basis as any other gateway operator. In reality, because the phone company and the phone company’s gateway subsidiary will set the standards, it is likely to be some time before there is real, serious competition in the gateway business.

The PacBell filing makes this abundantly clear: In order to achieve compatibility among services and thereby to make all services readily available to customers, PacBell will require that “all technology and selection processes that are used by service providers will be compatible with Pacific Bell’s video dial tone network to facilitate and simplify users’ interactions with the gateways.”

In other words, all services must flow through the compatible hardware and software systems. The household network interfaces and user terminal operating systems, APIs (application program interfaces) and other protocols will be set by the telco. The market will be “open,” but anyone who wants to play must duplicate what PacBell has chosen as its standards.

Channels. You may note that different telco systems claim different numbers of “channels.” As we will discuss below, this has more to do with system architecture (how many homes are serviced by a common fiber-optic feed) than with the service provided. All of the systems will provide a large number of analog cable channels plus a dedicated “channel” for each live interactive user. The interactive content will move over this dedicated channel.

Settop boxes. Phone companies will have to allow for open competition in the user terminal or settop box market. However, as with the gateway servers, the phone company will establish the network conventions and protocols along with program interface and operating system standards for programs that run in the user terminal boxes. Anything attached to the network must be compatible with these specifications. There is, at present, no mechanism to ensure common standards between systems.

Additional advantages. The FCC rules offer the telcos another major advantage in setting market conditions by providing it unregulated freedom to offer a variety of support functions in the video dial tone arena. These include marketing activities, order taking, billing and collection, home wiring installation and maintenance, and the provision of video conversion equipment, such as settop boxes and remote controllers.

In the case of Pacific Bell, the company says it plans to establish a non-regulated affiliate as the service bureau that will handle these functions. While anyone who wants to can set up competing service support systems, the telco is clearly positioned to have a tremendous advantage, which is likely to translate into setting the tone for all aspects of the business related to these functions.

The carrier will also have the ability to include non-regulated, non-video services that it owns and provides as part of the package accessible through its gateway and to retain those services exclusively for its gateway. These might include audio services as well as enhanced information services.

BROADBAND COMMUNICATIONS AT BARGAIN BASEMENT PRICES?

All of this adds up to further inducement, beyond direct transport revenues, for moving forward with deployment of broadband networks. But there’s an even greater incentive that’s built into the way the telcos are regulated, which relates to the vital issue of cost allocation and pricing.

As noted earlier, PacBell figures that most of the cost of building the new system can be allocated to existing phone services without increasing the rates for standard service. If it convinces the California Public Utility Commission and the FCC to go along with this reasoning, it will be in a position to allocate very little of the overall cost of its new networks to video dial tone. This would mean the lion’s share of construction costs would be covered by the regulated revenue base of telephony operations, lowering the financial risk of broadband deployment and leaving the telco room to price video dial tone services aggressively against cable and other competitors.

Pending state, federal OK. It remains to be seen whether such cost allocations will fly at the FCC or at the California PUC. But chances are they will, and, if they do, the telephone industry will be well on its way to winning government approval for getting into broadband communications at bargain basement rates. As a result, transport costs to providers of advanced digital services could prove to be far lower than anyone dreamed they would be, making it much easier for digital media to penetrate the mass marketplace than once seemed possible.

WHO IS DOING WHAT TO WHOM — AND WHERE?

Telephone companies have been applying to the FCC for permits for video dial tone tests for the past year. Now, even before most of the tests are under way, they are applying for approval for commercial operations. At press time, phone companies had applied for authorization to begin construction of video dial tone facilities for service areas that encompass 2.4 million households. A brief rundown on who is doing what follows.

PacBell. Pacific Bell laid out its initial deployment plans in a year-end filing for video dial tone approval involving 1.3 million households in four operating territories, including southern parts of the San Francisco Bay area (490,000 homes), parts of Los Angeles (360,000), several Orange County, CA, communities (210,000) and San Diego (250,000). The plan calls for construction to begin in the second quarter of this year, with all communities to be online by the end of 1996.

As we reported earlier, the new system will use fiber-optic lines running to each neighborhood with a coaxial cable “bus” carrying service to (and into) the homes in the neighborhood. In the PacBell system, each fiber “node” will service 480 homes. Each of these areas is further broken into quadrants, so that only 120 customers are on any given coaxial “bus.” Each quadrant has access to the full range of bandwidth available on the coaxial cable, which includes all the analog channels (70) as well as the bandwidth allocated to digital services. (See Vol. 3, No. 7, p. 3, for a discussion of the PacBell network design.)

Within the digital bandwidth an individual user “channel” is established when the customer tunes the settop terminal to the digital services. This sets up a dedicated link between the central office “miniheadend” and the customer. The actual data bandwidth allocated to this “channel” will vary to accommodate the content being transported. A movie, which can be compressed in advance, might require half the data rate as a live sports event that requires on-the-fly compression and lots of camera movement.

On January 24, PacBell announced that it would deploy video-on-demand services to 100,000 homes by the end of 1994. Hewlett-Packard will supply video servers for the system. No other hardware or content providers were named.

Bell Atlantic. In December, Bell Atlantic filed an application with the FCC for rollout of a video dial tone network across a 250,000-household territory in northern Virginia and Maryland outside Washington, DC. The move, which envisions use of existing copper loop as opposed to installing fiber and coaxial links, comes on top of previous filings calling for fiber star networks in northern New Jersey extending to 50,000 households.

All told, Bell Atlantic chairman and CEO Ray Smith says the company would have 250,000 connections in place by the end of this year, with a million more to follow in 1995 and 1.5 million per year thereafter through the end of the decade. While some of the market base will be served by existing copper in the short run, officials say the company will move to higher-capacity networks like those slated for New Jersey very quickly in the years ahead.

US West. The latest filing came in early January as US West earmarked Denver, Portland, Boise and Minneapolis-St. Paul for broadband facilities connecting some 750,000 households. Construction on the networks is to begin this year, while the already authorized 60,000-home trial in Omaha is still in progress.

Nynex. Nynex and Ameritech are set to be the next RBOCs to announce major broadband rollouts. Sources at both companies indicated the initial hookups would be in the range of 200,000 to 300,000 homes each by year’s end or early in 1995, with deployment accelerating to an annual level of 1 million connections by 1997.

Joe DeMauro, Nynex director of new product development, refused to name sites but said the initial thrust would concentrate on areas where the company felt most threatened by the likelihood of accelerated expansion to full-service capabilities by cable companies. In metropolitan New York alone the telco faces competition from Time Warner/US West, Bell Atlantic/TCI, Bell Atlantic/Cellularvision, Cablevision Systems Corp., Teleport Communications Group and MFS Communications.

Nynex was set to launch a video dial tone trial in New York City sometime in January, but according to DeMauro, broadband deployment will begin before the trial results are in. He says the company will pursue network design strategies that require deep penetration of fiber, although the firm is likely to use existing copper plant for some early iterations of video service, much as Bell Atlantic is doing.

Ameritech. Ameritech’s plans are still under wraps, but officials disclosed that the company is on the verge of unveiling a broadband deployment schedule that includes two immediate 100,000-home projects in Naperville, IL, and Troy, MI. It expects to start construction on both this year. Sources say Ameritech will use the fiber/coaxial “star/bus” design common to the cable industry and recently adopted in distinct permutations by Pacific Bell and US West.

Although Ameritech, like most other RBOCs at this point, has filed a petition in federal court seeking overturn of the federal cable-telco cross-ownership prohibition, spokesman Mike Brand says the company intends to go forward with video network deployment no matter what the court decides. A federal district court in Virginia has already ruled that the cross-ownership ban is unconstitutional as it applies in Bell Atlantic’s operating territories, but it refused to apply its ruling to other telephone territories.

While entertainment video services will be a vital part of the service package to be delivered over the new Ameritech networks, the company intends to exploit opportunities in non-entertainment areas as well, Brand says. He noted that, even without further freedom to participate in video entertainment programming, the telco has court-sanctioned freedom to develop and provide information services, including non-entertainment video.

The company has been experimenting with such services in a variety of tests and believes market demand in this arena will be strong enough to contribute significantly to the new networks’ revenue streams. “Entertainment is part of the pie,” Brand says, “but we see opportunities in health care, education, work at home, work skill enhancement and other areas which we’ve been testing.”

Along with deploying fiber/coaxial hybrid networks, the company, like Bell Atlantic and Nynex, will also make use of ADSL technology to provide video dial tone over twisted-pair copper lines, says Brand. “We see this as an interim technology, but it should be very useful,” he added, voicing sentiments held by Bell Atlantic and Nynex as well.

‘Star/bus’ — Ameritech style. Ameritech is taking a unique approach to the star/bus design. Most cable and telephone planners envision coaxial serving areas of about 500 households per dedicated fiber link. Ameritech, by contrast, appears to be leaning toward 2,000-home serving areas, where four separate coaxial “bus” systems would operate off the single fiber feed to accomplish the same level of user-to-bus-capacity ratio that the 500-home star/bus systems achieve.

PacBell and US West are citing costs on the order of $1,100 to $1,200 per household to support provision of all services, from POTS (plain old telephone service) to NTSC TV to two-way video. These costs are already down to levels well below the past cost estimates for broadband. If it works, the Ameritech approach would be even less expensive — especially since Ameritech already has fiber running to within two miles of subscriber houses in 60 percent of its territory.

Business applications. As with other telcos, Ameritech’s residential broadband deployment is moving in tandem with deployment for business users. The company expects that within two years the pace of broadband implementation in both market sectors will have reached the point that it will be possible to convert entire network territories over to ATM (asynchronous transfer mode) integrated broadband operations. (For an explanation of ATM, see Vol. 3, No. 7, p. 14.)

According to Mark Farmer, general manager of advanced data services, the company will start with installation of ATM units supplied by AT&T Network Systems in Chicago and at an undisclosed location in Ohio by the second half of next year.

However, relatively few commercial customers are ready to take advantage of ATM just yet. So, Ameritech will deploy services based on SMDS (switched multimegabit digital service) and frame relay technology in 14 cities throughout its five-state territory. “We’re not going out and pre-deploying ATM without firm commitments from customers,” says Farmer.

As the traffic grows, the company will switch over to full ATM systems. The gating item will be a device at the customer premise that converts from ATM to whatever protocol the customer is using internally. Such boxes do not exist yet, but Farmer says he is convinced that they will be available within a year.

Even though the residential and business groups are operating on separate tracks, “if you move through the two timelines (for commercial and residential services), you see a convergence in terms of large-scale deployment by late 1995 or early 1996,” Farmer says. “By then, we’ll be able to run all these services on a common ATM-based platform.”

TRUMPING THE UNIVERSE

With such synergies in the offing, it looks as if the long-standing concerns about whether the nation will get the telecommunications infrastructure it needs when it needs it have been laid to rest. The broadband pipe is coming at warp speed, posing an unforeseen threat to all who have been slow to get on the digital media bandwagon.

But the telco juggernaut raises another concern for anyone who believes competition should be allowed to supplant monopoly control. In light of what is already on the table at the FCC, the question must be asked: Does the explosion in telco activity portend an end to competition before it really begins?

Not if by competition one means use of the network by a variety of gateway providers. The provisions of open network access guarantee there will be competition among service providers with room for an unlimited number of players. But the potential for facilities competition among cable and telephone network operators could well hinge on the extent to which regulators go along with telco interpretations of the existing rules.

Should ongoing cost allocations be pegged to historic narrowband cost structures or to rules that would assign spending in proportions commensurate with actual network applications? Or, put another way, is PacBell right in assuming it can charge telephone rate payers for some 90 percent of its new network costs, just because those costs happen to be below what it would have spent on the old networking approach?

If the cost increment for adding broadband is really marginal in comparison to ongoing capital costs for providing narrowband services, it is hard to see how competitors will stand up to the power of the telcos to deliver video communications at low prices. Thus, regulators’ responses to the arcane questions of new network cost allocations could decide the issue of one wire vs. two long before Congress figures out how to pursue its two-wire agenda.

Fred Dawson, Jonathan Seybold

GORE OUTLINES COMMUNICATIONS POLICY
Now pushing and shoving over details will start

The Clinton Administration plans to submit legislation to Congress in February that will establish new ground rules for telecommunications policy and regulation in the United States.

The plan, outlined by Vice President Al Gore in a speech to the National Academy of Television Arts and Sciences on January 11 in Los Angeles, closely parallels the specific changes to existing rules that are already on the table in the House and Senate, but departs from existing legislative proposals in terms of its all-encompassing approach to establishing a new broadband regulatory category.

GORE PROPOSES CHANGES TO EXISTING REGULATIONS

Most significantly, the Administration’s plan would permit the telephone and cable companies to enter each other’s businesses, lift long-distance service and manufacturing restrictions on the Bell operating companies and establish rules for defining and covering the costs of universal service.

Cross ownership. The cross-ownership restrictions of the 1984 Cable Act would be removed, which would mean phone companies could provide video services in their local areas. For the next five years telephone companies will still be prohibited from buying cable companies in their operating areas — except in rural areas that may not be able to support more than one carrier.

After five years, the ban on common ownership of cable and phone companies in the same area could be lifted. This is one piece of the plan we simply do not understand. Once you have gone to the expense of installing two competitive wired systems in an area, why would you ever permit them to be owned by the same company? Yes, there will probably be competition from DBS and wireless services. Yes, there will be open access guarantees (see below), but why reestablish any monopoly when you do not have to?

Opening the local exchange. Under the proposed legislation, telephone, cable, electric utility and other companies will be allowed to compete in the local phone business. All competitors will be able to interconnect their networks on “reasonable, non-discriminatory terms” with the local phone company facilities. So, for example, a cable operator will be allowed to connect into the local phone company’s switch.

The Administration appears to want to transfer most of the month-by-month, year-by-year policy decisions to the FCC.

Users will be able to take their phone numbers with them — to switch services without changing their phone number.

On the cable side, the Federal Communications Commission — which under the proposed plan will be given “broad powers to adapt (and reduce) regulations over time” — will be given a year to “impose non-discriminator access obligations on cable television systems, except when technology, costs and market conditions make it inappropriate.”

It is not clear what this means for a local analog cable system with limited channel capacity. It certainly means that new digital systems will be required to relinquish their “gatekeeper” functions and open access to additional program and service providers.

Long-distance service. Local phone companies will be allowed to enter the long-distance business — with some checks: The Administration will support the proposal embodied in the Brooks-Dingall bill, which will require approval from the Department of Justice and the FCC before local phone companies can enter the long-distance market. The purpose of these approvals is to “ensure competition and to protect consumers and local telephone rate payers against cross-subsidization and other potential abuses of monopoly power.”

Information services. As is also proposed in the Brooks-Dingall bill, the Administration wants phone companies to set up separate subsidiaries to provide information services. These would need to compete on an equal basis with other non-phone company entities offering similar services.

Manufacturing. The current ban that prohibits the RBOCs from research, development and manufacturing would be lifted (subject again to safeguards to prevent cross-subsidization and discriminatory practices).

A COMMON SET OF REGULATIONS FOR CABLE, TELCOS

Perhaps the most significant aspect of the Administration’s proposal is that telephone and cable companies would have the choice of remaining regulated under the existing Title II (telephone) or Title VI (cable) regulations, or electing to become “Title VII” companies and be governed by a new, common set of regulations that appear to remove the distinctions between them.

Short on details. The Administration has not given any details of what the rules might be for Title VII companies, except to indicate that the FCC will be given very broad latitude. In essence, the Administration appears to want to transfer most of the month-by-month, year-by-year policy decisions from the courts, Congress (and, to the extent possible, state and local regulators) to the Federal Communications Commission.

The FCC would be given the power, for example, to regulate rates when and where it deems that no effective competition exists, then to deregulate them as competition comes into play. New entrants that do not have significant market share would be free from rate regulation. The FCC would also set guidelines under which state and local agencies could regulate rates for services not subject to competition.

Potential pitfalls. The specifics of Title VII are clearly going to be all-important. Best case, Title VII could create unified communication rules and regulations, concentrate considerably more power and discretion in the hands of the FCC (which could greatly simplify the existing regulatory mess), and provide a flexible regime that can evolve over time as the market evolves.

However, the transition period could be a holy mess. Companies that are being asked to invest billions of dollars in new infrastructure, products and services may be very nervous about plunging ahead into a world in which the FCC has the authority to make up the rules as it goes along. There will have to be a very clear framework, complete with guidelines and objective criteria for deciding when — and how — the rules are going to change. Events will not, of course, follow a predictable plan. Revolutions are much too chaotic for that. So, the FCC is going to have to make adjustments as it goes along, but it is going to have to be extraordinarily careful to be as predictable and consistent as it possibly can.

Note, in particular, that until sufficient competition is established, Title VII companies (but not their fledgling competitors) will continue to be subject to regulation (including rate regulation) by the FCC and state and local agencies. As is clear from our discussion of telco initiatives in this issue (see p. 3), this is probably necessary. The telcos start from a position of too much power. However, this could easily make the interim regulatory structure even more complex and confused than it already is.

If we were a phone company or a cable company we would be pretty ambivalent about the legislation that is likely to emerge from the sketchy outline of Title VII presented thus far. On one hand, we would welcome a unified regulatory regime. On the other, there are still a lot of crucial details that are either left vague or delegated to the discretion of the FCC. Most important among these is any discussion of what criteria will be used to determine when there is enough competition to release Title VII companies from rate regulation.

THE CONTINUED PROMISE OF ‘UNIVERSAL SERVICE’

The question of “universal service” — guaranteed access for all citizens at low rates — may be the trickiest part of the whole initiative. Historically, universal service was part of a very clever deal struck at the time AT&T was being formed: In exchange for being granted a monopoly the phone company undertook to provide service to all customers — even those in poor and/or rural areas who would probably have to be serviced at a loss. Thus, the American concept of universal service has been inexorably bound up with the proposition that service would be provided by a regulated monopoly.

Now, we are proposing to replace monopoly with competition, but we still want to insist on universal service. The goal is noble. No one wants to see the United States degenerate further into a “have and have-not” culture. What is not at all clear is how we are going to insist on universal service in a two-wire competitive world. Who has to provide service to which customers? How will this be mandated? How will it be paid for? What level of service and equipment has to be provided?

Let the FCC decide — again. Gore’s answer is to let the FCC figure out how to do it: “The responsibility to design specific measures to achieve these aims will be delegated to the Federal Communications Commission. The basic goal is simple: There will be universal service; that definition will evolve as technology and the infrastructure advance; and the FCC will get the job done.”

Free access to schools and hospitals. As a starting point, Gore challenged the phone companies and cable companies to provide free connections to every school classroom, library, clinic and hospital by the year 2000. The day before, Bell Atlantic and TCI had promised to run wires to every public school in their combined service areas — all told, 25 percent of the public schools in the United States.

But running wires to schools will not be sufficient. We will have to wire the schools themselves. (Almost none of the public schools in the United States have telephone wires running to classrooms.) And we will have to provide a base level of services. It should not be difficult to convince companies to do this. What better way to make broadband interactive services indispensable to the next generation of citizens?

MUM’S THE WORD ON ISSUES OF PRIVACY

One issue that is completely ignored in the Administration’s white paper on the proposed plan, which was released at the same time as Gore’s speech, is the battle between government law enforcement/security agencies and computer civil libertarians over data encryption, privacy and security. Gore tipped the Administration’s hand on this with one throw-away line in his speech: “We’ll help law enforcement agencies thwart criminals and terrorists who might use advanced telecommunications to commit crimes.”

TAKING THE PULSE OF CABLE, TELCO INDUSTRIES

Industry reaction to Gore’s speech was generally muted, with most companies saying they couldn’t comment in detail until they knew more. Cable companies were especially reticent, with some industry insiders expressing fears that the Administration was willing to let telcos into content control without requiring that there first be significant competition in telephony.

Some telephone companies were also cautious. While praising the idea of giving telcos an option to go under Title VII regulations, Phil Quigley, president and CEO of Pacific Bell, said his and other companies “shouldn’t be held hostage” to past performance on issues of monopoly abuse. In a reference to the vagueness of the Administration’s proposal, he added, “I can assure you we’re going to explore whatever it is very closely.”

A new monopoly? While praising the Vice President for taking a “strong lead,” Richard McCormick, chairman and CEO of US West, said in a prepared statement, “There seems to be a certain bias that the old telephone monopoly still exists and those companies need to be handicapped in favor of new entrants.”

Ameritech offered the strongest support from telephone ranks. President and CEO Richard Notebaert said the Administration’s plan appeared to be “on the same page” with the regulatory initiative Ameritech filed with the FCC last year. But his comments reflected the confusion surrounding the meaning of Gore’s speech and the accompanying white paper issued by the White House.

Where McCormick saw a handicapping of telcos in favor of new entrants, Notebaert saw Gore’s comments as a “ringing endorsement” of Ameritech’s vision. “We are encouraged that the Administration has pledged to avoid letting existing regulatory structures impede or distort the evolution of the communications industry,” he said.

The devil is in the details. Which interpretations prove accurate will have a lot to do with the intense battles that will be fought as industry sectors negotiate with the Administration and lawmakers on the details in the months ahead. That so much remains unresolved suggests that the regulatory regime most likely to matter in the rollout of digital communications for some time to come is the video dial tone rules that were established under the Bush Administration.

Fred Dawson, Jonathan Seybold 

Both Vice President Gore’s speech and the “Background on the Administration’s Telecommunications Policy Reform Initiative” can be obtained electronically on the Internet at Publication@Whitehouse.gov or in hard copy by contacting the White House publication office at (202) 395-7332.

>CHANNELS
DISTRIBUTION PLANNING: 1994
Title development in synch with distribution

More than half of the new media titles sold during a year move through retail channels during the holiday season and the first 60 days of the new year. In order to take advantage of this window of opportunity for next year, new media publishers must begin making 1994 product plans now.

In particular, they must begin the process of establishing a relationship with an appropriate distribution partner. While in years past, the process of finding a distributor was less complicated since there were a limited number of interactive products ready for market, the tables have now turned. There is so much product expected out this year that the publishers must — for the first time — attract and hold the attention of distributors. (To find out more about choosing the right distributor, see Vol. 2, No. 9, p. 7.)

The winter Consumer Electronics Show (CES), which was held earlier this month in Las Vegas, is the ideal time to begin initial conversations with prospective distributors — many of whom are in attendance at that show. However, if you missed this year’s CES, fear not. You still have a chance to make your 1994 product pitches at some of the spring shows, including Intermedia and NAB’s Multimedia World Conference.

PHASE I: PRESENTING PRODUCTS ON PAPER

The product plan, which must be presented at an initial meeting with a prospective distributor, should address products in development for the current year, as well as subsequent titles that will follow as part of a series or as sequels to the new products ready for this year’s holiday release.

In addition, the product plan should include the positioning of each title and its target market, the list price, and the packaging of the product at the conceptual level. (Packaging should remain conceptual until a distributor accepts the product and offers input, since he has the power to reject the product if he believes the packaging will hinder its ability to sell.) Although product plans may be treatments or storyboards, they should exhibit the publisher’s vision and strategy over the next two to three years.

PHASE II: TITLE DEVELOPMENT

Once publishers have gathered input from potential distributors on product planning and packaging, they need to get down to actual development. Traditionally, this work takes place during the spring. The goal is to have the product at least 90 percent complete in time for summer CES, held in Chicago in June, so that it can be demonstrated to potential distribution partners.

At the same time that publishers are working on actual production, they should be gathering “boilerplate,” or generic, contracts from distributors they have chosen to review. Strengths and weaknesses of any potential distributor should be researched: Get in-depth information concerning their contracts, negotiation style, courtship behavior, sales and merchandising performance in the field, and field support such as sales reporting and inventory tracking. (This can be accomplished by talking with publishers who have already aligned themselves with these distributors.) This basic research should bring a publisher’s short list of partners down to about three distributors.

PHASE III: FINALIZING THE DEAL

Typically, contract negotiations begin in earnest in June after final (or close-to-final) products have been presented to prospective distributors. Two or three such meetings should bring one distribution partner to the forefront as a preferred partner.

It is also important to get concrete suggestions on packaging from the distributor of choice in June. In addition, you need to get on your replicator’s schedule for mastering and replicating the discs as well as on your designer’s schedule for preparing the inserts and packaging.

As we discussed, it is helpful to get a final approval from the distributor before committing funds to final package design. This needs to be done in June or early July, to be ready for a replication and production schedule in August. Remember that replicators are booked year round in advance, and that designers are busy in the early fall.

The art of shipping and selling. Products must be shipped in mid-September in order to arrive on retailers’ shelves in early October. (If the publisher is also distributing finished goods through rackjobbers such as Handelman’s to mass merchants such as Target or Walmart, the finished and packaged product must be shipped to the rackjobbers one month earlier to allow for racking and distribution to retail.)

The September shipping date is critical. Take, for example, one publisher who missed his September date. He pulled extensive strings to have his product shipped from the distributor’s warehouse into retail by early November in order to catch the selling season. But early November is often too late, and in this case, the product sat in the retailer’s backroom until January. Although the publisher had convinced the distributor to move it into retail during the busiest season, he had no means of convincing the retailer to move it from the backroom to the shelves during its busiest season.

The power of marketing. This scenario points to the usefulness of “feet on the street” or reps committed to handling and merchandising a product at the retail level. To date, field support of this sort is rare among new media publishers.

In addition to marketing representatives promoting wares on the street, publishers must also focus on marketing to the channel and to the customer since product awareness is crucial to its success.

“Push” marketing, a sales technique devised to get products into the retailers’ hands, should begin in August. “Pull” marketing, which could include print advertising, direct mail or store promotional mailings, is designed to pull people into retail stores. Pull marketing should be planned in early September, be implemented in October — to promote holiday sales — and continue through February when the holiday buying season begins to slow down, at which point you should already be one month into your 1995 product development cycle!

Joanna Tamer

>NEWS
APPLE DEBUTS ONLINE SERVICE
EWorld delivers interactive services, shopping, software

During the last year, online services emerged as a major growth area in the new media/interactive services business. Eager to explore the potential for delivering interactive services to personal computer users via online services, hundreds of publishers, information providers, media conglomerates, cable operators, computer companies and investors are forging alliances with online service providers such as CompuServe, Prodigy, America Online (AOL), Genie, Delphi and The Well.

Network subscriber ranks are swelling as well. There are an estimated 4 million subscribers to online services in the United States, with this total expected to exceed 5.5 million by year’s end.

The subscriber base of America Online, the third largest and the fastest growing service, increased 145 percent just in the past year.

EWORLD ANGLES FOR PROFESSIONALS

Adding fuel to this fire, Apple Computer earlier this month announced its plans to deliver EWorld, a global online service that has been in development at Apple for more than three years and is based on core technologies Apple licensed from AOL in December 1992.

The company says initially — the launch is expected in the spring — it will aim the service at professionals by offering publications, information and forums specific to their fields. Eventually, Apple plans to develop EWorld to serve international, home, educational and children’s markets.

Apple says it will create a version of EWorld for Windows and the Newton devices, but has not yet committed to a delivery date. Mail capabilities for Newton will be available at launch, according to Apple.

Apple says international English language versions of the service will be distributed later this year as well, with Japanese, German and French versions to follow.

INTERFACE MIMICS REAL WORLD

In an attempt to distinguish EWorld from other online services, Apple is focusing on developing EWorld’s ease of use for non-technical users (read consumers) and on targeting its content for specific markets.

The EWorld interface is modeled on a geographical metaphor, not dissimilar to General Magic’s MagicCap interface for its Telescript technology. (For more on General Magic, see Vol. 2, No. 10/11, p. 13.) The opening screen features an illustrated representation of an electronic neighborhood. Each of the buildings in the neighborhood represents a specific area of the online service: a library for research; a newsstand for news and sports publications; a business and professional plaza for business information and services; an arts and leisure pavilion for entertainment and hobbies; a computer center for computer assistance and software; a marketplace for shopping; and a post office for electronic communications and online events.

Beyond the opening interface, screens are color-coded and make consistent use of icons to indicate the area in use. A pull-down menu that sequentially lists areas that have been visited during a session is intended to help users navigate through the system. As with other online services, “go to” and keyword options can be selected at any time.

At the launch, Apple says more than 100 publishers and information providers will supply branded services that are tailored to business community interests. These organizations include the Boston Computer Society (BCS); BMUG, a Macintosh users’ group based in Berkeley, CA; Dow Jones Business Information Services; Grolier Electronic Publishing, Inc.; Infoworld; Macworld; Regis McKenna; Reuters America; Tribune Media Services; USA Today Information Center; WordPerfect Corp.; and ZiffNet/Mac, a computer-oriented online service.

AppleLink, EWorld merge. Some of EWorld’s first business customers will be subscribers of AppleLink, Apple’s nine-year-old online service that caters primarily to computer professionals interested in news from and about Apple. Apple says it will phase the profitable AppleLink business as well as its 60,000 subscribers into EWorld during the first 18 months of operation.

Lower rates. AppleLink subscribers should be cheered by this move if for no other reason than that it will greatly lower their rates. EWorld is available for $8.95 a month, which buys two hours of free connect time on weekends and evenings, with each additional non-prime-time hour costing $4.95.

Usage during primetime hours (weekdays from 6 AM to 6 PM) carries a $2.95 surcharge. (AppleLink, on average, costs its subscribers about $70 a month.)

Apple says certain third-party information providers will charge additional fees for premium services available on their forums. Users can send an unlimited number of messages per month. While pricing structures for online services are about as complex as protocols for retrieving data off the Internet, Apple’s service works out to be roughly comparable to other online services (but more expensive than AOL, which charges $9.95 for five hours of prime-time or non-prime-time monthly usage).

AN APPLE SPIN ON AOL TECHNOLOGY

EWorld is built on top of America Online technology, which Apple licensed from AOL for what we can only speculate to be a stunning sum of money. (Whatever the figure, it was hefty enough to convince Steve Case, president of AOL, to issue a public statement welcoming his newest competitor into the online services fray.)

According to Jean Villaneuva, VP of corporate communications at America Online, AOL retains ownership of the technology that AOL is providing to develop EWorld, and in addition to the flat licensing fee, the Vienna, VA-based online service will receive royalties based on usage of EWorld for Macintosh, NewtonMail (the communications service it developed for Newton devices) and other client platforms.

From our perspective this is a clear win for AOL. If EWorld, as Apple hopes, captures a significant portion of the growing consumer online subscriber base, AOL benefits financially from its royalty agreement with Apple. If EWorld fades away, AOL still walks away with cash, which it can then use to advance its own service.

A platform for publishers. Apple says EWorld will be different from AOL in a number of ways. For starters, Apple plans to deliver EWorld on a global basis. In addition, the company says it plans to add a number of significant features to the service, including the user interface design (previously discussed) and the publishing tools (enhanced versions of those available on AppleLink).

EWorld Press, as the publishing program for EWorld is called, offers content providers simplified tools for creating and maintaining online publications. Unlike AOL, EWorld software enables publishers to preserve the look of their print publications in network versions. Additionally, publishers can edit or change online articles without the assistance of a network administrator.

Free market research. EWorld Press participants will be supplied with statistical information on how their area was used, and, to a lesser extent, by whom. “The standard [monthly] reports we’ll give to publishers will let them know how many people have accessed their publication, and some demographic information,” says Richard Gingras, group manager of worldwide services for AOS. “On a periodic basis, we will do more detailed reporting which will cover specific areas of use.”

Gingras says he envisions this as a free service to publishers. However, AOS is likely to charge advertisers, retailers and marketers for access to similar statistics in their information areas, he says.

Learning from AOL’s mistakes. Apple and AOL are also working to improve several operational aspects of the AOL-based service, improvements that AOL plans to integrate as well. One of AOL’s major problems is that it is overwhelmed by all the increased traffic on its service. As a result, subscribers are sometimes denied access to the service. (This is typically in the evenings and on weekends when online services receive the greatest use.) Waiting times on customer service calls have been known to exceed an hour.

In an attempt to avoid such problems, EWorld communication links are separate from the host, which is run by Apple in northern California, and are easier to upgrade, according to Peter Friedman, director and general manager of Apple Online Services (AOS), the division responsible for EWorld. He says these improvements should help alleviate some of the ramping problems experienced by AOL over the last year. In addition, Friedman says Apple’s phased approach to entering new markets will allow the system to expand more transparently.

EWORLD VS. AOL: WHAT DIFFERENCE?

Despite Apple’s attempts to distinguish EWorld from other online services, at launch it will bear a strong resemblance to America Online. And, in fact, it may be difficult to discern any difference between the content on EWorld and any other commercial network.

Missed Internet opportunity? One area where Apple had a golden opportunity to break new ground is in the implementation of an elegant and easy-to-use interface for the Internet, the massive, ad hoc amalgam of international networks. The Internet, which at last count was host to some 15–20 million users and growing exponentially, is an unimaginably rich source of information, but one that is nearly impossible for average humans to navigate. Offering easy-to-use access to this network — an obvious area of expertise for Apple — would provide subscribers with an extremely valuable reference and information source that is unavailable anywhere else. In short, it would have given Apple a significant advantage in the ever-more-crowded online service market.

At rollout, Apple is promising a basic Internet gateway only. By summer, the company says it hopes to make available a Gopher-like interface for the Internet, according to Gingras. (Internet mail access has become standard on most online services, and access to WAIS databases is available or will be available shortly on some services.) Eventually, AOS plans to develop a more sophisticated Internet interface.

An intelligent network. Future versions of EWorld will also incorporate intelligent search capabilities, according to Gingras. Initially, he says, select online offerings will be imbued with AppleSearch text retrieval capabilities.

AppleSearch is a sophisticated text retrieval engine that enables text searches in the user’s own words. The technology allows user-defined electronic search agents, called “reporters,” to make scheduled searches for information, such as sports scores and stock quotes, and automatically send results from the server where the data reside on the user’s computer. Gingras says this is “Apple technology that will become more pervasive over time.”

In addition to experimenting with AppleSearch technologies, Apple says it is evaluating a number of “intelligent” technologies, including General Magic’s Telescript.

“We will have intelligent agents over time, whether or not we use Telescript,” says Friedman. “A lot of these decisions will be decided based on feedback we get. We can put our energy in any direction we like to develop certain capabilities faster.”

LOOKING FOR STEADY REVENUE

Apple’s move into consumer online services is a quest for a steady revenue stream and a new business model that promises future growth. The company’s core business in personal computers — still the major source of its $8 billion in annual revenues — is sliding, and it desperately needs a new source of revenue to offset the loss.

While future profit margins for online services may have enticed Apple into the business, startup costs are often high, with payoffs several years away. It was a realization of these economics that led Apple to license AOL’s technologies, among the most elegant on the market in terms of ease of use, rather than start from scratch on the design. “If I had $100 million, I would have taken four years and built the system myself,” says Friedman. “But the margins aren’t there.”

Bundled with millions of Macs. In addition, Apple is hoping its startup costs will be lower than they are for most online businesses because it can take advantage of its existing sales channels in order to market and distribute the service. Apple plans to bundle EWorld with almost every new Macintosh and Newton, according to Apple CEO Michael Spindler at a press briefing during Macworld. This represents about 4 million devices annually — not a bad market in which to launch a service.

Friedman says it may be as late as spring 1995 before all Macintoshes and Newtons are bundled with EWorld services because he wants to ensure that the content for market segments is developed before EWorld is released to certain markets.

Profits in five years? Friedman says EWorld is self-funded from profits of AppleLink and money from cost-cutting measures in Apple’s hardware business. Within less than five years, he says, he expects EWorld to be a profitable business with “millions of subscribers.” With even half a million subscribers, Apple’s annual revenue from the $8.95 flat-rate subscription fees alone would top $53 million.

A NEW CHANNEL FOR APPLE TECHNOLOGY

Apple has ambitious plans to marry several of its ongoing efforts in the areas of interactive shopping and services to the EWorld service as well.

Online dispatch. Perhaps most notably, Apple will use EWorld to sell and distribute software online. Apple says this service might be based on Software Dispatch, a program running since November, which offers demonstrations, trial versions and information on more than 75 Apple products via CD-ROM. Instead of dialing a toll-free number to place an order, as is required with the CD-ROM version of Software Dispatch, EWorld users will be able to purchase and download products online. No timeline for such services has been set yet, according to Friedman.

Eventually sales of Apple hardware may be offered online as well. Friedman says the decision to pursue such distribution strategies is to be determined by the individual hardware business units within Apple.

While this new distribution model may not please many Apple value-added resellers (VARs), sales and distribution of software online is a natural fit. Not only will users have the added convenience of instant product delivery without having to leave their homes or offices, but Apple is saved shipping to third-party distributors and some sales and marketing costs.

Apple is also looking into placing on the EWorld service a version of En Passant, an interactive home shopping pilot test on CD-ROM. The test is being conducted among 30,000 Macintosh computer owners in conjunction with EDS and Redgate Communications (see Vol. 3, No. 7, p. 33, for details). En Passant, which began on a trial basis in December, features 21 catalogs from retailers, including LL Bean, Land’s End, Williams Sonoma, Tiffany & Co. and Pottery Barn.

COMPETITION MEANS SUBSCRIBER CHOICE

The Apple brand identity and smart marketing moves will get Apple into the game. In the long run, however, AOS must deliver on its promises of content tailored to specific markets, graceful Internet access, intelligent searching capabilities and compelling interactive shopping and other services in order to keep consumers bucking up monthly subscription fees.

“People have to find value in what’s being offered to be willing to pay for it,” Friedman says. “We really have to succeed or fail based on the value we provide.”

The risk inherent in subscription-based services is that if consumers don’t like what’s on — or in the case of the increasingly competitive online services market, can find other better or less expensive services — they can simply turn the service off and take their spending dollars elsewhere.

Amy Johns 

BELL ATLANTIC UNVEILS VIDEO SERVICES PLANS
Partners likely to set de facto standards

Although the race to install high-bandwidth wiring (the “highways”) has occupied most everyone’s attention over the past couple of years, the wiring and switches are only part of the overall system. The servers, communication protocols, security, accounting and user terminals are all equally important — and equally challenging to implement.

While the telcos and the cable companies battle over who is going to re-wire the nation, a host of computer firms are battling over who will provide the key network software. As has occurred in previous computing markets from mainframes to personal computers, only a small number of hardware and software standards will survive. The company or companies that lead the market and consequently set standards will be in the catbird’s seat.

Recent partnership agreements between a newly formed Bell Atlantic subsidiary and its network service providers indicate that the race to discover just exactly which companies will take positions of prominence — has begun in earnest and Bell Atlantic is in the lead.

WHO PROVIDES ‘ASPHALT’ FOR SUPERHIGHWAY?

In what will certainly become a standard practice for regional phone companies, Bell Atlantic recently founded a separate Video Services subsidiary to develop interactive services for its proposed broadband network.

Although other companies will be free to compete with Bell Atlantic Video Services — Digital Equipment and USA Video have already announced their plans to do so — we believe BVS, as the subsidiary is called, is likely to start out with a tremendous advantage in terms of capital, name recognition, access to customers and intimate knowledge of the network.

It is probable, therefore, that BVS will set the key de facto standards for anyone who wants to provide competitive interactive services over the entire BA network and/or anyone who would like to provide user terminals that connect to this network.

Oracle, NCube chosen. On January 11, the BA subsidiary announced that it will employ massively parallel video servers provided by Foster City, CA-based NCube, settop boxes provided by IBM Corp. and two consortia, and system software from Oracle Corp.

Of these, it is the Oracle software that is most important because the server software and network protocols comprise the “heart” of an interactive broadband system.

ORACLE PROVIDES END-TO-END SOFTWARE

Oracle, which is the dominant worldwide supplier of SQL database systems for large-scale corporate applications, will provide its Media Server software for BA’s interactive broadband services, known as Stargazer. Starting in the second quarter of this year, Bell Atlantic plans to install network servers built around new versions of Oracle’s database software.

We believe that this decision effectively determines a good portion of the software architecture for the entire Bell Atlantic system. As noted above, other companies can compete with BA Video Services by offering their own systems using their own protocols, but it is more likely that BVS’s competitors will prefer to be compatible with BA Video Services so that their servers could be accessed interchangeably with the BVS servers.

Creating standards. This means that any competitors to BVS will either have to buy their server software from Oracle or buy it from another company that guarantees its software will work flawlessly with the protocols established by Oracle and BVS. We are certain that Oracle and BVS will publish the interface specifications. But even so, this will put Oracle in a very enviable position.

At the other end of the pipe, there will have to be software in the user terminals that will “talk” the language of the network. Presumably, competing companies that had the Oracle/Bell Atlantic specifications could build this software into their own terminals. However, it is almost certain that Oracle will provide the initial software itself to ensure that everything works together.

Lingua franca of BA’s network? Thus, for all practical purposes, Oracle system software and Oracle network protocols are likely to become the de facto lingua franca on the Bell Atlantic broadband network. The companies that provide equivalent software for other telco or cable systems will have a similar advantage on those systems. Theoretically, we could end up with a complete mess with different software and different network protocols used on every different regional system. However, it is more likely that the market will eventually shake out to a small number of players and protocols.

Beyond the BA deal. The Bell Atlantic deal puts Oracle in a good position to be one of those elect few companies. Bell Atlantic is well aware of this and does not want to be left out. As part of the deal, the two companies have formed an alliance management committee “to pursue joint marketing opportunities and the development of additional services.” These will include joint ventures to provide services and cooperative efforts to sell technology to other phone or cable companies. The deal is not exclusive, however, so either partner can sell to whomever it pleases.

WHAT MAKES A VIDEO SERVER?

A half-dozen years ago, Oracle president Larry Ellison became convinced that large-scale computing for the future would be done on massively parallel computers made up of thousands of semi-autonomous microprocessors. He became so convinced, in fact, that he personally bought a controlling stake of an innovative start-up company, NCube, and ordered Oracle’s programmers to make its database software run on NCube and other massively parallel computers.

Lots of data, fast. Originally these machines were intended for large-scale scientific calculations and large corporate databases. Now it turns out that they are exceptionally well-suited as interactive video servers. (It is a fallacy to think a media server needs to do much computing. What it does need to do is transfer massive amounts of data at very high speeds. A massively parallel computer turns out to be an excellent way to do this.)

In the NCube design, each processor can transfer data independently rather than sending all data down a common bus. NCube claims that the NCube2, which will be used in early Media Server installations, will deliver digital video on-demand to 20,000 simultaneous users. The NCube3, promised for early next year, is supposed to be three times as powerful.

A video server technology first. Bell Atlantic has chosen a combination of more conventional symmetrical multiprocessor (SMP) and massively parallel NCube machines as its server hardware. As far as we know, it is the first telco or cable company to select massively parallel computers for its servers. Most of the other implementations announced thus far will rely on a number of smaller SMP computers.

Oracle says the first implementation of its Media Server software will be for the NCube. After that, it will port the software to other massively parallel computers and — if there are customers who commit to buy it — to conventional computers as well.

NEW ENTRANTS IN SETTOP BOX RACE

Bell Atlantic Video Services has also broken new ground in its initial selection of companies to provide settop boxes. The companies that dominate the existing cable business — General Instrument and Scientific Atlanta — did not make the list, nor did any companies proposing adaptations of existing computer or game platforms.

PowerPC implementation. The user terminals delivered in 1994 will be based on a Motorola 68000-series processor with 2 to 5 MB of memory and MPEG II digital video decompression. Starting in 1995, the boxes will use a more powerful RISC processor. This will be a new PowerPC 4XX version of the IBM/Motorola PowerPC. PowerPC 600 family processors are used in IBM workstations, the next generation of Macintosh computers and one of the settop boxes to be supplied by Scientific Atlanta. The 4XX series chips integrate more functions onto a single chip and are designed to be used as integrated embedded controllers in much less expensive devices.

BVS has selected three vendors to supply the user terminals: IBM; a partnership of Philips Digital Videocommunications of Knoxville, TN, and Compression Labs of San Jose, CA; and a consortium consisting of Divicom of Milpitas, CA, Adaptive Microware of Fort Wayne, IN, and Eurodec of Paris. (No details on the intelligence or cost of delivery for the three user terminal devices were released.)

THE NEXT COMPUTER INDUSTRY

In tandem with their race to re-wire their service areas, the regional phone companies are all going to be doing what Bell Atlantic has done: Establish an interactive video service subsidiary that will provide both interactive services and user terminals to access those services. In fact, Pacific Bell has already done so.

While the cable companies are pre-occupied with trials that will prove the concept and help determine which kinds of services are commercially interesting, the phone companies suddenly find themselves in a position to plunge right into full deployment. They are, therefore, looking for systems that they believe they can roll out very quickly.

Jockeying for position. If they are successful, we believe that the telco service subsidiaries will end up establishing at least one set of de facto standards for their respective networks. It is also possible that these subsidiaries could create the de facto nationwide standards. Just as it is unlikely that very many standards can co-exist on the same network, so it is unlikely that very many different standards can co-exist on competing networks. (Someone who wants to provide a nationwide service is not going to want to program 15 different implementations of that service to cope with different standards on different systems.)

The race to provide these early systems will therefore be intense and hotly contested. Look for a lot of activity in this arena in coming months as ambitious companies, including AT&T, IBM, Digital Equipment, Silicon Graphics, Sun Microsystems, Microsoft and Oracle jockey for position at the start of the next computer industry.

Jonathan Seybold 

ZIFF-DAVIS LAUNCHES NETWORK
Online service targets computer users, publishers

Ziff-Davis Interactive, a division of Ziff-Davis Publishing, last week introduced a prototype of its new online service for computer professionals, code-named Interchange. Although the service is still in development — and we know a lot can change between now and its expected fall rollout — Interchange sets a new expectation level for what it should “feel” like to gather, create and distribute information online.

The service, which has been in development for more than two and a half years at Ziff-Davis Interactive’s offices in Cambridge, MA, is built from the ground up as a publishing environment. The Interchange architecture supports media-rich documents (that is, documents that combine text, audio and graphics), simple click-and-drag editing tools and a unique, contiguous “information space.” The information space is unlike existing commercial online services today, because it allows subscribers easily to perform cross-service searches and create extensive links among various content provided on the service.

SPECIAL INTEREST CONTENT AREAS

Initially, ZDI plans to narrowly focus the content available on Interchange. Based on Ziff-Davis’s background — it is one of the largest computer publishers in the world — it should come as no surprise that Interchange will primarily provide information pertaining to personal computing. Publications committed to delivering content for the Interchange online service include Ziff-Davis’s PC Magazine, PC/Computing, PC Week, Windows Sources, Computer Shopper, MacWeek, MacUser, Computer Gaming World and InfoWorld, which is published by the International Data Group.

Tech talk and software. In addition to electronic computer magazines, the computing section of Interchange is expected to provide standard online fare, including shareware, freeware and public domain software as well as commercial software drivers and demos that members can download to their personal computers. (According to ZDI, subscribers are able to download information or software in the background, while still using the service to check mail — an impossibility on any of the existing commercial services.)

ZDI also plans to offer “tech talk” forums on Interchange, where industry leaders, editors and technology experts will gather to discuss the news and views of the personal computing industry. Also included is a Companies Online section, which initially will include 75 software, hardware and networking vendors that have agreed to provide software updates, new product specifications and technical support to members of Interchange.

Even techies need (sports) news. Several non-technical publishers have committed to distribute their content on Interchange as well. The most entertainment-oriented of these comes from StarWave, the Seattle, WA-based interactive media company founded by Microsoft cofounder Paul Allen. According to ZDI, StarWave plans to produce an electronic sports section for the Interchange online service. (No details on this service were available at press time.)

In addition, ZDI plans to offer general news and reference services on Interchange, including PC Quote, a market information and analysis service; Reuters NewMedia; Grolier Electronic Publishing’s Academic American Encyclopedia; weather information from Weather Services Corp.; and Kiplinger’s Personal Finance Magazine, a money management publication from the Kiplinger organization.

CREATED BY AND FOR PUBLISHERS

While certainly not yet a mix of content to lure every man onto the Interchange network, ZDI says it intends to broaden the scope of the service by developing other highly focused special interest areas beyond personal computing coverage.

Michael Kolowich, president of ZDI, says he is confident that the service’s sophisticated publishing tools and its object-oriented environment will lure additional content companies, as well as more diverse subscribers, into the Interchange fold. According to the company, ZDI is already in negotiations with several mainstream media companies to provide services on Interchange in time for the expected launch of the product this fall. Kolowich says that ZDI will charge publishers 20 percent to 50 percent of its revenues for use of the electronic service.

Breaking the ASCII ceiling. Unlike existing online services, Interchange is built on what ZDI calls “rich documents” that tie together formatted text, graphics, images and hyperlinks. Therefore, the Interchange documents can include embedded connections to related articles, software, searches and discussions, according to Kolowich.

We haven’t seen a live online demonstration of this hyperlinking capability (we were shown a prepared presentation). But if ZDI can successfully implement this technology into Interchange, we see it as one of the most valuable features of the service.

It offers subscribers and publishers the potential to create extremely indepth, or narrowcast, compound documents. For instance, members could use Interchange to do extensive comparative shopping on computer equipment and peripherals as well as potentially place their order online. In addition, they could use the service to gather extensive information about topics, such as computer virus protection, complete with access to the appropriate anti-virus software. (This is in no way an impossibility today but what ZDI is promising with Interchange is a kinder and simpler way of making these connections.)

Click-and-drag editing. ZDI says it also plans to offer a set of simple-to-use tools that will enable subscribers to customize their workspace, automate the collection of information and subscribe to areas of the service they access and read regularly. If a member consistently follows a particular discussion or executes a certain search, for example, Interchange can be set up to automatically update the discussion thread and/or execute the search and copy the results to a member’s PC every time he or she logs on.

While Ziff and ZDI have invested millions trying to figure out what subscribers want to see on their computer screens, the company has also spent a great deal of cash on what goes on behind the scenes. Interchange runs on a cluster of Digital Equipment’s Alpha-based VAX processors that, according to Kolowich, enable subscribers to search entirely across the information space. “With services like CompuServe, data is divided into multiple standalone servers that don’t make it easy to share information,” he says.

Testbeds by summer. Kolowich says ZDI plans to have 40,000 to 50,000 Interchange subscribers online by summer as part of a select beta-testing program. The service, which will initially be made available for the Windows platform only, is expected to be commercially available this fall. A Macintosh version, according to ZDI, is about six months behind the Windows version in development and is not expected to be shipped until early 1995.

Although pricing for the service has not been set, the service is expected to be based on a $10 to $15 basic monthly membership fee, plus an hourly fee for extended use, according to ZDI.

REINVENTING A PUBLISHING BUSINESS

According to Kolowich, when Bill Ziff, founder of Ziff-Davis, hired him to start ZDI almost three years ago, Ziff said, “‘If someone is going to kill publishing as we know it, it better be us.’” And that, says Kolowich, is what the ZDI team set out to do with Interchange. There are several very real concerns with that goal, not the least of which is that Ziff employs more than 4,000 people worldwide to produce its print publications.

Safe for now. Kolowich quickly went on to explain that Ziff sees the two distribution mediums as highly complementary for the foreseeable future. There just aren’t enough personal computers out there that are capable of running Interchange (you need a ‘386 or better), nor is there enough compelling content online to be an actual threat to Ziff’s, or for that matter, any publisher’s traditional print business. In addition, last time we checked electronic advertising hadn’t exactly taken off and publishers, such as Ziff-Davis, draw a substantial portion of their revenues from print advertising.

According to Kolowich, ZDI is experimenting with electronic advertising on Interchange, but the service will not be dependent on dollars from advertising to survive. So where will the return on this “tens of millions of dollars” investment come from?

Courting early adopters. Kolowich declined to comment on ZDI’s projected subscriber numbers for Interchange, but the company is obviously hoping to win over a substantial share of the existing online subscriber base, many of whom are computer professionals using online services for business first and pleasure second. As that dynamic shifts and more sophisticated personal computers find their way into people’s homes, Ziff-Davis intends to shift the balance of its content, from professional to consumer.

Ziff-Davis is far from alone in its aspirations. In addition to the existing commercial services — America Online, Prodigy and CompuServe (on which ZDI already runs a text-based computer online service called ZiffNet) — a slew of new competitors are flocking to the online market, including Apple, Microsoft and most notably, in Ziff-Davis’s case, its computer publishing rival, International Data Group, which also plans to launch a personal computer online service in 1994.

Ultimately, this battle of the online service providers will come down to who has the most transparent technology and the best content. It is in these areas that Ziff, with its 15 years in the business of computer publishing, is confident it will prevail. According to Kolowich, the company has the knowledge and the deep pockets to not only survive the battle, but potentially win the war.

Whatever the outcome, this will be one war worth watching.

Janice Maloney

MNI ROLLS OUT MUSICNET
Develops navigation systems for new media services

With media attention focused primarily on hyping the implementation of the digital superhighway infrastructure, it is sometimes easy to overlook the potential problems attached to the actual arrival of interactive broadband services into the home. How, for instance, will we navigate through this endless sea of information and entertainment products once they become available to us.

MNI Interactive of San Francisco believes it has an answer. The company, which was founded in 1990 under the name MusicNet Inc., plans to develop navigation systems and interface designs for media services that will ultimately be delivered over interactive broadband networks, according to John Atcheson, MNI cofounder, president and CEO.

The engineering team at MNI Interactive responsible for building those navigation systems includes some of the best and the brightest from Apple’s various interactive media development groups. John Worthington, who is best known as the project leader of the QuickTime team, has been named vice president of engineering. He is joined by former Apple interface guru, Dr. Michael Mills, who, along with David Vronay and Leo Degen, also now of MNI, developed Apple’s HyperMovie project. (The team declined to show its navigation and interface design since it is still a work in progress.)

GOSPEL TO METAL WITH A BUTTON PRESS

The company’s first foray into new media services is called MusicNet, an interactive music information and previewing service that costs $3.95 a month. In its first implementation, MusicNet enables subscribers using a touchtone telephone to dial a local number, punch in their membership number, and sample more than 3,000 music clips (30 seconds apiece). MusicNet offers a wide variety of musical styles, including rock and pop, country, R&B, rap, jazz, blues, gospel, metal and world beat. The service also offers excerpts from comedy titles as well as soundtracks and children’s CDs. (MusicNet does not yet offer classical. More than 400 new recordings a month fall under that category alone.)

In addition to sampling audio tracks, which are updated daily, MusicNet subscribers can access short reviews of new CDs, obtain concert information and buy CDs over the phone.

Personalized services. Members can even personalize MusicNet by filling out and returning a short questionnaire, which asks them to identify their 10 favorite recording artists. The MusicNet team then links that information to participating subscribers’ access numbers, and they automatically receive information on their favorite artists’ new album releases and local concert dates when they dial in. Members can modify their favorite artist lists — which can include up to 40 names — over the phone.

A musical matchmaker. In addition to providing subscribers with information about artists they already know and like, the service, through its MusicNet MatchUps technology, provides suggestions of new artists to try. These electronic “word of mouth” suggestions are created by electronically identifying and matching MusicNet members who have similar musical tastes, according to Atcheson.

In other words, if you and I have a lot of the same names on our favorite artists lists, the service might suggest that you try out one of the groups I have on my list that you have not yet selected. (MNI Interactive cofounder James Miller, a professor at Stanford’s Graduate School of Business and a leading expert in data analysis and computer system design, developed the MusicNet MatchUps technology, which is based on proprietary algorithms.)

GREAT FOR RESEARCH, SLOW ON DELIVERY

At launch, the telephone-based version of MusicNet is a great way to introduce you to new music or to help you keep track of favorite recording artists, but it is no fun for music lovers who want immediate gratification.

If you want to buy a MusicNet selection, for example, the service connects you to Tower Records distribution headquarters in New York City, where — similar to a mail order catalog operation — you give someone on the other end of the phone your credit card information, place your order and wait several weeks for delivery.

Added costs, limited hours. In addition to the price of the CDs, Tower charges $3.50 shipping and handling for the first CD and approximately $1 for every CD ordered through MusicNet afterward. Also problematic is the fact that while MusicNet operates 24 hours a day, access to Tower’s distribution center does not. Tower’s set hours are 9am to 9pm, Monday through Friday, 9am to 6pm on Saturday, and 9am to 5pm on Sunday (EST).

NEXT-GENERATION SERVICES UNDER DEVELOPMENT

According to Atcheson, the telephone-based version of MusicNet is only the beginning. The company plans to roll out a CD-ROM version of MusicNet later this year and expects to participate in at least one of the ITV broadband trials now under way across the United States. Atcheson declined to comment in any detail on either of these projects, but he did say MNI Interactive is in discussions with prospective technology and media partners, including 3DO, Silicon Graphics, Warner Records and Sony.

“What we don’t want to do is introduce a service that falls below expectation,” says Atcheson. “We will not deliver analog audio, nor are we willing to compress the audio to a degree where the music quality suffers.”

Janice Maloney

>BRIEFS
VIACOM MERGES WITH BLOCKBUSTER, UPS PARAMOUNT BID

In the further chronicles of the four-and-a-half-month-old Paramount-Viacom-Blockbuster-QVC buyout wars, earlier this month Viacom Inc. announced a definitive merger agreement with its Paramount bidding partner, Blockbuster Entertainment Corp. By terms of the agreement, which was unanimously approved by the Boards of Directors of both companies, but must still be approved by shareholders, Blockbuster will receive Viacom stock valued at $8.4 billion. The combined company will be called Viacom-Blockbuster, Inc. (For more on the Paramount battle, see Vol. 3, No. 5, p. 3.)

Viacom chairman Sumner Redstone will assume the title of chairman of the combined company. Blockbuster’s chairman and CEO, H. Wayne Huizenga, will become vice chairman of Viacom-Blockbuster and chairman of the Blockbuster subsidiary. Blockbuster will remain headquartered in Ft. Lauderdale, FL.

According to Redstone, Viacom sees Blockbuster as providing access to a mass consumer audience from which it could greatly benefit. “Blockbuster’s established relationships with customers and large presence in the retail video and music markets provide Viacom with important access and distribution to consumer and entertainment products,” said Redstone in a statement.

In many respects, Blockbuster is a sound acquisition for Viacom. Blockbuster, the world’s largest home video retailer with more than 3,593 stores internationally, generates approximately $500 million in annual revenue, is nearly debt free and has posted quarterly growth increases between 40 and 64 percent for the last two years.

While immediate business prospects for Blockbuster are rosy, the long-term outlook is somewhat more troubled. With video-on-demand systems looming in the not-too-distant future, Blockbuster is scrambling to diversify its core business rooted in analog technology. In the first major step in this direction, the company announced a program to introduce software rentals and sales in its stores this past November. (For more on Blockbuster’s business and its attempts to move into new markets, see Vol. 3, No. 7, p. 28.)

Its latest move in this direction came earlier this month, with the purchase of a 19.9 percent stake in Virgin Interactive Entertainment plc for approximately $30 million. VIE, which maintains offices in California, London, Paris, Tokyo and Hamburg, develops and publishes video game and entertainment software compatible with consumer hardware systems, including Nintendo, Sega, personal computer and CD-ROM systems. Founded in 1983, VIE has published more than 200 versions of 90-plus entertainment titles and sold more than 13 million copies of its software since July 1990.

In tandem with the Viacom-Blockbuster announcement, Viacom stated it was increasing its offer to Paramount by more than $800 million to bring the total combined Viacom-Blockbuster bid to $10.5 billion. The resources for this increased bid are the result of a deal between Viacom and Blockbuster in which Blockbuster has agreed to invest $1.25 billion in Viacom by purchasing its stock. This investment is subject to the consummation of Viacom’s tender offer for Paramount, according to Viacom.

While in public statements Viacom enthusiastically welcomed the international video giant into the family, the merger was also clearly intended to stimulate interest of the Paramount board in a combined Viacom-Blockbuster company. In fact, so confident does Viacom appear to be about the prospect of a Viacom-Blockbuster-Paramount merger that along with the announcement of the Viacom-Blockbuster merger, it distributed a four-page Blockbuster-Viacom-Paramount merger fact sheet showing the combined assets of the three companies.

So far, Viacom’s strategy appears to be working. The larger Viacom-Blockbuster bid has once again won the approval of Paramount’s board. However, Paramount chairman Martin Davis says the company will consider competing bids until the Feb. 1 deadline date for final offers.

At Digital Media’s press date, no formal response or upping of the ante has yet been issued by QVC Network, which has a $10.1 billion bid for Paramount on the table. If the evolution of events since Sept. 12 (when Viacom first announced its proposed deal with Paramount) can be read as any indication, one has already been entered.

MULTIMEDIA PATENT UNDER REVIEW

To the relief of the multimedia developer community, the U.S. Patent and Trademark Office (PTO) recently decided to reexamine the Compton’s NewMedia patent for multimedia technologies. PTO will examine the 41 claims that comprise Compton’s patent on SmarTrieve technologies, a computer search system for retrieving text, video, graphics, still images and sound from a multimedia database. (For more on the Compton’s patent claims, see Vol. 3, No. 6, p. 21.)

The somewhat unusual step of ordering a review of the patent, which had been issued in August, was prompted by the strong reaction of the multimedia community to the claim, according to PTO.

Companies and individuals may submit prior art to be considered in the case. However, as is general practice, the review is closed to the public in order to protect the filing company’s trade secrets.

Bob Carr, spokesperson for the Tribune Co., says Compton’s and the Tribune Co. are still confident that the patent will be upheld. “We have not changed our position at all,” he says. “This is the same thing that happened with Dolby sound, the color chip in color TV and other technically oriented patents in the past,” where industry challenged individual company claims to a widely used technology. He says Compton’s will honor whatever decision is reached by the PTO.

“Our opinion is that the patent is too broad,” says Ken Christie, marketing director of the Interactive Multimedia Association (IMA), a trade association representing 260 member companies and organizations. “We’re concerned that this will scare people away from wanting to create multimedia.” He noted that, during the review, the patent is not enforceable.

PTO commissioner Bruce Lehman has also initiated a series of public hearings for critical feedback on how it evaluates patents for software. Hearings are scheduled for Jan. 7–8 in Crystal City, VA (outside Washington, DC). Testimony will be heard from many industry groups, including the IMA, which Christie says will propose a more open review process for patents and pre-grant publication of claims.

FULL ACCESS TO THE INTERNET MADE EASY

If you’re tired of waiting for your commercial online service to implement full access to the Internet, this spring, O’Reilly & Associates, a publisher of Internet books, and Spry, Inc., a developer of Internet applications, plan to introduce an all-in-one product for connecting and using the Internet.

Internet-in-a-Box, as the product is called, includes a variety of Internet applications: file transfer protocol (FTP), Telnet, mail, news, Gopher and Mosaic search and retrieval software from Spry, as well as a customized version of Sebastopol, CA-based O’Reilly’s The Whole Internet User’s Guide and Catalog, a frequently updated reference guide that lists addresses for special-interest areas on the Internet. As part of the package, customer support and service providers for one-step Internet connectivity will also be provided.

Perhaps one of the niftiest features of Internet-in-a-Box is its navigation system, which comprises World Wide Web and Mosaic. (Both World Wide Web, or W3 for short, and Mosaic were developed by research institutes. Spry licensed the Mosaic code from the National Center for Supercomputing Applications at the University of Illinois, Champagne-Urbana.)

W3 is based on a Hypertext model. It creates direct links between text in documents so that jumps from one document or file to another can be made by clicking on highlighted, or linked, text. W3’s global Hypertext system is connected to news groups, Telnet services, gophers and other resources and enables text links between documents on different systems around the world that are connected to the Internet.

Mosaic, a graphical interface for W3, is intended to simplify use of the system. With Mosaic, users click on icons to retrieve information automatically from disparate network sources. In addition to text links, Mosaic supports the use of programs to view digitized images and video clips and to listen to sound clips. While Mosaic is available free of charge on the Internet, Spry believes that its packaging of the technology and customer support will appeal to users, according to Deanna Leung, spokesperson for Spry.

Buyers of Internet-in-a-Box automatically become subscribers to O’Reilly’s Global Network Navigator, a free online magazine on the network, and its vast resources. GNN provides direct links (using Mosaic) to more than 600 information resources. The quarterly magazine has published two issues since its October founding with the second — on education — appearing this month.

GNN has more than 15,000 subscribers, according to Ron Pernick, a spokesman for the companies. Unlike other areas on the Internet where usage is unrecorded, specially designed software enables O’Reilly to track access to specific areas of GNN.

In order to offset development costs, the magazine features advertising by some 25 companies, including DEC, Nordic Track and Lonely Planet Travel Guides. In keeping with the “Internet culture,” with its strong non-profit (some would say anti-profit) predilection, advertising is designed to be unobtrusive. In order to view promotional material, users must click on a marketing icon.

User connection fees will be determined by the individual companies Spry and O’Reilly contract for service connection. (Users will be allowed to choose among the service providers.) Seattle, WA-based NovX InterServ is the first Internet access provider to partner with the companies. Hourly charges are expected to average between $8 and $12.

According to O’Reilly spokesman Brian Erwin, Internet-in-a-Box will be priced at less than $100. A Windows version will debut this spring. The product will also be developed for Macintosh, but no timeline has been established for this yet.

INTERACTIVE MEDIA IS MAJOR GROWTH SECTOR

While the task of tracking developments in the ever-changing field of interactive media can be likened to trying to catch a greased pig, three companies, Digital Information Group, Veronis, Suhler & Associates Inc. and Cunningham Communications, have attempted to tackle the “growth of multimedia” in recent surveys. The findings of the companies highlight past and potential future growth of interactive media businesses in the United States.

Stamford, CT-based Digital Information Group recently released a report forecasting future growth of the CD-ROM industry. The study concludes that commercial CD-ROM sales will grow 80 percent in 1994 to reach almost $6 billion worldwide. It estimates 1993 sales of CD-ROM machines at $2 million and says this figure will approach $2.7 million in 1994.

Information and reference products will continue to account for most CD-ROM title sales. Hot areas of growth will be in the consumer market, where the study says sales will increase 150 percent this year, compared to 50 percent last year. Despite this growth, competition among publishers for consumers’ attention is getting fierce — Digital Information says more than 1,200 new titles appeared on the market last year.

In December, Veronis, Suhler, a New York-based investment banking company, released a compilation of extensive financial data and analysis on 349 publicly reporting companies in the communications industry from 1988-1992. According to the annual survey, interactive software emerged as the biggest growth sector of the communications industry in 1992. Revenues for the 30 digital consumer entertainment and information publishers surveyed rose 21 percent to $3.4 billion, and operating profits rose 56 percent to $308.9 million.

The review looked at 30 publicly reporting software companies in the areas of consumer data and transactions, consumer reference, education, games and home shopping/infomercials. Videogames, led by Sega and Nintendo, is the largest of these categories with gross annual revenues exceeding $7.7 billion for 1992. Education and consumer reference enjoyed the highest margins of these five categories.

John Suhler, president of Veronis, Suhler said that the growth experienced in this area is due to the increasing number of computers and CD-ROM drives in the home. An estimated 40 to 50 million households have videogames and 20 to 25 million homes have personal computers. The 30 million PCs that were sold in 1992 exceeded the number of cars sold worldwide, according to Suhler. “In addition, the growing population of CD-ROM readers now routinely installed in new PCs, mega-mergers in the cable television and entertainment industries and double and triple-digit growth for online services all point toward significant growth for the interactive digital media segment,” he said in a prepared statement.

Earlier this month, Santa Clara, CA-based Cunningham issued “The Cunningham Interactive Report,” which presents portfolio-style information on the alliances, investments and activities of 30 companies involved with interactive media. The “trendsetters in the converging worlds of entertainment, computers and communications,” as the report refers to the profiled companies, include telco and cable companies, such as Ameritech, AT&T, Bell Atlantic, TCI, Comcast and Cox, as well as content providers, such as News Corp., Capital Cities/ABC, Paramount and Walt Disney Co., and technology component developers, such as Apple Computer, General Magic, Hewlett-Packard, IBM, Microsoft, SGI and 3DO.

While the information provided in the 70-page, $995 report is fairly detailed, especially in the area of alliances, a large binder of blank paper should perhaps be kept beside it in order to enter information on new alliances that are being forged with the wink of an eye.

DIGITAL OCEAN SELLS WIRELESS NETS

The services that are underground shall rise up and fly through the air, while the services that travel through the air shall hide underground. Thus spake Nick Negroponte, guru of MIT’s Media Laboratory, in the early days. And so it is coming to pass.

Negroponte had noticed that television, once exclusively a broadcast service, was increasingly being distributed by cable, while telephones were going cellular. He predicted that the economics of communications would continue to shift; the radio spectrum would become increasingly valuable for mobile users, while point-to-point transmission (which most entertainment is) would benefit from the cleaner signals and higher bandwidths that fiber and coax offered.

The latest manifestation of Negroponte’s theory is the entry of Digital Ocean (Lenexa, KS) to the Macintosh market. Ocean provides wireless AppleTalk networks, based on spread-spectrum technology, for desktop Macs, PowerBooks and Newtons. The transceivers (cutely called Groupers) have an indoor range of 300 to 800 feet, depending on building construction. Operating in the 902–928-MHz band, the transceivers have a raw bandwidth of 2 mbps, which they divide into five channels. This allows different groups of transceivers (“schools” or network zones) to operate in the same vicinity without interference. Network speed is the same as LocalTalk: 230 kbps.

Digital Ocean also provides network management software, called “school administration” just to mix the watery metaphor a bit. The network transmissions are encoded (using each device’s ID number in ROM) for snoop-free operation, but are not what the military would call secure. A promised option is 64-bit DES encryption.

The PowerBook and Newton transceivers run on batteries for true walkabout networking. PowerBook Grouper batteries will last at least as long as the PowerBook’s own batteries, we were told. Each Grouper, whether designed for NuBus, PowerBook, Newton or direct attachment to an Ethernet backbone, is priced at $699.

ELECTRONIC WHITEBOARDS MARK MACWORLD

During the Macworld computer conference held this month in San Francisco, several firms showed whiteboards that relay your writing to a Mac screen. Once it’s on the Mac, it can be saved in a file for later printout or inclusion in a publication. More interestingly, it can be transmitted to other Macs by modem or LAN using Farallon’s Timbuktu Remote software. Thus remote participants could get more out of a briefing or brainstorming session. The cost for a 40-inch-by-50-inch board is typically about $3,000.

There are a couple of ways to capture whiteboard scribbling for the computer’s benefit. Microfield Graphics of Beaverton, OR, uses a pair of lasers, mounted at the corners of the board, to track the position of a specially coded dry marker. Smart Technologies of Calgary, AB, uses a pressure-sensitive surface, similar to the digitizing tablets that have become commonplace in the last couple of years.

In both approaches, it is important to detect which color of marker (or eraser) is being used. The products we saw used a color-coded marker tray with electric eyes in each slot; they assumed that whichever pen was most recently taken from the tray was the pen in use. Two-fisted whiteboard lecturers, or slobs who don’t replace their pens in the right slots, are out of luck.

Another tool for remote collaboration is Meeting Space by World Benders of Nashua, NH. It is text-only conferencing software, more like a chat session on CompuServe than a live videoconference. It uses a metaphor of meeting rooms that you can enter or leave, complete with minutes (session transcripts) that you can read and private notes that you can pass to individual participants.

Meeting Space can be run in real time or as a store-and-forward system. In real time, it is no substitute for face-to-face interaction, but we suspect that lots of meetings don’t really depend on nuances of body language and intonation. Just getting a common set of facts to your audience and responding to questions is sufficient for many business purposes. And in some cases, the opportunity to edit your words before you say them can be a lifesaver.

The price for the software seems rather steep: $1,750 for every five users. But the developer suggests that companies with scattered sites can quickly recoup the price in travel and time savings. Future versions of the product will offer more functions, such as shared text editing, multiuser whiteboards and secret-ballot voting.

MASTERING AUDIO CDS ON THE MAC

Last summer, JVC brought out a recordable CD-ROM system for data archiving and very-short-run disc production. It could write either Apple’s HFS or standard ISO 9660 formats and cost only $4,000. Oddly enough, it could not make audio CD discs, even though CD-ROM coding is based on audio coding techniques. The reason: missing software.

Now JVC has teamed with Digidesign to provide audio mastering functions on the CD recorder. Once you have created the sound files you want (using any of the high-end audio tools now available for the Mac) and stored them on your Mac’s hard disk, Digidesign’s software does the rest. It uses the JVC write-once hardware to create a Red Book-compatible audio disc, which is the standard today for CD audio quality.

The resulting disc works in any CD player. Musicians can send out demo discs instead of demo tapes, and if no one signs them up, they can publish the music themselves. (But don’t fear an avalanche of self-published noise; the JVC machine records in real time, taking an hour to write out 60 minutes of sound.)

The Digidesign software costs $995, and blank discs cost about $25 apiece. Wannabe recording artists will also need a Mac (either one of Apple’s AV models or an older model with a 16-bit stereo sound card) and a gigabyte disk to prepare the 600 MB of sound that will fit on a CD. A complete “desktop music publishing” system adds up to about $10,000 — steep to an amateur chamber group but cheap compared to the cost of the speakers, amps and synthesizers that a rock band needs.

>I/O
>READERS RESPOND
AN ONLINE SERVICE FOR THE FUTURE

Brian Hammerstein, Microsoft’s former senior multimedia evangelist, provides consulting services to media companies interested in CD-ROM, online and Inter-net publishing. He can be reached at Hammerstei@aol.com.

It is time for a fundamental shift in the way we communicate and navigate online. Today, a person using an electronic online service must go through a laborious process of manual navigation, involving a hodgepodge of hierarchies, keywords and brands, in order to find desired information.

THEY KNOW WHO YOU ARE

Contrast this with the following scenario, which for now has more in common with a science fiction novel than reality, although several major software and publishing companies as well as existing online providers claim to be working toward this goal. (For more on future online services, see p. 13 and 18.)

Upon my first use of what I will call a next-generation online service, a friendly cartoon character appears on screen and presents me with a scripted questionnaire. Appearing as an innocent group of 20 questions or so that one might ask or answer in pleasant social conversation, it ascertains my interests in detail. The service saves the information in a profile stored on the service and uses it to bring me — without my asking — relevant information when I am online. In short, the service “knows” who I am.

Hostess with the mostest. In addition to bringing me articles and information I might wish to read, the service could — using the information supplied in the subscriber profiles — facilitate introductions to people I might wish to meet. A dialog box or balloon above a drawn character could suggest, “You really must meet so-and-so, because she has the same interests you do.” Both myself and the other person would receive a similar message from the automatic host. Both of us would have to click “OK” to meet each other online, thereby giving each individual the choice of whether or not they wish to socialize.

BORROWING FROM EXISTING MEDIA

Immersive visual interfaces inspired by popular games combined with scripted and animated anthropomorphic guides (agents) could bring the magic of format to an online service. Certainly, this is not a revolutionary idea. Mass media have legions of examples of content compendiums lent cohesion by a single editor or host: MTV, “magazine-style” TV news programs such as 60 Minutes and printed magazines, including Vanity Fair.

In addition, we know from today’s successful media, a human host derives appeal from a combination of the predictable and the surprising. As media junkies, we aim to view for the kind of comments we have come to expect, but not for exact repetitions. In a next-generation online service, we could re-create this model through the use of some clever scripting. Imagine a service where electronic characters randomly drop in clever commentary while you are online. It would pique member interest and potentially encourage repeated visits.

Professional writers could create the “personalities” for these electronic characters. In return they would receive a percentage of the fees members pay to view the character. An online service could experiment with different characters and writers to find those that members prefer — just as we do with existing TV programming. For further likelihood of appeal, a service could target characters to different groups of subscribers, based on the profile questionnaire completed prior to a member’s first entry into a service. Each character could have its own profile in a format similar to members’ profiles, allowing the same mechanism that matches a member to content or another member to perform the match to a given host character.

MANAGING DATA FROM SERVERS TO DESKTOPS

An online service should feature the tens of thousands of available MIDI files with descriptions and member-contributed reviews, turning a connected PC into a huge digital music jukebox. Since MIDI files consist of compact musical notation rather than actual digitized waveforms, conventional modems have the speed to download and play back these files in real time.

A self-cleaning PC? Every piece of text, MIDI, sound, graphic or image a service sends to our PC should go into a buffer of arbitrary size on a first-in, first-purged basis. Some items, such as mail messages, information the member wants to save permanently or information the service has deleted permanently from the host, could have special flags to prevent their deletion from the buffer. Items downloaded with a surcharge would have maximum persistence in the buffer, perhaps complete permanence.

The service would help the member choose the size of the buffer based upon available disk space. Prior to transmitting an item, the service would transmit a unique numeric tag that the client software would use to confirm whether the member PC’s disk buffer already contained the item. If the item already appeared in the buffer, the service would not transmit the item, saving transmission time and downloading charges. When the member PC’s disk buffer reached the specified maximum, it would start to delete old items to make room for new ones.

By using this scheme rather than requiring an explicit request to download a given file from the service, the member’s PC and the online service merge into one, creating a seamless, huge collection of information. The member need not keep track of which files reside on the service or on his PC.

Such an arrangement makes particular sense for news items. A member wants to save news items for later perusal, but has a limited capacity for these on his PC. The automatic disk buffer lets the online service take the responsibility of managing the archiving of this information on the PC. While disconnected from the host, the online service PC software would allow the same keyword search through the local buffer that it allows throughout the entire service while connected.

SERVICES PROVIDE ‘LOCAL FLAVOR’

A famous politician once remarked “all politics is local.” One can say the same of much valuable information. Once a connection is made to the service, the service could use the address connected to a given account to display local weather and any other relevant local news. Local municipal agencies should not need much encouragement to provide such important news as road conditions and school closings or even lunch menus. Local maps licensed from existing providers and downloaded once to the person’s PC by the service could show this information cartographically.

Local businesses, especially local entertainment establishments with highly variable schedules, could reach their potential patrons over the service. A person could select a favorite movie from a menu and receive the showings arranged in chronological order of the film at all local theaters or display all movies showing at local theaters at a given time. The user interface for entering such information should have ease sufficient to allow any movie ticket taker to turn to her PC, log on and enter the theater’s schedule via modem without intervention from the online service staff.

Doing business online. Many individuals, myself included, prefer to enter orders and peruse product information on a personal computer rather than to speak over the phone with an operator. Direct marketing organizations, from large catalogs to corner stores, could benefit immensely by allowing their customers to inquire and order through an online service. One large direct marketing organization placed the cost of live operators and 800 service at 5 percent of sales — a significant number. An online service could perform this function at a profit while charging marketers substantially less than they currently pay to receive orders by phone. An online service must market itself to businesses for this purpose as effectively as the large phone companies sell 800 services.

Billing should consist of a combination of connect time and fees for each item transmitted from the service to the member’s PC. Services that charge a flat per-hour fee regardless of transmission speed or content do their members and suppliers a cruel disservice. They usually cannot afford to supply full throughput to their high-speed lines, causing 9600-baud lines to yield only 4800 baud, and suppliers with information more valuable than their share of the hourly rate have no incentive to offer their products.

Bringing entrepreneurs online. Allowing members the option of paying more for some items, coupled with an open information platform available to any and all entrepreneurs, would spur a new group of one-person shops dedicated to all manner of information and entertainment supply. (Will Wright, the designer of the SIM City genre of games, has said publicly he would prefer to sit at home and create new worlds for others to use over an online service that paid him a royalty. Individuals could control the expenditure for themselves or other members of their households by setting per-item or per-hour cost limits for a given account.)

An online service that takes the initiative to bring information to the consumer, creates excitement without effort in the manner of television, adds colorful graphics, provides a royalty structure for information entrepreneurs, incorporates new multimedia such as MIDI, targets personal and professional organizations, allows hyperlinks between member-contributed and branded content, and provides automatic download management with local searching can create a sum of value irresistible to the majority of personal computer owners in the market today.

Of all of these, I consider allowing all individuals to contribute and create information for sale over a service as the most important. Complicated approval procedures, while ensuring high-quality content, limit potential breadth.

Editorially, a service should decide what to feature rather than what to include, just as a bookstore might place a fraction of its inventory in the front display window. Traffic on the Internet, completely lacking any sort of central editorial control, continues to increase at 15 percent per month. Online service providers seeking similar growth should consider offering similar freedom.

Brian Hammerstein 

>EVENTS
COMPUTERS, FREEDOM & PRIVACY
March 23–26, Chicago
ACM, John Marshall Law School
(312) 987-1419, fax (312) 427-8307

As plans for developing superhighways, interactive television systems and wireless computing capabilities take off at breakneck speed, one of the most critical and lesser-discussed elements is the need for security and privacy on these massive electronic networks.

This fourth annual conference will discuss access, ethics and control on cyberspace superhighways. Event sponsors aim to provide a forum for discussion among individuals from legal, government, social, educational and high-tech backgrounds.

John Podesta, assistant to President Clinton, and David Flaherty, data protection commissioner of Victoria, BC, will give keynote addresses. U.S. Senator Paul Simon has also been invited to deliver a noontime address.

The single-track conference program will open with a panel on the information superhighway, politics and the public Internet moderated by Jerry Berman of the Electronic Frontier Foundation. Other first-day sessions will include discussions of proposals for a U.S. Data Protection Agency; owning and operating the national information infrastructure; and data encryption.

The second day will feature sessions on health information policy; the use of market mechanisms to protect consumer privacy; creating an ethical community in cyberspace; standards for certifying computer professionals; and the use and abuse of networks by hackers and crackers.

The final day will feature sessions on the role of libraries; international governance of cyberspace; electronic delivery of government services; education and NREN; and guarding the digital persona.

Speakers will include Priscilla Regan of George Mason University, Marc Rotenberg of CPSR, Willis Ware of the Rand Corp., Tamara Miller of the Library & Information Technology Association, and Steve Hodas of NASA NREN Project.

A day of tutorials before the conference will cover topics such as cyberspace for non-lawyers, the Internet, the Freedom of Information Act, cryptography, electronic detectives and high-tech intellectual property law.

Amy Johns

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