• TELCO POLICY BECOMES CRITICAL
With the banner of competition waving high in a warm autumnal breeze, U.S. Commerce Secretary Ron Brown showed no fear last month as he prepared to plunge into the alligator-infested swamp that lies between Washington and the electronic superhighway.
Brown and other Clinton strategists indicated they were prepared to unveil proposals that would eliminate many barriers to telephone company operations while establishing a single set of rules for cable and telephony alike. “Communication must flow easily and inexpensively both ways, out of as well as into homes, small business and new industries,” Brown said.
• NAVIGATING A DETOUR
The dealmaking frenzy coming to a head in the wake of the proposed Bell-Atlantic/TCI merger is charting a chaotic course for development of the national information superhighway — a course that bears little resemblance to the agenda long touted by leading thinkers on the subject.
Until now, the focus in discussions on advanced telecommunications has been government support for accelerated development of broadband telephone networks. But prevailing market and regulatory conditions have made the lowly cable TV network the new medium of choice among the people with pockets deep enough to put the information highway in place.
• AT&T PLAYS HOST TO THE FUTURE
As the lovefest between the cable industry and regional Bell companies continues unabated, telecommunications giant AT&T Corp. is courting new-age communications on a much larger scale. Much has been made of AT&T’s “multimedia master plan” which, mildly put, is comprehensive: in a marathon series of interviews, mostly at various AT&T and Bell Laboratories sites in New Jersey, AT&T revealed an impressive arsenal of technology and strategy for its foray into the future.
• I/O
A reader responds to “The Puzzling Purchase of Paramount.”
• CHANNELS
Multimedia in Europe is years behind the curve.
• A PATENT ON MULTIMEDIA?
Compton’s announces its patent for database navigation that it contends extends to multimedia.
• NEW MEDIA CENTERS
Vendors form program to promote multimedia in educational institutions.
• WOMEN ON WIRE
New network offers info, resources with a female focus.
• AIR DELIVERS WIRELESS LINK
An all-in-one wireless voice and data peripheral for portables.
• 7TH LEVEL DEBUTS
New media studio, funded by former junk-bond king Michael Milken, develops a kids’ title.
• LUXOR LAS VEGAS
Circus Circus and Trumbull unveil high-tech theme park.
• HDTV CAMERA
Matsushita develops the first fully-digital studio camera.
• EVENT
Winter CES.
>I/O
>READERS RESPOND
To the editor:
I read Digital Media regularly with great interest and have tremendous respect for you. But I take issue with most of “The Puzzling Purchase of Paramount.”
Richard Greenberg, who does mainly title sequences for movies but also commercials including one for Diet Coke in which Paula Abdul dances with digital samples of Gene Kelly from “Singin’ in the Rain,” thinks publishing and especially licensing will be the salvation of New York as a media center. That’s his business, so naturally he’s bullish, but I agree. I also think the cost of sampling film will plummet like the cost of everything else in computing. I think video is headed the way of rap music, which is almost totally about sampling (James Brown loops e.g.).
It’s easy to see how 900 old movies and 6,000 old TV shows could pull a profit. The television syndication business is built on that assumption. Barter syndication grew by an order of magnitude to $1.3 billion in the last decade. Consumers buy the old not the new. Apart from the game and talk shows, the most successful franchise in syndication is Paramount’s infinite series Star Trek. Nothing new there. If innovation is what you’re looking for, television is the last place to look, yet every evening 65 percent of U.S. households watch TV. If we don’t rent a movie now, it’s even more likely we’ll want to rent it tomorrow, especially if we don’t have to drive to the video store. Home video is the studios’ primary source of revenue, which is why movies and TV shows are becoming indistinguishable — they’re both made for the small screen. Ted Turner went broke buying MGM, but he’d still bid for Paramount if his hands weren’t tied by John Malone. Time Warner is building a full-service network in Orlando mainly to circumvent the home video retailers. Pay-per-view is not a good business because the copyright holders don’t want to share the spoils with cable operators.
The idea of seeing old movies chopped up into video games is very compelling. That Diet Coke commercial was pretty entertaining, and it’s only the beginning. Greenberg says the video game business is the biggest piece of the entertainment business. I’ve never heard that before, and I’ve never seen a dollar figure, but it wouldn’t surprise me.
Declining ad revenues notwithstanding, owning television stations is an annuity not a liability. It’s the networks not the stations that are unprofitable. The O&Os (owned and operated TV stations) are a gravy train — especially since they’re in major markets with more eyeballs per square inch.
MTV is a perfect example of what can be gained by hyping little known artists who belong in Las Vegas. Blond Ambition? Nothing new there. David Lee Rod made a lot of money singing Gershwin while cavorting like an anti-authoritarian adolescent. Nothing new there. A remake of Tiny Tim singing “Tiptoe through the Tulips.” Innovation is one thing. Money is another. The only place they mix is in technology. In art, forget it, and yes, you’re right, hardware ultimately is not the issue.
You say QVC has a phenomenal computer network. I assume you refer to its fulfillment operation. I know it’s impressive, but I don’t see how it equips QVC for digital distribution. I’m not all that sanguine about QVC. As you yourself (I think it was you) have said, silk and burlap are indistinguishable on NTSC, and flat screen TV still cost $20,000 apiece.
I don’t think transferring a book into a CD-ROM is a quintessential case of a square peg in a round hole. After sex and conversation, print is the most interactive medium around. Are you familiar with McLuhan’s idea of the tetrad? Obsolescence, retrieval, reversal…. I forget the fourth one, but the idea is what’s old gets new again in a new context.
Denman Malroney
Vice President, Media Publications
D’Arcy Masius Benton & Bowles, Inc.
New York, NY
Denise Caruso responds: Thanks for taking the time to write. However, I take exception with nearly every one of your points — and so does everyone I’ve talked to who works with interactive media.
People whose lifestyles and paychecks depend on the continued success of old media want very much to believe that they will be able to “repurpose” archives ad infinitum and that recycling, rather than innovation, will be their bridge to riches in the new entertainment media. Those of us who have seen the results — a Coke commercial and a cult TV series notwithstanding — believe that short-term profits based on these rather gadgety approaches to digital media will spike quickly, leaving an opening the size of Texas for true innovators to enter the market.
>FOCUS
POLICY BECOMES CRITICAL
TCI, Bell Atlantic deal puts feds on the spot for new-age regulations
With the banner of competition waving high in a warm autumnal breeze, U.S. Commerce Secretary Ron Brown showed no fear last month as he prepared to plunge into the alligator-infested swamp that lies between Washington and the electronic superhighway.
The Clinton administration “is perfectly situated now to realize its vision of the National Information Infrastructure,” Brown said while addressing an audience of telecommunications executives at the Networked Economy conference in Washington, DC. “My job, my goal, is to transform the United States government into a responsive and productive ally of yours.”
Brown, as well as other Clinton administration strategists, indicated that they were prepared to unveil proposals that would eliminate many barriers to telephone company operations while also establishing a single set of rules for cable and telephony alike. “Communication must flow easily and inexpensively both ways, out of as well as into homes, small business and new industries,” Brown said.
“We are looking for ways to promote competition, particularly in the local loop,” said Mike Nelson, senior advisor for science and technology policy at the White House, who also spoke at the conference. “We are preparing to testify on this and will soon have an answer to questions such as how quickly can RBOCs get into cable and how quickly cable can get into telephony, and we’ll address questions about restrictions on inter-LATA (long distance) competition as well.”
But, having said all that, Nelson hastened to add what Brown left unsaid: “It’s easy to say we should get rid of the regulations we have now. It’s much harder to say what we should replace them with.”
Indeed, the widely accepted prescription of competition as the cure to all ills is likely to quickly lose its luster on deeper analysis, leaving policymakers with a much more intractable set of problems than they bargained for. Yet to be answered in the crucible of public debate, for example, are questions such as these:
• What are the cost and public benefit justifications for creating two or more information highways of infinite capacity?
• How does government go about ensuring universal access and open standards?
• To what extent can control over content and facilities or networks be mixed without inviting monopoly abuse?
• How far can the federal government go in pre-empting traditional state and local control over network operators?
TCI AND BELL ATLANTIC NOW UNDER THE HOT LIGHTS
The first test of the competition hypothesis is now underway with the government’s examination of the proposed Bell Atlantic/TeleCommunications, Inc. deal. Ray Smith, Bell Atlantic chairman and CEO, appeared on Capitol Hill late last month to address senator Howard Metzenbaum’s (D-OH) charges that the agreement was an anti-competitive “mega-monster.”
Smith noted that with Bell Atlantic’s commitment to divesting all TCI cable systems within its telephone operating territories, the deal did not represent concentration in any one marketplace. Instead, he said, it put the cable company in the position of having the wherewithal to mount a significant challenge for the long haul against entrenched telephone monopolies outside Bell Atlantic territories.
As for Bell Atlantic’s existing telephone operations, Smith noted, the company faces competition from cable everywhere it looks, given its commitment to getting into video transport. And those cable companies are likely to benefit from the same type of capital infusion from third parties that Bell Atlantic is providing to TCI in other telcos’ territories.
“No one will control entry into the home,” Smith said a week earlier at the Networked Economy conference in Washington. “The notion of a single transport medium into the customer premises is part of an archaic view of the past.”
Mr. Smith will prevail. Early betting in the press was that Smith’s arguments would prevail in Washington. Indeed, a source close to the Clinton Administration said the signals from the Justice Department suggested the deal would easily pass muster there, despite the launch of a formal review.
But Metzenbaum’s challenge was soon to be echoed by one from Ed Markey (D-MA), chairman of the House telecommunications subcommittee, who also was planning to hold a hearing on the deal. In addition, Markey said he had ordered the FCC “to assess the potential technological and market bottlenecks created by mergers, acquisitions and alliances among cable, telephone and computer companies.”
The credibility question. Bell Atlantic’s credibility on the issue of supporting competition will be crucial to regulatory approval, given the anti-competitive image TCI has acquired over the years. But, early on, the RBOC was having some trouble on this score.
Smith repeatedly stressed at the news conference following the announcement of the agreement with TCI that Bell Atlantic would divest itself of all cable properties within its telephone operating territory, ensuring there would continue to be two-wire competition in those areas.
Spinoff and buy-back. However, details of the agreement made it clear that this divestiture amounted to a spinoff to TCI’s existing shareholders with the intent of entering into an agreement with those shareholders to buy the properties back “on a deferred basis when applicable restraints are eliminated.”
Moreover, filings with the SEC suggested Bell Atlantic anticipated that TCI cable systems in its operating territories would become clients of its video dialtone network, accounting for an anticipated 50 percent of the revenues projected for the telco’s video systems in those territories.
Did Smith “misspeak”? Two weeks later, on the eve of his confrontation with Metzenbaum, Smith sought to undo the impression that Bell Atlantic was less than forthright in its claims. Talking to reporters, he said that the previously arranged provisions were no longer operative. Instead, all in-territory TCI properties would be sold or traded for out of territory cable systems, with no possibility of later purchase by the RBOC.
More worrisome to opponents of the deal, however, was Bell Atlantic’s plan to acquire TCI’s programming holdings. Here, too, there was a credibility problem with regard to how quickly TCI networks would become open platforms, which is important to Smith’s point that Bell Atlantic will own only a fraction of the programming it carries.
NO SPECIAL TREATMENT FOR TCI’S PROGRAMMING, BELL CLAIMS
TCI is presently awaiting regulatory approval of a merger with Liberty Media, the company it formed and spun off two years ago. Liberty Media was formed to serve as TCI’s shelter for its programming interests when TCI officials were concerned that the government would act against its concentration of cable and programming ownership. TCI is reacquiring the programming interests in the wake of FCC definitions of concentration that proved less restrictive than originally anticipated.
Smith and TCI CEO John Malone sought to assuage concerns about Bell Atlantic’s control over programming in a variety of forums in the weeks following announcement of the deal. Smith, at the Oct. 26 press conference, stressed that program holdings, including a 22 percent stake in Turner Broadcasting System and majority control of several other networks, would be placed in a separate subsidiary that would operate independently from the telco and would be treated like any other entity seeking entry onto the telco’s platform.
Malone, speaking at the Networked Economy conference, said, “We are building a fully interactive platform based on the concept that anyone who can afford the pennies to have shelf space will have access to the consumer. The software (programming) we have an interest in will comprise a very small percentage of the totality on the platform.”
He added, “This transaction virtually guarantees multiple providers in the marketplace. Government won’t have to impose access rules, because we’ll adopt open access as a matter of first priority.”
Left unsaid, however, was the fact that TCI today is a long way from operating the type of switched broadband network that would accommodate such open entry. Indeed, the cable tycoon has made his reputation and fortune playing hardball with programmers to whom access to TCI’s 10 million subscribers over its limited-channel networks is crucial to survival.
THE $15 BILLION NETWORK UPGRADE WAS ALREADY BUDGETED
Smith gained a lot of unquestioning publicity in The New York Times and elsewhere by announcing Bell Atlantic would spend $15 billion during the next five years on upgrades of TCI and Bell Atlantic networks, leaving the impression that TCI would quickly become an operator of switched, open platforms that would support entry by all comers. This capital infusion represented a 20 percent increase over previously planned spending by the two companies, he said, claiming the figure served as a clear indication of why the deal was a boon to the U.S. in its pursuit of infrastructure development.
Committed to spending. But a Bell Atlantic spokesman, who said he hadn’t been provided figures on how the spending would break down between the two arms of the new Bell Atlantic, acknowledged that Bell Atlantic has been spending between $2.1 and $2.5 billion per year on its networks for the past nine years and had already committed to significant accelerations in spending in New Jersey and Pennsylvania, its two largest operating territories.
Assuming this translated into an ongoing spending program at the high end of the nine-year average, the already established spending projection for the company over the next five years would be in the range of $12.5 billion.
As for TCI, Malone late last year said the company would expand spending to $750 million per year. This year, officials said, the figure had climbed to close to $1 billion, with 1994 likely to come in at the same level. Assuming the lower figure projected over five years, the already established spending target for TCI would come to $3.75 billion.
The altar of growth. In other words, Smith’s $15 billion offering on the altar of infrastructure growth appears to be at or under already scheduled spending levels for the two companies. “I haven’t been able to find out what the baseline was on (Smith’s) calculation,” the Bell Atlantic spokesman said.
WHAT OF THIS DEAL IS REAL, AFTER THE SPIN IS GONE?
Aside from illuminating how lightly some of the deal promoting spin on future plans should be taken, the figure suggests that TCI will continue on its anticipated track for some time to come; that is, it will invest in network upgrades to accommodate channel expansion into the 750 MHz range (110 analog channels) throughout its systems during the next several years.
When, it must be asked, does Bell Atlantic get to its wide open, switched access platform and away from the bottleneck control over content that has been TCI’s hallmark? Apparently, sometime after 1998.
Milking the cable cow. That leaves a lot of time to continue to milk the cable cash cow from both the content and facilities sides of the business. And it leaves a lot of time to nurture proprietary new advanced services into being through the TCI gateway well ahead of potential competitors who will have to wait for the infinite platform to open up.
SOMEDAY, EVENTUALLY, ALL BECOMES OPEN — MAYBE
All of this represents a translation of the upside scenario posited by Smith and Malone. It may take to the end of the decade, but, yes, everything becomes open and, as Malone put it, everybody eventually has access onto the platform for “a few pennies” — even if they’re getting on after Bell Atlantic’s proprietary versions of the interactive TV and multimedia cornucopia have had several years lead time in which to establish brand identity and loyalty in the marketplace.
But there are no guarantees that even this more realistic version of the upside scenario painted by Smith and Malone will prevail. Several speakers at the Networked Economy conference alluded to the downside, although the general tenor at the meeting was supportive of the deal as promoting faster development.
A massive reordering. Eli Noam, director of the Columbia University Institute for Tele-Information, expressed concern that megadeals like Bell Atlantic/TCI, which are pegged to projections under the current regulatory regime, were triggering a massive reordering of the way business is done in a way that could invalidate the projections.
While Noam said he was confident the Bell Atlantic deal would foster competition, he added, “I wonder if they are opening the business structure in a way that could undermine their own deal.”
Jonathan Solomon, executive director for strategy and corporate business development at the British firm of Cable & Wireless, was more skeptical.
The deal is the new bottleneck. “Technology is creating an environment of super abundance,” Solomon said, noting silicon, light and brain power are the resources on which computing and communications are based. “As a result, true costs are relentlessly being driven to zero.”
At the same time, Solomon continued, the costs of the megamergers are building in costs that ultimately could limit availability of services. “The bottleneck is supposed to be going away,” he said, “but what if the deal structures themselves become the source of a new bottleneck? It’s quite worrying.”
NETWORKS AS A UTILITY COULD OBVIATE THE CONTENT ISSUE
In a phone interview, Steven Rivkin, visiting fellow for the Progressive Policy Institute, the research arm of the Democratic Leadership Conference, noted the Clinton Administration’s policy “is trending toward facilities competition and is heedless of what kind of hellish situation could emerge with this sort of overkill.”
Rivkin suggested the only sensible course was to establish a regulatory regime that makes the facilities a public utility, with content providers competing over the infinite highway, possibly using the wherewithal of power utilities to further drive spending on network development.
Lifting cross-ownership rules. But, as Rivkin noted, the mood in Washington is to support the idea of facilities competition. In an interview, Rep. Rick Boucher (D-VA) asserted that “by this time next year, we’ll have legislation” along these lines. His bill aimed at lifting the cross-ownership restriction (H.R. 1504) now has more than 70 cosponsors, he said.
“We’re in serious discussions with (telecommunications subcommittee chairman) Ed Markey for the first time in four years on this issue,” Boucher said. “The gaps are narrowing rapidly,”
A THIRD COURSE TO CONSIDER: SPLIT THE TELCOS
Congressional and administration initiatives so far appear to be ignoring a third course between the status quo and all-out facilities competition which has been advocated by some state regulators, and by Ameritech and Rochester Telephone. In this scenario, telcos would split into two types of business, one facilities based and heavily regulated, the other content oriented and unregulated.
On the facilities side, the networks would be open to anyone, not just as lessees of channel space, but as users of various facilities components to provide competing services. If someone wanted to provide a competing voice service, for example, the party could lease individual lines into customer premises from the telephone company rather than building separate lines.
This “unbundling” and tariffing of all segments of the telephone network would allow competitors to configure their own networks however they wish, mixing and matching their facilities with telco facilities to maximize value and service potential. The telephone network operating entity would essentially become a utility charged with managing the system for all providers.
For now, though, facilities competition under a regulatory umbrella that applies the same rules to cable and telephone companies alike appears to be the direction things are going in. “The fact that telephone and cable companies are moving in the same technological direction makes it anachronistic to treat the two industries with completely different sets of regulations,” the administration’s Mike Nelson said.
Redefining “universal service.” But the White House might yet discover its vision of facilities competition is in conflict with another major goal — universal service. Nelson and Brown made it clear that universal service will be a key component of the regulatory regime governing cable and telcos, with an extension of the meaning of the term to embrace what Nelson called “plain old digital service” or PODS, as compared to today’s POTS (plain old telephone service).
“The Clinton administration is developing a broad, modern concept of universal service — giving all Americans who desire it easy and affordable access to advanced communication and information services regardless of income, location or disability,” Brown said.
Nelson said the framing of the universal service concept will rely on input from the general public, advocacy groups, institutions, government units and industry through a series of hearings to be conducted by an advisory group to the administration’s Information Industry Task Force.
How far should we go? Nelson said it was unclear just how far the new universal access rules would go in covering advanced services. For example, he asked rhetorically, should communications in rural communities be subsidized so that people in those localities can talk face to face over a videophone connection at costs comparable to costs for people in urban settings?
“It’s not a question we have an answer to at this point,” he said.
“We are going to have to find a different way to maintain the social goal of universal access but in a way that encourages competition,” Nelson added. “That’s not easy to do with lots of players providing services.”
WHO WILL BE THE PROVIDER OF LAST RESORT?
He voiced support for the idea of requiring network operators of all stripes to contribute to a universal service fund. But he left unsaid who would actually build that network and under what regulations.
If the telephone company is the provider of last resort, it remains, by definition, a utility and would be governed by rules different from those governing other network providers. In that event, it may well be that the Ameritech/Rochester Tel solution — splitting the telcos into content- and network-based businesses — will bubble to the surface sooner or later as Washington gains greater insight into the dimensions of the chaos that prevails on the information highway.
Fred Dawson
NAVIGATING A DETOUR
For deep-pocket telcos, superhighway is looking a lot like cable
The dealmaking frenzy coming to a head in the wake of the proposed Bell Atlantic/TeleCommunications, Inc. merger is charting a chaotic course for development of the national information superhighway — a course that bears little resemblance to the agenda long touted by leading thinkers on the subject.
Until now, the focus in discussions on advanced telecommunications has been government support for accelerated development of broadband telephone networks. However, the prevailing market and regulatory conditions have now made the lowly cable television network the new medium of choice among the people with pockets deep enough to put the information highway in place.
WHATEVER THE HESITATION, CONSIDER IT OBLITERATED
Bell Atlantic’s bid to acquire (or, as the participants prefer to say, “merge”) with TCI has obliterated whatever remaining hesitation there might have been among the major telephone companies about which network offers the best shot at staking claim to the future. Virtually all the major telcos now want in on the act, leaving open the question of whether the resources will be available — let alone used — to sustain a competitive expansion of the nation’s local exchange networks.
Ameritech. “We feel an incredible amount of pressure to conclude a deal (in cable),” said Mike Brand, spokesman for Ameritech. Sources said Ameritech was pursuing discussions with Comcast and Cablevision Systems, though neither would comment on specific contacts.
BellSouth. “We think Bell Atlantic’s agreement with TCI is a very powerful move,” said John Clendenin, chairman and CEO of BellSouth, to a Washington audience attending the Networked Economy conference in late October. “We have high admiration for the vision.”
BellSouth recently said it was taking a 22.5 percent stake in Prime Management Co., which owns cable systems serving more than 500,000 customers, including 200,000 in Las Vegas. But Clendenin made it clear he doesn’t see this as the end of BellSouth’s forays into the mega-deal arena. “Everybody is talking to everybody, and we’re going to make sure we find our own partners,” he said.
US West. US West, already partnered with Time Warner, isn’t at the end of its pursuit of cable holdings either, said Steve Lang, a company spokesman. Sources said US West was courting Cablevision Systems, the nation’s fifth largest MSO (multiple system operator), which operates in several attractive regions of consolidated franchise holdings, including Long Island, Westchester County, Southern Connecticut and parts of New York City.
Insiders at Cablevision said that, along with its dealings with CEO and majority owner Charles Dolan, US West was also trying to persuade Time Warner to sell all of its cable holdings to the RBOC outright. At the same time, they said, other RBOCs are knocking at Dolan’s door as well.
Southwestern Bell. One RBOC that can be counted on to expand its cable holdings is Southwestern Bell, which is awaiting local franchise authority approval as the last hurdle in its acquisition of cable properties outside Washington, DC. The company has set up a cable subsidiary with a mandate to expand, now made more urgent by Bell Atlantic’s move.
“This week’s events underscore this is really an arena with a lot of opportunity,” said SWB spokesman Mike Black at the time of the Bell Atlantic deal announcement. “We’re very encouraged.”
Pacific Bell. On the West Coast, a variety of parties not known to be in communication with each other suggested Pacific Bell was on the verge of a major announcement involving a cable company. Jones Intercable, the nation’s seventh largest cable MSO with practically no operations in Pacific Bell territory and a history of business dealings with Pacific Bell in the UK, was the most frequently mentioned acquisition target.
(In the upside down world of current regulatory restrictions, it is in a telco’s interest to find a partner with few holdings in its territory, owing to the prohibition against telco ownership of in-territory cable properties.)
THE EXPLOSIVE FORCES BEHIND THE DEALMAKING
Nothing more graphically illustrates the force behind the explosion of dealmaking now underway on the cable-telco front than the dichotomy between the pace of in-territory expansion at Bell Atlantic, the most aggressive RBOC, and the expansion schedule it has mapped for its proposed out-of-territory TCI holdings.
A disparity in pace. Ray Smith, chairman and CEO of Bell Atlantic, said that by the end of 1995 the company will complete the transformation of several major TCI systems, representing hundreds of thousands of subscribers, to “full service network” (FSN) status.
By the same juncture, Smith acknowledged, only some 100,000 customers will be connected to FSNs in Bell Atlantic telephone territory.
Not invented yet. In part, the disparity in the pace of expansion in-territory and out of territory is a function of government regulation, where the telephone company bears a burden of proof that new revenues, rather than higher traditional service rates, will cover the costs of transition to broadband capability. This has been a chicken-and-egg issue of first magnitude, given the difficulty of proving that there’s a market for telco video services that either haven’t been invented yet or that would directly duplicate services already provided by cable operators.
Moreover, expansion in cable doesn’t lead immediately to creating open platforms, which means there are transitional states of service expansion that can be extremely lucrative to a relatively unregulated gatekeeper who has a stake in the programming. In contrast, telcos expanding in territory can only offer video services under the FCC’s video dialtone rules, which require open access to everyone and bar telco ownership of the programming.
It’s cheaper to switch cable. Adding to cable’s appeal is the fact that it’s much cheaper to bring a cable network to FSN status (i.e., two-way switched service) than it is to increase the bandwidth of a telephone network. This condition is further aided by the FCC-driven trend toward imposition of rules at the state level that require telephone network operators to offer switch connections and other facilities to competitors. For those who would build cable FSNs, this obviates installation of some of the more expensive facilities associated with getting into the phone business.
“TCI is developing full broadband networks within the traditional capital structure,” said John Malone, president and CEO of TeleCommunications, Inc., in an appearance at last month’s Networked Economy conference. That traditional spending rate translates to about $50 per customer in cable versus about $200 in the telephone industry, or an aggregate of $3 billion annually in cable against $20 billion in the local exchange business.
Visions on par. The cost difference is not a function of discrepancies in capabilities. Malone made clear, as have many others in the cable and telephone industries (see Vol. 3, No. 5, p. 6), that cable’s version of the FSN is on a par with that of the telcos.
“Bi-directional video telephony is the superset of all applications,” Malone said. “This is the application we’re designing our networks to accommodate. If you can do video phone service, you can do anything else.”
SURGING STOCKS INDICATE UPSIDE, ONE WAY OR ANOTHER
A surge in stock prices for cable and telephone companies alike reflected Wall Street enthusiasm for the telco potential in cable. Two weeks after the announcement, telephone stocks had settled back to predeal levels, but most cable stock prices, already on the high end of a long runup, continued to ride above predeal levels.
Massive cash infusions. “It has to be obvious that the (out-of-territory) telephone companies will provide a massive cash infusion to cable for offering voice as well as video services,” said Jessica Reif, an analyst for Oppenheimer and Co. “With the regulatory barriers against telcos along with the traditional barriers to success for cable overbuilders, cable will be competing in the telephone business much sooner than telcos will be going after cable’s business.”
While this view might seem a little glib in light of the formidable barriers to local exchange competition in most states, the fact is that cable companies like TCI are looking at high-margin, enhanced telecommunications services that could be implemented in many areas under existing rules. These include so-called bypass long distance access services, data communications and specialized dedicated links on the business side and a variety of new services for consumers.
Bypass access. For example, existing laws typically would allow cable companies to extend bypass access to long distance switches to all customers at significant discounts to local telephone company access fees. For example, existing laws typically would allow cable companies to offer customers low-cost access to long distance service via cable links, bypassing the local exchange network. Time Warner is experimenting with this type of service at its Queens, NY, facilities.
Cable companies are also beginning to offer Ethernet and other data links over cable on a franchise-wide basis, permitting LAN-like connectivity for small business applications. Perhaps most importantly, MSOs are poised to exploit the federal government’s override of local common carrier rules regarding implementation of personal communications services (PCS), the new microcellular wireless service recently authorized by the FCC.
Preparing for PCS. Cable companies have been preparing their networks to serve as primary backbone conduits for the implementation of PCS. In the cable-based model, strand-mounted low-power transmitters, known as “microcell extenders,” are linked by cable to a central base station. These transmitters communicate with pocket phones within very small signal propagation areas (known as “picocells”), measuring about 1,000 feet in diameter.
Within the cluster of picocells served over a dedicated RF channel from the base station, representing an area a mile or more in diameter, the user stays on the same frequency so that frequency reassignment is only necessary in movement from one cluster to the next. This reduces the volume of signal handoffs at the switch to a much more manageable rate than is possible in an all-wireless PCS system, where frequencies are reassigned with movement between microcells measuring only a half mile or less in diameter. In fact, developers believe the cable-based approach is the key to permitting high-speed mobility for PCS in direct competition with cellular.
The FCC has estimated a cable-based PCS system would cost half as much to install as an all-wireless system and considerably less than a hybrid telephone wire/wireless system, owing to the impact of the high-capacity cable links on per-use and switching costs. Cablevision Systems Corp., which recently demonstrated full-speed vehicular mobility and a data communications capability over its cable-mounted PCS test network in Lynnbrook, NY, says adding full PCS functionality to its network will cost about $50 per household.
Fred Dawson
THE SPECIFICS OF THE BELL ATLANTIC-TCI DEAL
Bell Atlantic’s acquisition of TeleCommunications, Inc. is a cashless transaction involving a complex set of stock trades that have been variously reported to be worth $16 billion (our initial, pre-announcement guestimate), $21.4 billion and $33 billion.
While we would go with a valuation of $33 billion (in agreement with The New York Times, as opposed to the Wall Street Journal and Business Week, which opted for $22 billion), no one really knows what the deal is worth. It is tied to values that will be in play when it actually closes, some 14 to 18 months hence, and the value further depends on how TCI systems inside Bell Atlantic territories are disposed of.
Not a merger. While company representatives keep referring to the agreement as a merger, both CEOs — Bell Atlantic’s Ray Smith and TCI’s John Malone — used the phrase “the New Bell Atlantic” repeatedly in their comments at the press conference following the announcement on Oct. 13. Indeed, with Smith taking on the role of chairman and Malone assuming that of vice chairman with no direct executive responsibilities in the running of the new entity, acquisition would seem to be a better term to use in characterizing the proposed deal.
Bell Atlantic, the third largest regional Bell operating company serving about 12.5 million customers with 18 million phone lines in six mid-Atlantic states and Washington, DC, recorded operating revenues of $12.6 billion on assets of $28.1 billion in 1992, with operating income of $2.5 billion. The company also serves 698,000 cellular customers in 15 states and has telephone and cellular operations in several countries outside the U.S.
TCI is the world’s largest cable company, serving more than 10 million subscribers through its wholly owned systems in the U.S. and several million more in U.S. and overseas partnerships, and is a major stakeholder in Turner Broadcasting System, The Discovery Channel, Request Television and several other programming suppliers. It reported revenues of $3.6 billion and operating income of $956 million on an asset base of $13.2 billion in 1992.
TCI is in the process of acquiring Liberty Media, which holds interests in 17 cable companies serving approximately 3 million subscribers. Liberty is also majority or sole owner of a number of programming networks, including Encore, Black Entertainment Network, Prime Network, Family Channel, QVC, Home Shopping Network and several sports programming ventures.
ALL TOLD, A MASSIVE BASE OF CUSTOMERS
Together Bell Atlantic, TCI and Liberty wireline networks pass (as opposed to directly connect to) approximately 34 million U.S. households, representing slightly more than one-third of the entire domestic residential market.
Smith has said Bell Atlantic will divest itself of cable properties serving 1.6 million customers in Bell Atlantic telephone territories, representing household passings of about 2.6 million. The company is interested in swapping these properties for out-of-territory cable properties held by other MSOs, in which case the overall household reach of the company’s wireline networks would remain unchanged. If it sells the systems without acquiring more, the household base would drop to just more than 32 million, or slightly under one-third of the domestic residential market.
The new company’s cable network holdings will represent a significant share of the most widely distributed basic cable networks, including 11 of the 28 that reach more than 20 million households. The only pay service in the portfolio is fifth-ranked Encore, which, with 3.9 million subscribers, is only one-fifth the size of Time Warner’s HBO.
The terms of the deal. Under terms of the deal, Bell Atlantic will issue approximately 220 million Class B shares valued at $54 each in exchange for 620 million outstanding A and B shares of TCI and Liberty Media. In addition, TCI shareholders will receive shares in a new public company that will be created to take possession of TCI and Liberty properties inside Bell Atlantic’s territories.
Bell Atlantic will also assume $9.6 billion of TCI and Liberty debt, bringing the total estimated transaction value to $21.4 billion. The reported valuation of the deal at $33 billion is tied to an assumption that Bell Atlantic will end up buying the in-territory cable systems or systems of equivalent value elsewhere at a price of more than $10 billion. The $10 billion figure is based on Bell Atlantic’s projection of the eventual value of those properties.
This would be the case either if the regulatory climate shifts to permit in-territory acquisitions, now only tenuously permitted under a district federal court ruling facing appeal by the Justice Department, or if the in-territory systems were swapped for out-of-territory systems, which would then be saleable by TCI shareholders to Bell Atlantic.
Clearing hurdles. The deal must clear a number of regulatory hurdles, beginning with U.S. Justice Department and Federal Trade Commission review of the antitrust implications, if any. Beyond that, each municipal franchise authority in TCI territories will have to approve transfer of the ownership.
While this could be a snag in some areas, owing to TCI’s history of rough-and-tumble relations with franchising authorities, during the past two years the company has taken a lead among cable companies nationwide in improving service and patching up local relationships, which could go a long way toward speeding local approval.
Bell Atlantic will also have to obtain a waiver from the federal judge overseeing the modification of final judgment in the AT&T consent decree, insofar as the RBOC is banned from participating in any service that crosses local access tariff area (LATA) boundaries, including satellite-delivered cable TV services. Previous attempts at obtaining such waivers have met with long delays, though most observers believe the waiver will be granted. Moreover, the parties are hoping Congress will extend some form of relief on this issue.
Fred Dawson
THE HOST WITH THE MOST
AT&T opens its arms to the interactive age
As the lovefest between the cable industry and regional Bell companies continues unabated, telecommunications giant AT&T Corp. is courting new-age communications on a much grander scale.
Much has been made of AT&T’s “multimedia master plan” which, mildly put, is comprehensive: in a marathon series of interviews with Digital Media, mostly at various AT&T and Bell Laboratories sites in New Jersey, AT&T revealed an impressive arsenal of technology and strategy for its foray into the future.
AT&T executives and product leaders were quick to dispel what they say is a mistaken notion that AT&T is aiming for world market domination. They say that while their company is a far cry from being an underdog in the nascent information age, the fact that AT&T no longer owns the last mile of either cable coax or copper phone wire means it will have to be much more clever, horizontal and — buzzword alert — “open” in how it capitalizes on its long-time strengths in communication technology to deliver interactive services.
HOSTING THE FUTURE IN A NETWORKED WORLD
You can believe whatever you want about that sentiment, but AT&T’s stated intention is to become indispensable to anyone — from device manufacturers to network system developers, information providers to competitors — involved in developing products for tomorrow’s interactive, media-rich networks.
The host with the most. The word that AT&T executives seem to like best when it comes to explaining their company’s strategy is a nice, welcoming one. Everyone from Bob Kavner, executive VP and chief of AT&T’s Multimedia Products and Services Group to Dick Bodman, VP of Corporate Strategy for AT&T Corp., says their goal is for AT&T to play “host” to every market segment that it can, with its competency in “anytime, anywhere” communication technology at the core.
“We view there’s a missing industry — a host industry — between distribution and content,” says Bob Ranalli, president of multimedia services for AT&T. “We have the ability to redefine content through networking.”
AT&T is one of few companies in the world that could make such a strategy statement with a straight face: It actually has, or has access to, most of the products and technologies needed to make such a strategy work.
Formidable assets. For example, it has over the decades developed formidable internal assets in microelectronics (semiconductors and components), customer premises equipment (modems, PBXs and a new generation of video telephony devices for business and home), broadband networks (via interactive video servers and ATM products) and multimedia services for both broadband (i.e., interactive TV) and narrowband (computers and personal communicators) networks.
Whatever AT&T hasn’t already installed or invented, it’s in the process of acquiring or investing in. To date, the company has acquired McCaw Cellular and EO (maker of personal communications devices). It is making an increasing number of investments in new media companies and projects including General Magic (as both software licensee and developer of a new media messaging service), interactive media maker PF Magic, Object Design (an object-oriented database designed for network applications), multimedia platform designer 3DO (as hardware licensee and equity partner), the Sierra Network (which it renamed the ImagiNation Network) and Sega of America (for a multi-player video game platform).
All this and ITV, too. AT&T is also a key player in all three major interactive TV trials, including Viacom International’s Castro Valley site (providing ATM network switches, interactive video servers, interactive video software tools and networking software); Time Warner Cable’s full service network in Orlando (an ATM switching system) and US West and Tele-Communications Inc.’s Viewer Controlled Television (VCTV) project in Colorado (an interactive video server).
A little history. It can do this because it is far less restricted than the regional Bell companies in terms of what businesses it can participate in.
Unlike companies that didn’t get so big that they needed breaking up, AT&T’s monopoly, which ended in the early 1980s, provided it with decades of massive profitability and the subsequent luxury of funding pure research into many areas of technology.
As a result, AT&T Bell Laboratories became the birthplace of the seminal technologies of our time, including the transistor and the laser. More recently, Bell Labs invented asynchronous transfer mode, or ATM, a switching protocol for high-bandwidth communication (such as video) that nearly everyone believes is the fundamental building block for the so-called “information superhighway.”
Divestiture’s sunny side. When the Bell system was broken up by federal decree, the RBOCs were granted the status of regulated monopolies while AT&T was tossed into the competitive arena.
Because of their monopoly status, the RBOCs were forbidden from entering or funding research into any business outside of local telephony services. They could do all the research they wanted, but could never move out of the labs or sell it off to someone who could productize it.
The same was not true for AT&T, though for a while it didn’t realize it had become a very capable and well funded startup. As a competitor, it could and did actively pursue R&D projects and new markets, including many failed attempts in the computer industry. As a direct result of intense competition for high-quality, long-distance services, for example, it installed a fiber-optic network with high-capacity digital switches spanning most of the world — a vital physical foundation for the broadband network services it has under development, and a feat that the heavily regulated RBOCs have yet to (and may never) accomplish in the local loop.
An accident of fate. AT&T believes that its intrinsic knowledge and understanding of communications will win the day, despite today’s merger and alliance mania. “The communications industry now is the hottest place to be,” says Gordon Bridge, president of AT&T EasyLink Services, the group which is, among other things, developing a new consumer messaging system for people with personal communication devices. “Microsoft, Apple, IBM — they all wish for or aspire to richer communication abilities. It was an accident of fate that AT&T had world class skills in communication, not computing, now that computers are a matter of fact.”
AT&T ‘HOSTS’ CHIPS, CUSTOMER EQUIPMENT, NETWORKS…
AT&T’s “world class” ability to host network applications of the future starts on the most basic level, with its expertise in microelectronics. Even at the component level, says Mark Melliar-Smith, chief scientist for AT&T Microelectronics and executive director of the Integrated Circuits Division at AT&T Bell Labs, “the only reason to build a technology is that it provides a service someone will pay for.”
Melliar-Smith claims that the evolution of silicon integrated circuits, also called chips or microprocessors, is the single most important factor driving the full service or broadband network into the consumer’s reach. As the drumbeat of “cheaper, faster, lower power consumption” spurs the chip industry to greater achievements, the net effect has been plummeting costs for powerful, flexible computing and communications systems.
A shrinking Hobbit. AT&T recently announced, for example, that the latest addition to its Hobbit family of microprocessors and support chips — which it is selling as a system solution for the new class of small, mobile devices that integrate voice and data communications capabilities in one unit — is faster, cheaper and yes, consumes less power than the previous Hobbit family. Not incidentally, it was also able to cut the number of chips required in half.
Though the complexity of designing advanced semiconductors is creating unprecedented challenges in designing and writing software that takes advantage of them, Melliar-Smith says he doesn’t see anything in the short term that will stop the “faster, cheaper, less power” trend in the chip industry.
The $50 tea chest. “It’s only a matter of time before a tea chest full of electronics becomes a single chip for $50,” he says. He predicts that by the year 2000, for example, Hobbit will be a single chip that handles both sound and video. Modems as we know them will go away, and they will become a software business as more powerful digital signal processing chips become standard.
While many companies today are selling circuit boards for video compression, Melliar-Smith says, in a few years video compression technology will also be contained on a single chip. And in 10 years, high-quality video telephony will be the norm. “Voice communication will be like telegraph,” says Melliar-Smith.
Materials research is key. AT&T is also deeply involved in researching physical materials (i.e., new plastics and the like) from which new products are built. “One area I have faith in is new materials to solve problems,” says Greg Blonder, who is both director of the Materials and Technology Integration Research Laboratory at Bell Labs and chief technical advisor to AT&T for corporate strategy and development.
His lab, which develops both materials and product prototypes, is conducting research in a wide variety of areas. He says his biggest problem is energy storage for wireless devices. “And there’s no solution,” he says. “Batteries double in capacity every 25 years, silicon capacity doubles every two. The only good thing is that today, silicon uses less power.”
Batteries are very much on Blonder’s mind, since much of the work done in the materials lab is geared toward prototyping mobile communication devices, he said, including research into radio frequencies and power dissipation, displays (they’re working with Xerox PARC on a flexible plastic flat-panel screen), “wearable” computers (also known as “active badges”), and very small, very high-density portable storage devices.
Language translation. One of its many advanced research projects is a project inside Bell Labs to perfect spoken-language translation systems. The dream, says David Roe of Bell Labs’ Speech Systems Research Group, is for you to speak English into your end of the receiver and have your grandmother hear a perfect Sicilian dialect into her earpiece. Roe says the group is working on versions for Mandarin Chinese, Japanese, French and German, and intends to have eight languages in the system by 1995.
Digital radio. Another promising technology under development in Bell Labs is at the core of two CD-quality digital audio broadcast systems that AT&T has developed and submitted to the Electronics Industry Association’s National Radio Systems Committee for consideration as a new broadcast standard.
The quality of the signal produced by the technique is remarkable, based on a distortion control mechanism developed by Bell Labs. It delivers perfect CD quality sound and consistency of signal in an extended range over existing spectrum. And most interesting of all, it allows for seamless integration of data with audio — which means any radio station could carry an auxiliary data channel for weather, traffic, emergencies, etc. It’s also conceivable that radio devices could be individually addressable for custom subscription services.
Nikil Jayant, head of signal processing research in the Advanced Audio Technology Department at AT&T Bell Labs, believes that digital radio is “inevitable,” based on the fact that 40 percent of homes in the U.S. now have CD players and have become less tolerant of audio distortion. In addition, cable TV is already pumping out digital audio, and it won’t take long before satellites are doing the same. “Current broadcasters don’t have a choice,” he says.
CUSTOMER EQUIPMENT: OUT OF THE LABS, INTO THE WORK SPACE
Carl Pavarini, head of new business development and vice president for AT&T’s General Business Systems, knows customers won’t replace their phone systems wholesale with broadband technology, but instead will evolve their networks over time. His “host” strategy is to provide voice-plus communications at a range of price points.
Saving investments. “A lot of the action over the next two years will be people making modest investments to connect computers with telephones,” he says. “We’re saving their investments with what I call ‘virtual multimedia’ — if I can make a PC and a phone act like one instrument, you get a number of benefits of multimedia, not the least of which is virtual bandwidth.”
In its soon to be released Personal Video System, for example, AT&T has patented a way to capture certain kinds of graphics information so that two people on opposite ends of an ISDN phone line can share screens via a circuit board added to their PCs.
‘Multi’ is not all. Other voice-plus-data solutions include a product called PassageWay, which simply connects a PC with a phone (as Pavarini reminds us, “multimedia is more than one media, but not necessarily all of them”), and a PBX-local area network solution it is developing with network leader Novell.
The company already sells a still-image phone called Picasso that captures images from a magnetic disc camera or a video frame grabber and displays them at NTSC quality over standard phone lines.
“The only way to get a lot of people using [multimedia telephony] products is to be parsimonious with bandwidth,” says Pavarini. “We’re real good at voice compression and screen sharing; there’s a lot you can do with equipment you can buy today. We believe there’s a lot of benefit in enhancing value of voice networks, PBX, local nets, etc. — in other words, the narrowband networks of today.”
For those without PCs. Beyond patching multimedia capabilities into existing networks, Pavarini says his group is working on integrated multimedia devices that will be particularly useful to businesses that don’t use personal computers (and this number is larger than one might suspect).
Most likely resembling AT&T’s EO Personal Communicator, the phone with a big, pen-sensitive screen would be capable of what he calls “voice-ink dialog,” where callers can share sketches and messages while talking. It’s reasonable to assume that such a device could dock into something on your desk — “maybe a low-function phone or box that supports infrared connection,” says Pavarini — that would allow it to be untethered.
Easy conference calling. Whether wired or infrared, he says, what will make such a product successful is services — perhaps the ability to draw a line between three numbers on a screen to set up a conference call.
Finally, Pavarini says, his group is working on devices to take advantage of more capable networks, either public switched or local area, as ATM-based technology comes into the customer premises.
NETWORK SYSTEMS AT THE CORE OF INNOVATION
The Network Systems Group is home to the basic communications building blocks that AT&T sells to customers ranging from RBOCs to interactive TV systems developers. In addition to narrow-band products, the group is now beginning to move into the marketplace with real “end-to-end” solutions — from ATM switch to video server — for customers who want to install broadband networks.
John Miller, strategy officer for AT&T’s $10 billion manufacturing company called the Network Systems Group, says that broadband has been “kicking around” inside AT&T for more than a decade, but the lack of operational support for the technology has held it back.
“It’s never been a case of bits through a wire; that’s easy,” he says. What it’s really about is tariffs, complex billing systems, reliability — the operational details that make it possible to make broadband networks a real business. “Now,” he says, “there’s an incredible array of building blocks mature enough for operational support — the market is viable and the financials are viable.”
Miller has been doing some big-think on what he calls “serverism,” and he believes that server technology — that is, big computers with highly sophisticated databases, billing systems and transaction processors — will be a key element to AT&T’s success in the broadband world. (Besides, what else would a “host” do besides “serve.”)
In the broadest sense, Miller says, even getting a dial tone and punching in a number is a server request, since the bottom-line function of a server is to facilitate connection. The challenge for AT&T, he says, is to decide where to focus its attention — does it stick with providing a very low level of complexity, i.e., dialtone-to-destination, or does it try to provide a sophisticated system?
The answer is fairly clear: The company is building a complex, end-to-end broadband system for Viacom in Castro Valley (more below), and Miller can’t say in enough different ways that ATM is ready for prime time. In fact, he says it will be a “given” in five years, which is pretty darned fast by any accounts. He also can’t be more emphatic that AT&T’s competitive advantage is operational, which means it’s really the only company qualified to handle the service complexities that exist outside the ATM switch itself.
“Broadcast operators can get things out, send pictures to people’s homes, do pay-per-view, etc.,”he says. “But then there’s the companies who can keep a network going on Mother’s Day [the highest call levels of the year] and bill you correctly for it. The two systems may have some architectural similarities, but they have significantly different operational requirements. The competitive advantage for AT&T is operational.”
If it isn’t crystal clear by this point, says Miller, “Yes, Network Systems wants to help cable do this [build full service networks]. We have the switching expertise for broadcast and the bandwidth for telcos.”
Obviously the TCI-Bell Atlantic deal has turned some heads inside AT&T. “We’re optimistic about the cable-telco marriage. Things are possible now that weren’t before,” says Miller. “Certainly there are some time efficiencies [i.e., not reinventing the wheel in either high-bandwidth or switching technologies]. When you look at the two sets of assets, they’re complementary. Of course, it’s still competitive — everyone’s trying to steal the consumer’s dollar.”
THE BIG WINS: INFORMATION SERVICES AND INTERACTIVE TV
Although the work done in Miller’s group is essential to AT&T’s eventual success, the information and interactive TV services that will steal those consumer dollars are what have most captured the attention of the outside world.
EasyLink Services, for example, is working closely with General Magic (see Vol. 2, No. 10, p. 3) on a new consumer messaging service that will allow subscribers to receive E-mail, fax and voice messages as well as news, weather, sports, shopping and other services, on what-ever device they happen to be closest to at the time they want the information.
Not constrained by transport. Gordon Bridge, president of EasyLink Services, believes that the key to successful information services of the future is that they not be constrained by the transport mechanism, but only by the device the consumer is using at the time.
Today’s text services, for example, almost exclusively deliver the most universal form of electronic text, the lowest common denominator standard known as ASCII. But Bridge says in the multimedia world AT&T is inventing, services will be delivered to the highest level of expertise, not the lowest.
Reaching in. “In the future, the services will tell you who they are — they’ll reach into your device and tell the service what your device is, whether it’s a personal computer, a mobile communication device or your television,” says Bridge. “I want my news, weather and sports to be sensual whenever possible. At home, on TV, you want it to be sensual. It would be different if you were in Japan or using a PDA.”
A NEW CONSUMER PLATFORM, NOT A ‘BRANDED’ SERVICE
AT&T is creating the new consumer messaging service from a number of different building blocks. Central is General Magic’s Telescript scripting language, with the rest built around it by an EasyLink team led by Dan Rosen. Bridge says the platform will be unlike anything done before — “it’s what you get when you have the luxury of starting with a clean sheet of paper,” he says — and claims it will compete head-on with popular information services such as America Online and Prodigy.
But, he says, there’s a key difference: it’s that “host” thing again. “AOL and Prodigy aren’t platforms,” he says. “They’re branded services that decide for you what information you get. In our service, anybody can put anything up there.”
No more gatekeepers. The model for information services today is much the same as television programming: the service operator (to continue with Bridge’s example, AOL or Prodigy) serves not only as gatekeeper between information and consumer, but also decides what information will be available on the service based on proprietary deals it cuts with information providers. (For example, Time magazine and the San Jose Mercury-News had to cut custom deals with America Online to mount their services on the service.)
But again, AT&T’s strategy, says Bridge, is to open up the system at both ends. “Our model is to be a host — not to try and control the entire value chain, but to be a friend of content providers who want to meet as many customers (for their services) as possible.”
“The honest broker.” This is the role that RBOCs and other telecom companies provide today — serving as the “honest broker,” as Bridge calls it, to connect customer (i.e., information provider) with consumer over a wire. Anyone who wants to can call the network provider of their choice — for example, now both AT&T and MCI can sell 800 or 900 numbers for a business — and set up shop.
Certainly there is a place for the kind of branded services that AOL and Prodigy provides, he says. But today, the way these “branded” services are designed is weighted heavily in favor of the brand provider, which often takes more than 75 percent of the revenues generated by consumers of information.
Increasing volume. AT&T believes that opening the network allows it to bring down the cost of providing network access, increasing the number of information providers who set up shop on the network and hopefully increasing the number of information consumers along with them.
Bridge says the unannounced pricing structure, which his group has been working on for two years, will be based on the role the information provider wants to play. For example, will the data be kept at AT&T’s offices or on site? Is the 800 number connected to the business or to AT&T operators? “Companies like Mead or Paramount want to use their own brand name, but they want access to AT&T’s customers,” he says. “So we get a bigger or smaller piece of the action” based on how they carve up who does what.
Welcoming the crazies. “We want all the entrepreneurs and the crazies — I say that with all respect — who don’t want to work for AT&T to be up there,” Bridge says. “We want Mom ‘n’ Pop shops to have a toolkit. All of us know what customers want. They want equal access. They don’t want to be forced into exclusivity. The key parameter is that somebody will make sure that people have equal access.”
Bridge’s favorite idea for the new consumer network is home shopping. Although the subject has captured the imagination of many before him, his has an “open access” twist.
“Forget the QVC stuff,” he says. “I have to tip the mailman $40 every week because my wife shops ’til she drops by catalog. We get over 1,000 catalogs a year, 5 to 10 of them a day. People say video-on-demand and shopping [via TV] will drive the market for services, but who is going to offer electronic shopping for Nancy that will move her away from catalogs?”
The problem, he says, goes back to branding: Nordstrom has no clear idea about how to market, service or advertise its goods in an electronic age. “I want software companies to go to the Nordstroms of the world and when you go shopping on your (personal communication) device, you’ll find Nordstrom’s service different than Macy’s, just like in real life,” he says. “Small creative software companies will make a killing going to [companies like] Nordstrom and helping them do this.”
THE PLUM PRIZE: BROADBAND ENTERTAINMENT
Bridge believes the ticket to broadband entertainment — which includes the application we’re all calling interactive TV, as well a number of other things — will be delivered via a strong commitment to open-access network services like the ones his group is developing.
It is, in fact, AT&T’s “host” approach to the interactive TV market that sets it apart. Unlike the rest of the universe, which appears to believe that the key to success is owning or controlling all the programming yourself, AT&T instead appears committed (at least at this point) to making it as easy as possible for independent programmers to produce and sell their wares in a broadband environment without having to sell their souls to a network gatekeeper.
Ranalli, the multimedia services president, says that’s the real reason why AT&T is investing in companies such as PF Magic, a small, San Francisco-based company that’s working on a multiplayer game system with Sega and AT&T (Vol. 3, No. 5, p. 17), and the popular online games-and-chat service ImagiNation Network, formerly Sierra Online.
“We’re spending a great deal of time on the services side to see what drives customer behavior and needs,” Ranalli says. Learning what customers want — especially in today’s fast-forward environment for “information superhighway” services, he says — “equals opportunity for both the digitization and networking of content to creating interactive multimedia.”
IF THAT WASN’T ENOUGH, THEY’VE GOT AUTHORING, TOO
But investing in content companies is not the only way AT&T is learning about opportunities. Aside from its “end-to-end solution” for delivering interactive TV (i.e., everything from ATM switch to the interactive video server discussed earlier), AT&T is also close to completing a little-known internal project that will yield a suite of scripting tools for development interactive programming — the broadband version of the “Mom ‘n’ Pop” toolkit that Bridge mentioned for narrowband service providers.
Call it M. Called “M” internally (“well, the computer business has ‘C’…,” says interactive TV project manager Vinnie Grosso by way of explanation), the scripting language is considered integral to AT&T’s value proposition in building a customer base for ITV.
“We can be very helpful to content players to take advantage [of new network services] by providing them with authoring tools and capabilities,” says Ranalli. He recalls AT&T’s successful launch of 800-number services some 25 years ago: though originally designed to relieve overloaded AT&T operators who were hand-connecting collect calls to businesses during the work day, Ranalli says that providing a toll-free service actually helped AT&T come up with new technology solutions, such as connecting customer databases with incoming calls.
Using the same model, he says, AT&T wants to make itself indispensable to retailers, information services, movie studios, travel agencies or any kind of business that might want to offer services on the network.
Making players succeed. “In a new medium, the value [to new customers] comes from digitizing [their assets] and using networking as part of the authoring process,” says Ranalli. “The logic is to provide a set of capabilities that helps content players be more successful. We’ll also provide them with archiving, security products, accounting procedures for intellectual property, transaction management, billing systems and customer service.”
Though certainly AT&T’s scripting language will compete with some already in the market, such as Macromedia and Kaleida’s ScriptX, Ranalli says he still “hopes to work with” other authoring companies to help build a full suite of tools for interactive TV development.
INTERACTION V. INTERACTIVITY: A MISUNDERSTOOD CONCEPT
One reason the company decided to work on authoring tools was because there were virtually none available that approached broadband as an opportunity to enable interaction, as opposed to interactivity. And to AT&T, this was a dealbreaker.
“The Chicago (ITV) trial taught us some stuff,” says Grosso. The nine-month test of 24-hour interactive TV, mounted in the homes of AT&T employees in the area, seemed to indicate that the more interaction-style attributes contained in an application, the more people used it. If messaging was added to a program, the usage went up. If it included some kind of transactional game, it went up again.
Since AT&T is looking to transactions as a significant revenue generator in the broadband world, Grosso and his crew decided that any successful application would have to include not only transactions and information, but also a strong communication component. For example, people using the CUC interactive shopping service were enamored with the fact that they could not only buy the product, but send messages to the people running the service — and play an attached game to get a discount on the merchandise.
Grosso, whose background is in television production, says this new kind of viewing experience is “changing the rules of engagement. ” It may change the rules of production as well. Grosso says the entire interactive network for the Chicago trial was run from AT&T’s headquarters in New York City. He adds that the Viacom International trial in Castro Valley, CA — for which AT&T is providing a massive amount of hardware and software technology — will also be administered from New York and New Jersey, using ATM technology to connect network hubs and headends.
CHANGING THE RULES OF ENGAGEMENT, INDEED
If indeed Grosso’s observations are correct, and what people want from advanced network services is more and complete access to services and each other, those “rules of engagement” he mentioned are going to change a lot more than how people watch TV.
Plug and play. Where today the power resides in who controls the media and/or its distribution channel, tomorrow’s power brokers will be those who can provide, service and meter transactions over the network. Owning one or 12 movie studios or publishing houses won’t automatically be a lucrative proposition. But how about enabling the information economy by making it possible for Mom ‘n’ Pop to stick a wire in the back of a box and be in business? And maybe collect a penny or two in the process?
As Gordon Bridge so aptly says, “It’s a place-your-bet kind of move.”
800 numbers the model. Ranalli recalls that AT&T’s 800-number business has seen double-digit growth for 10 years now — 40 percent of all calls during the day on the network are to the 800 network — and created a capability for people to think “totally differently about their customers. In the evolution of multimedia, we’re on the verge of the same kind of explosion, driven by the way we make it easier for people to create content.”
Ranalli, like most other executives at AT&T, finds it “unlikely that our society will tolerate greater bottlenecks in reaching customers.” Until now, the power was in deal making and control of distribution. “We think the game will change,” he says.
AT&T’S STRANGE AND DIFFICULT CROSS TO BEAR
It’s hard to find fault with AT&T’s well-crafted logic about why and how it will be a success. It’s hard to imagine that the company, with its unassailable technology assets and building materials for the networked future, will not be successful. And its vision for “plug-and-play” broadband networking, a vision that is inclusive and hopes to distribute the power of information as widely as possible, is — at least as stated — the Good and True Way To Go.
Still, one feels compelled to address the commonly voiced concern that AT&T is looking again to stack the competitive deck in its favor. It’s one of those weird things about capitalism — the central idea is to allow new businesses and entrepreneurs to flourish, to let all comers enter a market, with the end game being a big win against your competitors. But when you win big, you push out all the entrepreneurs, which is a bad thing, and then you run the risk of getting kicked out of the game or at least severely penalized for winning, and you have to start all over again.
So if you’re AT&T, what do you do? The company is adamant that it does not want to control the new world. It has formulated a powerful public posture that echoes throughout the organization (in fact, the buy-in runs so deep they all kind of started sounding like Microsoft): it is “openness” and “access” it is interested in facilitating, not “control” of the network or “gatekeeper” status.
What if it weren’t AT&T? Both Bob Kavner and AT&T chairman Robert Allen have stated publicly that they don’t want to become “content” companies — they aren’t interested in starting a movie studio, for example, or a publishing house.
Nonetheless, AT&T’s venture group is placing lots of money in a wide range of technology, service and content companies, often with an option to own. As some of these investments turn into outright acquisitions — the McCaw deal is the most noteworthy of this category to date — and somewhat ominous commercials on late-night TV show AT&T in the position of commanding a networked future, the question becomes less rhetorical. People are getting nervous. Do does AT&T really want to own it all? Or are these actions we would applaud if it were any other less powerful company?
Convicted and tried. We put the question to Bodman, the corporate strategy and development vice president for AT&T Corp. His frank comments made AT&T’s position — i.e., perception vis-à-vis reality — seem almost poignant. In a perverse way, if you want to give the benefit of the doubt, AT&T is a bit like the convicted felon who has “done his time” and now has to convince the world that’s he’s reformed.
“It’s a question of psychology,” says Bodman. “Regulators see that 60-something percent of AT&T’s business is long distance, and that switching is 39-something percent, and these numbers are the source of people thinking, ‘they’re taking over the world.’ That’s a very dangerous way for us to look at ourselves.”
IN TUMULTUOUS TIMES, ONE CAN’T BE INSECURE
The reason it’s so dangerous, he says, is because the world is not the same place it was during AT&T’s monopoly days.
First, telephony is so cheap and ubiquitous that all we care about is the end-to-end transactions. “You don’t care who is the supplier of your dial tone,” Bodman says.
Second is how the concept of access has changed. “Today we sell minutes of use,” he says. “But you’d rather pay a flat rate, or find a way to use less minutes. So we have a mental set about long distance and minutes that’s out of tune.”
Third, the U.S. market for telephony services has changed dramatically. Twenty years ago, Bodman says, AT&T received 98 percent of every dollar spent on telecom. “Today our share is 15 cents and falling a point a year — not because usage is dropping, but because everyone is hooking up everyone to everything,” he says. “It’s an exploding market. We’re small potatoes in terms of access.”
Changing the mental set. Bodman says AT&T — and all the RBOCs — haven’t forgotten those days of 98-percent and are carrying around “a mental set about dominant market share that makes it impossible to move forward. We’re defensive about protecting what we’ve got, even though out there in the tumultuous world, going from stagecoaches to railroads, most established stagecoach companies are in the weakest position to understand the new world.”
Bodman cites recent history: “I would posit that not since railroad barons have we had the dynamism of real tycoons building infrastructure. The 1980s weren’t building anything new. But today, there are authentic billionaires — Gates, Malone, Redstone, Grove, Murdoch, McCaw — who have assets, concepts, backing and an obsession to build the new world,” he says. “We [AT&T] haven’t had that for a hundred years. Until AT&T acquired McCaw, no established stagecoach makers had entered [the new world]. When we did the McCaw deal, when we spent $18 billion, we announced to ourselves the intention to leave behind our defensive post. We’ll provide personal service and mobility, and put some teeth behind it.”
ENGAGING ENTREPRENEUR AND ESTABLISHMENT
Bodman believes AT&T’s purchase of McCaw gave US West and Bell Atlantic the guts to make their equally bold moves — investing in Time Warner and buying TCI, respectively. “We’ve started an engagement between establishment and entrepreneur that guarantees terrific turmoil and opportunity,” he says. “We do really well in chaos, and it will serve to the advantage of the American consumer.”
This explains even more fully why AT&T is bonding with entrepreneurs with ideas and technologies that show promise in the new world, and it is a smart, albeit risky, move. Most established companies are virtually incapable of seeing the world through a different filter; they seem blind to all but the most incremental differences between new and old. (See related item, p. 2.)
AT&T does not seem to be so afflicted. Most of the companies it has chosen to invest in, ally with or acquire, may not all be ready for prime time, but they generally have a take on the new media world that’s a bit askew from traditional wisdom, and one that’s usually quite interesting at that. Though it may be too big to fly by the seat of its own pants, AT&T certainly doesn’t want to cramp the style of its partners who find creative value in such exhilarating activities. “The first rule is don’t play down the power of individuals,” says Bodman. “There’s never been a big company that made it from one paradigm to another. If there’s any doubt about that on the basis of history, it’s a thin reed.”
Denise Caruso
>CHANNELS
MULTIMEDIA IN EUROPE
A couple of years behind the curve
Recently in Europe, I chaired a panel on European distribution channels for multimedia and found that the market in Europe shows both similarities and sharp differences from ours in the States.
In general, the market is about two years behind ours. One researcher told me that, as a general rule of thumb, America represents 50 percent of the multimedia market, Japan 35 percent and Europe 15 percent. That 15 percent is the number for the combined market across all European countries.
A SOFTWARE MODEL ONLY
At this point, multimedia distribution in Europe appears to be following a distinct software model. Multimedia products — hardware, upgrade kits, titles and applications — are distributed only in computer stores and consumer electronic stores. These stores sell a mix of computer-related products; there are virtually no software-only stores in Europe.
A couple of years ago, high-technology distributors completed a frenzy of mergers and acquisitions creating rapid expansion of major companies. Europe then suffered a severe recession that has not lessened for more than two years. This recession has hit both the buying public and the corporations, and has slowed the growth of the high-technology industry.
Most multimedia titles are copyrighted as software and treated as such. The few exceptions are those entertainment titles brought in from the United States, which have avoided the software copyright. There is no notion in Europe of rental through video stores at this time. This means that there is virtually no preview mechanism available for the market.
Furthermore, continuing the software model, distributors take title to the stock they buy, and cannot return it to the publisher. This means that the risk for creating the market is shared between the publisher and the distributor. The distributor therefore is more careful in his stocking of items, orders more often, and tends not to overload the channel.
Although this may decrease the publisher’s access to advances on purchase orders (often available in the States), this shared risk and careful planning can be advantageous to both publisher and distributor.
NO CROSS FERTILIZATION
While preparing for the panel, I discovered the element missing among the European community of multimedia distributors and retailers and publishers: no cross fertilization of ideas, market opportunities or models among the participants. I asked if they spoke to one another very often. They all shook their heads. When I explained that our informal networks communicate with each other every day, they were astonished. But only for a moment. Then one panelist said, “Of course, you speak every day, when Texas is just like Connecticut.” Well, yes, in that they speak the same language, use the same currency, share the same national school system, and are standardized on only two major (computer) platforms. What a wealth of opportunity we have here!
So the “European” market is not growing as a community, but as fragmented markets segmented by territories, language (very few titles are localized into more than one language), and distribution models (France’s market is centralized in Paris, for example, while Germany’s is dispersed across three distinct regions).
OTHER OBSTACLES
Several market factors beyond these cultural forces will hinder the immediate expansion of the multimedia market throughout Europe.
• Fewer computers are in the home, as it is not common for workers to bring their technology home with them.
• There are four significant platforms throughout Europe: PC, Mac, Amiga and Atari.
• There is not enough localization of titles to provide adequate coverage across the many markets. Edutainment in the home is not welcome when it represents a foreign culture and language.
• There are very few software-only retailers, because Europe lacks a mass market, consumer-oriented business model for moving titles and upgrade kits through a store.
• There is less disposable income in families throughout Europe, and a continuing recession.
ON A POSITIVE NOTE
Still, there are positive factors to counterbalance these obstacles.
• It is likely the installed base of drives, while very low, will double by the end of this year’s holiday buying season, mimicking the growth rates we have seen in the U.S.
• Multimedia has good press coverage, and manufacturers and publishers can get exposure for free.
• Major market players in hardware, software and distribution are beginning to stake out their worldwide market share, which should bring prices down and thereby expand the market. These players’ subsidiaries are in place worldwide, so the expansion can proceed without building an operational infrastructure for the marketing and distribution of multimedia products.
• Distributors agree that multimedia products will be sold over the same multiple channels as in the U.S.: software, consumer electronics, video, audio and bookstores. This broad distribution will grow the market.
• The smartest titles producers distribute their titles internationally now in English, and are beginning to localize their best-selling products. This will bring more titles into the market suitable for purchase in each country, and these products will be the best, most successful products from the U.S. product lines.
SOME OPTIMISTS
I spoke with Diane Heppting, chairman of Aris Entertainment, and asked why she has localized World View for the German market. “Because we have a strategy that builds product lines using a single software engine, it is cost effective to localize our products. We can localize two or three of the products to create brand name recognition, and then as the market develops, we can localize the balance of our product line.”
Jessee Allread of Ebook said, “Ebook invested early in relationships with CD-ROM distributors and our investment from an exposure and contact representative is reaping great returns. The market growth and its related monetary benefit is not far behind the U.S. We are receiving products for U.S. distribution as an additional benefit from the development of these relationships.”
These publishers, and other aggressive entrepreneurs like them, know how to open up emerging markets.
MORE OPTIMISM
I believe there are a few additional compelling reasons to believe the European market will arrive sooner than we might think.
• The U.S. publishers are cranking out titles at a precipitous rate. The far-thinking ones will soon know it is time to expand their markets overseas. So the titles market, here and in Europe, will jump in multiples. Europe will have a much larger base of titles from which to grow their initial market. They do not have to wait, as we did, for a substantial titles market to arrive to drive the hardware sales. They will have ours, in English and localized. This broad availability of titles will begin to lead the customer to buy the hardware, and then more software.
• Publishers will begin to design their engines and templates in anticipation of localization, by pulling out the “software strings” during development, to ease translation and localization of the product.
• The channel knowledge resolved in the U.S. during recent years will be adapted for the international channels, and will be applied and adopted there earlier in the channels’ developmental stages.
• Once the film and music industries become serious players (by 1995), they will automatically drive their product into worldwide markets. The entertainment industry is now controlled by multinational companies. Their business planning is always based on worldwide markets, sales and distribution.
A TWO-YEAR WINDOW
So, even though the European market seems two years behind the U.S. market now, it is likely to be no more than six months behind us in the next two (or three) years.
This window of opportunity should compel the market participants to add one more task to their already overburdened list: prepare for international distribution now since it will take a year for the learning curve, and a year for the market penetration that will let them take early market share worldwide.
Joanna Tamer
>NEWS
COMPTON’S PATENTS MULTIMEDIA?
Says it ‘invented’ integrated text/graphics database
On Aug. 31, 1993, the U.S. Patent Office granted Compton’s NewMedia a patent for a computer search system for retrieving information from a multimedia database that includes text, graphics, sound, video and animation.
In a press conference scheduled for Nov. 16, Compton’s plans to contend that this patent, in effect, gives it a patent on multimedia. In essence, Compton’s claims that the ability to navigate through a database containing a variety of media types is the essence of interactive multimedia — and that this is precisely what it has now patented.
If Compton’s claims go unchallenged, or if it can sustain its patent in court, it holds what could prove to be one of the most important (and most lucrative) patents ever granted.
How can this be? The heart of Compton’s argument is the assertion that until the introduction of Compton’s Multimedia Encyclopedia in October 1989, no one had created an interactive title that allowed users to navigate through a fully linked text and graphics database. It contends that the then-existing “state of the art” included engines for text search or navigation through hyper-linked text databases and/or navigation through separate graphic databases, not navigation through an integrated database of text and graphic information with the ability to move freely between the media.
In addition to specific search methods and procedures, the text of the patent claims that the Compton’s “invention” covers:
“A computer search system for retrieving information, comprising:
• Means for storing interrelated textual information and graphical information;
• Means for interrelating said textual and graphical information; and
• A plurality of entry path means for searching said stored interrelated textual and graphical information.”
Although the initial embodiment used a CD-ROM database attached to a personal computer, the patent specifically claims to cover other electronic means of delivering information. “There is no intention, therefore, of limiting this invention to the exact abstract or disclosure presented herein. More particularly, it is contemplated that this invention can be used with any information which can be stored in a database.”
Compton’s believes that this includes everything from online delivery to interactive television systems as well as handheld devices such as PDAs. A “continuation in part” provision in the patent specifically seeks to apply the patent to new technology as it arises.
The Dolby of multimedia. Stanley Frank, president of Compton’s NewMedia, was most anxious to stress to us that “Compton’s does not want to stifle the multimedia market. We are anxious to grow the market to everyone’s benefit.”
Translated, this means that Compton’s does not intend to try to stop anyone from producing interactive titles. It just wants to use the patent to encourage everyone to do business with Compton’s — or, failing this, to pay Compton’s a “modest” royalty on everything they do. Compton’s will grant licenses to any company that:
• Forms an alliance with Compton’s. (Frank would dearly love to convince cable and telephone companies to use Compton’s user interface and search technology in their systems.)
• Signs up to let Compton’s be exclusive distributor of its interactive titles.
• Licenses Compton’s SmarTrieve developer’s toolkit.
Companies that do not have one of these business relationships with Compton’s will be asked to pay a royalty. If you sign up before June 1, 1994, Compton’s will ask a royalty rate of 1 percent of gross revenues from your interactive products or services. After that date, the rate will be even higher.
Is the patent valid? For this to work, prospective licensees will have to believe either that the patent is valid, or that the cost of obtaining a license is low enough (and the risk of being sued high enough) that it is worth making a deal with Compton’s as “insurance” against the nuisance of a suit.
But the patent office has granted plenty of patents that have been thrown out in court suits. Two more narrow multimedia patents are already being challenged. In August, Videodiscovery of Seattle, WA, filed suit in U.S. District Court to invalidate two multimedia patents granted to Optical Data Corp. in 1992. Videodiscovery claims that the patent office examiners do not have sufficient knowledge of interactive multimedia to evaluate prospective patents.
It is hard for us to imagine that someone will not take similar exception to the broad claims in Compton’s patent. The most likely grounds for attack would be: (a) that the claims that Compton’s is making are overly broad, (b) that the “invention” was obvious to reasonably knowledgeable people in the field; and (c) that there is “prior art” (other people were doing similar things before Compton’s).
Athough few people would question that the Compton’s multimedia encyclopedia was a milestone product, was this really the “invention” of multimedia? If you want to judge for yourself, get a copy of Patent 5,241,671 from the Patent office, put yourself back to 1989, and read it carefully. Think back on the work on interactive systems done in the 60s, 70s and 80s, re-read Ted Nelson, William Gibson and others, watch some old Star Treks, then decide.
Our conclusion? We can accept that some of Compton’s methods and implementations may have been original. However, we have a great deal of difficulty accepting the fundamental concept of patenting a linked text and graphic database with multiple access paths and multiple access methods — not in 1969, not in 1979, and, for heaven’s sake, not in 1989!
Jonathan Seybold
VENDORS FORM NEW MEDIA CENTERS
Program promotes multimedia in education
A group of multimedia technology companies and publisher Prentice Hall have announced the formation of a multimedia consortium with a charter to grow the global market by developing interactive media centers within higher learning institutes around the world.
The seeds for the New Media Centers program were planted at last year’s Hakone Forum in Japan, where industry figures from the computing, communications, publishing and entertainment fields worldwide met to discuss convergence issues. Among the topics discussed were the need for a center or group of centers that would hand off technology from engineers to artists, filmmakers, educators and others — empowering and involving the broadest possible audience, so they could find out what new media can do for them, and more important, what they can do with new media.
One lofty ideal at a time. The New Media Centers program, which made its debut at Educom 1993 this past month in Cincinnati, seeks to implement this goal in higher education. The joint venture founded by Adobe Systems, Apple Computer, FWB Inc., Macromedia, Prentice Hall, Sony Electronics and SuperMac Technology plans to provide access to interactive media computing technology for faculty and staff, students, and alumni, as well as individuals in the community who are not involved in academia.
The consortium’s short-term goal is to establish 15 New Media Centers by spring 1994 among colleges and universities around the United States. By 1996, the group plans to increase that number to 100, according to Kimberly Jenkins, the acting director of the New Media Centers Initiative and a principal of the Jenkins/McMurray consulting group based in Palo Alto, CA.
According to Jenkins, the consortium will establish its first international pilot sites in late 1994. Already more than 260 educational institutions worldwide, including universities based in Japan, India, South Africa, France and Germany, have requested applications to participate in the program. Stanford University in Palo Alto has been selected as host for the first site.
They’re smiling at Stanford. The Stanford Media Integration Lab for Education (SMILE) includes a computer classroom; a curriculum development lab, where faculty and students can create instructional multimedia applications; and a “public computer cluster” made up of 50 networked Macintosh Centris 650 systems with CD-ROM drives. SMILE, under the direction of Charles Kerns, already has begun to work with faculty to develop interactive curriculum materials. The university has several additional projects underway within SMILE.
PARTICIPANTS WANT TO MAKE IT WORK
Building a global network of new media centers is not going to be easy. Not only does it require cooperation among individuals in the consortium who are used to seeing each other as competitors, but it also requires a long-term commitment from the corporate members as well as the host universities. The perks for both groups, however, seem to be highly motivating.
Such a bargain!>> The educational institutions that participate are promised discounted prices on media-related products that are even below standard educational discounts.
For example, under the New Media Centers Initiative, participating institutions can purchase a Quadra 840AV with 16 MB of RAM and a 1,000 MB hard disk bundled with SuperMac’s DigitalFilm and ThunderStorm cards, Adobe Premiere and Photoshop Deluxe CD-ROM editions, Apple Media Tool Kit, CoSA After Effects, Macromedia Director and MacroModel, and AppleDesign Powered Speakers, for about $7,500. The retail value of the package if each component was sold separately would be about $20,000.
In addition, participating educational institutes have an opportunity to influence the direction and development of future multimedia tools. The schools are being invited to work with new media products that are still in development — a mixed blessing to be sure, as anyone who has beta-tested computer technology knows.
“The universities can tell us what their needs are,” says Jenkins. “They will have a tremendous influence on how this group is put together and on what kinds of interactive media technologies develop in the future.” The groups will keep up to date with each other via electronic mail and an electronic newsletter that is expected to make its debut in the first part of 1994. In addition, corporate members are expected to make site visits to participating universities on a regular basis.
The content connection. Not insignificantly, member institutions will also have access to content in the form of educational materials created at Prentice Hall, one of the largest educational publishers in the world, owned by Paramount Communications, Inc.
According to Gary Lee June of Prentice Hall, the publisher will license existing college-level titles and help participating universities develop interactive learning media. “The real danger here is the new publishers who think that one of our calculus books can just be digitized and then sold as an interactive product,” says June. “What we provide is a brand name — a launching pad for these institutions to create interactive learning titles that make sense.”
June says Prentice Hall, as well as other consortium members, will also help these universities navigate tricky intellectual property, distribution and royalty issues, so that participating schools can potentially turn their interactive media prototypes into commercial products.
Growing the market. For corporate members of the consortium, the benefits of the New Media Centers program are fairly obvious. Not only do they get a guarantee that their respective technologies are being widely seeded into a rapidly growing tech in education market — about 20 percent of today’s U.S. college students own their own computer — but they also are assured that future generations of multimedia developers are being weaned on their products.
The schools participating in the New Media Centers Initiative must also open the centers to the community outside of academia through interactive media workshops and seminars — again, potentially expanding the interactive developers market, and therefore, the demand for these company’s hardware and software technologies.
AN IDEA THAT NEEDS A HOME TO BE REALITY
Right now, the New Media Centers Initiative faces one large problem: It got too big too fast. The consortium is moving forward so quickly that it is in jeopardy of being overrun by the educational institutes it has attracted.
Trouble at the grass roots. None of the individuals involved in launching the consortium — including Jenkins; Eric Wilson, a consultant on the project who brings a wealth of experience from his previous work on Apple’s failed Creative Media Consortium project; SuperMac’s president and CEO Mike McConnell and its director of strategic relations Tom Rielly; Bud Colligan, president and CEO of Macromedia; and Randy Haykin of Apple Computer — has time to manage daily tasks such as processing applications and mailing out information packets on the initiative.
And if the group is having trouble managing these more mundane yet essential duties, it certainly doesn’t bode well for its ability to develop future strategic directions for the initiative, including bringing on additional publishers and technology companies that can provide services for participating schools.
For the New Media Centers Initiative to succeed, the corporate members who collectively founded the group must now step back from it and entrust its management to another group with enough time to dedicate to the project and who are motivated to really serve the needs of the participating universities.
Becoming real. To that end, the group has begun the process of trying to turn the consortium into a not-for-profit business, complete with a board of directors that will include members of the corporate community and educators. It is certainly questionable, however, if five successful Silicon Valley companies, working with Sony Electronics, can justify creating a not-for-profit business that sells their technology.
Even if the companies can prove they are selling their wares at a loss, it might be difficult to raise the funding from the government and outside corporations necessary to keep a non-profit vibrant. According to Jenkins, the goal is to make the transition from industry consortium to a real business — whether it be a non-profit or a new company — by the first quarter of 1994.
For additional information on the New Media Centers Initiative, call (408) 541-5020, or send E-mail to NMC on AppleLink and NCC@ applelink.apple.com on the Internet.
Janice Maloney
WOMEN ON THE WIRE
Network offers info, resources
The Women’s Information Resource and Exchange network wants to change the demographics of the virtual community, which today is estimated to be made up of more than 85 percent men. Its new electronic information service, known as WIRE, has a charter to bring women online and to provide “a safe and welcoming haven where women can assemble and learn.”
The network, which went live early last month, offers private electronic mail services and access to the Internet. WIRE also provides public forums on careers and finance, parenting, health and fitness, arts and leisure, learning, technology and politics as well as a section called “Herstory,” which contains historical documents, legislative bills, Supreme Court decisions and profiles of famous women in history.
Making it easier. WIRE has a simple icon-based, point-and-click interface for individuals new to the online world to navigate. If new subscribers should falter, the service offers a Big Sisters program where members of the WIRE community show them the ropes.
In addition, unlike many of today’s popular online services that are male-dominated, individuals logged on to WIRE are identified by their full name — no nicknames or pseudonyms, which are sometimes used as a shield for bad behavior. As is true with most online services today, individual subscribers deemed disruptive to the community can be removed.
HANGING OUT ON THE WIRE
While the official rollout of WIRE is expected in January 1994, the Founding Subscribers program was launched Oct. 1, making WIRE available on a limited basis to up to 500 people who are interested in helping to build the system and to establish some of the content within the various forums. Already, the service has attracted more than 150 subscribers — 10 percent of whom are men.
A year in the making. For WIRE cofounders Ellen Pack, president, and Nancy Rhine, development director, the birth of WIRE is the culmination of more than one year’s work — developing a business plan and raising money from friends and business associates to build the service.
Neither Pack nor Rhine would be considered typical online junkies. In fact, Rhine, who has been involved in the computer industry for about 12 years, used to “resist” using the telecommunications medium. “I had my circle of people who I had face-to-face communication with, and I believed that was the only way to really communicate,” she says.
Eventually some of the founding members of the Whole Earth ‘Lectronic Link, a popular online service commonly known as the WELL, coaxed Rhine, whom they had known for more than 20 years, into combining her skills in computer technology and her studies in psychology to manage the customer support group for the Sausalito, CA-based network. Once online, she immediately began to realize the potential of the medium for communication and wanted to see it expand beyond its male-dominated user group.
It wasn’t until she met WIRE cofounder Ellen Pack last year though that the women’s network started to gel. The two met in September 1992 on the WELL after mutual friends online pointed out that they shared an interest in creating a network for women.
A place to bring your friends. For Pack, who had made the move from East to West Coast less than a year before in order to work as a COO for a small software company, the “virtual community” had become an essential link for both her professional and social life.
“Once out here [in Silicon Valley], I really began to notice how people in business existed electronically,” she says. “Then I began to notice how it affected me socially, and it struck me that none my friends were online.” Pack became determined to bring a more real-world balance of male and female into the online community.
“I think women could love this medium,” she says. “Women don’t naturally look at technology and say, ‘Yuck.’ They just say, ‘What can it do for me?’ Whereas I think men look at new technologies and say, ‘Wow, how can I use this?’ It is our goal to transform this medium into a technology for women — a technology they see a use for.”
NOT A ‘SEPARATIST THING,’ BUT FOCUSED
While WIRE is targeted toward women, it is not exclusive. Similar to the SeniorNet service, which caters to individuals over the age of 60, all who are interested in participating in WIRE are welcome. The content, however, is focused on issues that directly affect women.
For example WIRE’s Health & Fitness forum has a database that claims to contain the latest research on breast cancer. A list in the education forum contains information on scholarships granted solely to female students. Conversations on parenting drift through a number of the forums, from information on midwives under “Health” to toys and books reviewed by adults and children under “Arts and Leisure.”
Both Rhine and Pack stress that WIRE is not a “backlash reaction” to sexist behaviors practiced by some males online. “The focus of the content and the resources, biographies — everything on WIRE — are all things I am interested in as a women,” explains Pack. “Basically we see WIRE as an online, interactive women’s magazine. It doesn’t feel separatist; it just feels focused.”
A BALANCING ACT TO KEEP WIRE FLYIN’
Focus is great, but is WIRE too focused? The service needs about 10,000 subscribers for Rhine and Pack to break even. They believe they can attract that many subscribers by next fall. If they do — and the vast majority of them are women — they will be not only setting precedents in the online community, but in sociological circles as well. Although women make up more than half of the computer users in corporate America today, they have resisted participating in the growing virtual community online.
According to an interview in Working Woman with sociologist Mary Frances Stuck of the State University of New York at Oswego, this resistance is not because women have never found an electronic information service that’s just right for them, but because females fundamentally perceive technology as an office tool.
“Women tend to think of computers as productivity tools, whether it be word-processing or spreadsheets or database management, rather than something that connects you to other people,” Stuck writes. In addition, she says, women are often reluctant to waste time “playing” with the networks on the job, and at home they are probably too busy.
Try it, you’ll like it. Pack and Rhine hope to break through the existing perception barriers by raising awareness among women — in and outside of the technology industries — about the power of telecommunications. Together, they have been hosting seminars and workshops for non-profit women’s groups on what an online service is, what are the benefits of using one and how to navigate through a system.
Mentoring customers. In January, the two founders plan to select 15 of the organizations that participated in the workshops and give them free accounts to WIRE as well as to connect the selected groups with a technical advisor conversant in the WIRE network from CompuMentor, a San Francisco-based non-profit group committed to technology and education.
“I want this tool to be accessible to women as well as seniors and disabled people,” says Rhine. “I want it to be multicultural. We really see ourselves as a catalyst for connecting women around the world.” Already WIRE has received calls from individuals and groups from Canada, Mexico and Europe who want to subscribe, or who want to link WIRE to other online networks around the world.
The subscription fee is $15 per month, which includes two free hours of access each month. Additional time is $2.50 per hour. Once you have the necessary software, you can connect to WIRE by a direct phone call, or via SprintNet. (SprintNet is a packet-switching network that allows computer users in most U.S. cities to connect to WIRE by making a local phone call.) SprintNet users pay an additional hourly surcharge to offset WIRE’s cost of this service; this can bring the hourly cost up to as much as $7.50, depending on time of day.
Janice Maloney
WIRELESS ACCESS FOR MOBILE USERS
Air delivers cellular phone, fax/modem
The peripherals market for mobile communication devices is becoming one of the hottest product categories in the new technology marketplace. Following on the heels of Wireless Access’s successful launch of its one-way pager card for mobile computer users (see Vol. 3, No. 5, p. 22), Air Communications of Sunnyvale, CA, announced an all-in-one wireless voice and data peripheral that attaches to portable ‘386 or ‘486 PCs and Macintosh PowerBook or Duo systems.
‘ANYTIME, ANYWHERE’ CAPABILITIES
Called the AirCommunicator, the device resembles a cellular phone but allows mobile computer users to send and receive faxes and electronic mail (with megabyte-size file attachments) and to access online services. In addition to providing fax modem service over traditional phone lines, the AirCommunicator provides data communication services from an individual’s notebook or portable computer wherever a cellular signal is available. When not hooked up to a computer, the AirCommunicator becomes a handheld cellular phone. An RJ-11 jack is built into the device if you want to make a connection over standard phone lines.
The charter of the Air Communications, according to CEO, president and cofounder Kevin Surace, is to enable mobile computer users to have the same communication capabilities on the road as they would in their offices. Through proprietary technology — Surace says the company plans to apply for 14 patents — Air has found a way to transmit data over existing cellular circuits with incredible accuracy.
Surace says Air might support the proposed CDPD protocols for sending and receiving short messages if there is demand among AirCommunicator users; however, he says, he does not expect support of CDPD to be widespread for at least two years.
Snap, crackle, pop. As many of us have experienced first hand, every volume and power shift, static pop or bit of “noise” that occurs between the cell site and the transceiver in a device can create interference during a cellular phone conversation that makes communication difficult. And while human ears typically compensate for the “unreliability” of the connection in a voice call, all of this interference is unacceptable during data transmission, where every character is critical to reliability.
The AirCommunicator, through its AirSpeed audio technology, has improved the quality of signal-to-noise and channel bandwidth to prevent errors before they occur, says Surace. In a beta demonstration of the device, the AirCommunicator transmitted in less than 10 seconds a one-page fax with a graphic over cellular without a hitch. The product is expected to be in beta testing for another month.
The mobile executive. At a pricey $1,495, the wireless peripheral is targeted toward data-intensive mobile computer users: corporate executives and high-level sales and field service teams, who frequently need to access and send information to their home offices or remote business sites.
STARTUP TEAM HAS HISTORY IN CELLULAR
The technology behind the AirCommunicator is the brainchild of Surace and Arthur Gutch, who together cofounded the company in the fall of 1992. Gutch has eight years in the cellular industry and brought to market one of the first integrated cellular data peripherals as the president and founder of Vital Communications. Surace, who has worked at Seiko-Epson, National Semiconductor and IBM, is considered an expert in advanced device miniaturization. (The AirCommunicator uses more than 500 components, according to Surace.)
A weighty subject. One obvious drawback of the AirCommunicator is its weight. At 16 ounces, it is certainly not a lightweight addition to the briefcase. However, the device does eliminate the need for a pager and/or a cellular phone when traveling. The unit’s weight is almost entirely attributable to its battery. According to Surace, the battery can last up to two-and-a-half hours at full transmission; eight hours in voice-only mode; and 15 hours in standby. A battery charger and power adapter will ship with the device.
Coming to stores near you. Initially, the AirCommunicator, which is expected to hit the retail channel in mid-to-late December, will work with Apple Computer’s PowerBook and Duo systems and with any standard ‘386 or ‘486 computer, such as the HP Omnibook 300, IBM ThinkPad, Compaq Contura and Lite, AST PowerExec, and the Toshiba T4600 and T3300. It can also work with Mac or Windows-based desktop computers. According to Surace, the company is interested in working with additional hardware manufacturers developing personal digital assistants and personal communicators.
Janice Maloney
IN SEARCH OF THE 7TH LEVEL
Michael Milken-funded studio makes debut
Longtime rock ‘n’ roller Scott Page and computer software whiz George Grayson, along with veteran music producer Bob Ezrin, recently launched 7th Level, an interactive entertainment studio with a name that they say suggests the “eminence, achievement and transcendence” they are looking for in developing next-generation interactive education and entertainment titles.
And while the company’s name and the philosophy behind it borders on New Age, 7th Level itself is firmly grounded in the business of Hollywood-style entertainment and Wall Street finance.
THE MONEY BEHIND 7TH LEVEL
As with so many new media companies getting started today, it is the behind-the-scenes activity at 7th Level — and not the actual products — that is the most exciting aspect of the company. 7th Level is backed by Michael Milken, the one-time junk bond king, who since being released from a federal prison for federal securities law violations last March, has publicly championed interactive learning with gusto. In addition, Merv Adelson, the former chairman and co-founder of Lorimar, Inc., who is now chief executive of the merchant banking firm East-West Capital Group, has invested in 7th Level. Adelson is also a member of the Time Warner board of directors.
Three years in gestation. The Los Angeles-based interactive media studio is the brainchild of Grayson, a cofounder of the computer graphics company Micrografx, and Page, who is best known as a tenor saxophonist for music groups Supertramp and Pink Floyd. The two met three years ago at a Comdex computer trade show and discovered they shared a mutual belief that interactive software is the future of entertainment.
A multimedia spectacular. After the Comdex meeting, Grayson and Page decided to try to work together on a project that combined their talents in entertainment and computer technology. They developed the idea for the Grand Scientific Musical Theater, a multimedia musical extravaganza, which was held at Comdex in 1992. It drew more than 12,000 people, including Microsoft chairman Bill Gates, IBM computer exec James Cannivino and Borland International chairman Phillipe Kahn.
Ezrin, who had heard about the project from Page, helped it get off the ground, bringing in much of the talent. Ezrin has produced Pink Floyd, Peter Gabriel, Alice Cooper and Kiss during his 23-year career in the music industry. “It felt like rock ‘n’ roll in the ’60s,” he said of the show afterward, and told both Grayson and Page that he was interested in working with them on similar projects in the future.
The best laid plans. It was Grayson’s original plan to acquire Page’s entertainment production company, The Walt Tucker Group, and turn it into a consumer division within Micrografx. The board of directors at Micrografx objected to the acquisition, and Grayson resigned. The same day he called Page and said, “Let’s start the new company.”
Page and Grayson called in Ezrin, who became co-chairman and VP of music productions. Robert Tercek, formerly director of on-air promotions for MTV, then joined the team as the creative director. In addition, several of the key developers who worked with Grayson at Micrografx left the company and joined 7th Level. Grayson made the initial investment of $1 million to get 7th Level off the ground.
Today, 7th Level has about 25 people on staff and is divided between two offices, one in Los Angeles (at the old Walt Tucker studio) and one in Dallas, where Grayson and the programming team work. According to Page, the group is investing in high-speed phone links to connect the sites.
ROCK STARS AND … NURSERY RHYMES?
This past month 7th Level debuted its first title, Tuneland — a children’s interactive cartoon about a teddy bear named Little Howie, who romps around an animated farm while his barnyard friends sing “Bingo,” “Itsy Bitsy Spider,” “Pattycake” and “Ol’ MaCDonald.”
Comic Howie Mandel is the voice behind Little Howie, and members of the rock group Tower of Power, John Anderson of Yes and Jeff Baxter of the Doobie Brothers provided some of the vocals and the music. (All of the songs used in the title exist in the public domain.)
T-shirts and lunch pails. Tuneland will be released initially as a CD-ROM for the Windows platform this January, but, according to Grayson and Page, the multimedia personal computer is only one of many media where Little Howie will appear. The startup hopes its animated bear will turn into the next Barney or Mario through mass market entertainment and licensing agreements. To date, no PC-based character has been able to make the transition into mainstream media. Carmen Sandiego, star of Where in the World is Carmen Sandiego?, comes closest, but she does not begin to touch the success of characters such as the Nintendo’s Super Mario Brothers or Sega’s Sonic the Hedgehog.
At press time, none of the founders were willing to discuss where Little Howie might show up next. At this point, the team says it is not interested in developing for the Macintosh or the 3DO Multiplayer. They are looking at developing ITV applications for both Modular Windows and Silicon Graphics platforms, according to Grayson.
A chance to get their feet wet. Tuneland alone does not set 7th Level apart from the pack of multimedia developers scrambling today to deliver a hit title. The group chose to develop an animated cartoon because the children’s market is the fastest-growing market for new media, and because it did not require a high level of interactivity to be built into the product. Basically, the development team was getting its feet wet.
The company’s next title, although members of 7th Level will not discuss it in any detail, will be based on material from Monty Python, the offbeat British comedy troupe, which had a long-running TV series on the BBC and made several successful movies, including Monty Python and the Holy Grail, The Meaning of Life and Life of Brian.
EDUCATIONAL PROGRAMMING IS MILKEN’S FOCUS
According to Page, Milken reviewed 280 business plans on interactive media companies before investing in 7th Level. Milken selected 7th Level, he said in a prepared statement, because the company is “a company whose goals are in line with the criteria I have developed for children’s education and entertainment products.” As part of the investor agreement, 7th Level will develop interactive education titles to be distributed on the Education Entertainment Network, a non-profit cable TV network that Milken chairs.
It’s in the process. In addition to attracting high-profile investors outside of the traditional Silicon Valley investment crowd, the team at 7th Level says it has developed a “process” for developing interactive media, which it plans to license to other developers.
According to Grayson, who was reluctant to describe in detail what the process involves, it uses proprietary technology based on the Windows platform. Micrografx pioneered Windows-based software development; it developed and distributed the first Windows-based software application before Microsoft actually released Windows.
Janice Maloney
VIRTUAL VEGAS
Circus Circus’s high-tech theme park
Circus Circus Enterprises, Inc., one of the largest and most profitable gaming organizations in the United States, recently opened an indoor high-tech theme park in its new Las Vegas hotel, casino and entertainment center, called Luxor Las Vegas.
The theme park, created by The Trumbull Company, Inc. (TCI), of Lenox, MA, marks a departure for Circus Circus from its profitable but lower-tech forms of entertainment; i.e., gambling, games, musical revues and live shows.
An entertainment megastore. The company, which has invested $50 million in the project, is promoting the site as a prototype for future indoor urban entertainment centers. It is comprised of three highly themed film attractions set inside a 30-story, 2,562-room, pyramid-shaped hotel, casino and entertainment complex. A low-tech “Nile ride,” which follows the outer perimeter of the pyramid base, and a museum housing a full-scale reproduction of King Tutankhamen’s tomb are other attractions in the park.
Circus Circus has also developed a 100,000 square-foot casino, seven themed restaurants, a 1,100-seat theater for live productions, themed retail shops and Virtualand, a 18,000-square foot Sega USA video arcade with networked racing games, motion-based movie rides and other arcade games.
Boomers are big business. The idea of developing Luxor and high-tech attractions was formulated by Circus Circus in response to what they identified as changing demographics and customers’ expectations for quality entertainment.
The company operates four hotel-casinos including Excalibur and Circus Circus, two casinos, and two theme parks in Nevada. Bill Paulos, VP and general manager of Luxor Las Vegas, says the company’s research shows that today’s Las Vegas visitors are seeking a more sophisticated entertainment experience, and that high-tech rides create a more urban entertainment environment with broader appeal.
“We’re looking at the baby boomers — people who have teenage children,” Paulos says. “They’re more affluent. That’s who most of the people coming to Vegas are. It’s a much higher-end customer” than it used to be.
A COMPLEX STORYLINE FOR BROAD APPEAL
To develop the sophisticated, high-tech attractions, Circus Circus brought in Douglas Trumbull, a special photographic effects expert with a distinguished career in the film business, and his company TCI, which developed, among other attractions, Back to the Future — The Ride motion-platform rides in Universal’s Florida and California theme parks.
TCI fabricated a complex story line to complement Luxor’s thematic setting as the site of a vast archeological dig in Egypt. The trilogy of high-tech attractions are themed “The Secrets of the Luxor Pyramid.”
The attractions present three episodes in a tale about the discovery of an ancient advanced civilization and the struggle of four people to exploit the temple’s powers for good and evil. The attractions (or episodes, as they are called) chronologically explore the past, present and future of the civilization. In creating the story, TCI was “trying for the widest audience possible,” says Arish Fyzee, codirector of the Trumbull attractions.
The attractions were developed as a trilogy. But as Fyzee noted, due to the kind of traffic in a hotel, visitors may not have time to go on them all or in order. A series of preshows before each attraction familiarizes the audience with the story and the characters.
“In Search of the Obelisk.” Episode One, titled “In Search of the Obelisk,” is a “swashbuckling, Indiana Jones-style” simulator ride, according to Fyzee. “It’s got a lot of action,” he says. “There’s an immediate conflict and you race right into it.” Because this is the first in the series, this show has the most extensive preshows, though the simulator ride lasts about four minutes.
This episode contains six ride areas called Ridefilm Theaters, which include a bay with a 15-passenger motion-based simulator, a 180-degree, spherically-curved screen and six-channel digital surround sound. A seventh theater is a static bay for handicapped visitors. For the ride, TCI modified the model that it had developed for the “Back to the Future” rides from multiple simulator units in one ride area to individual bays and screens for each vehicle. TCI hopes the new ride film has greater impact.
The film was developed using Trumbull’s patented VistaVision technology. VistaVision captures 48 frames per second (vs. 24 fps for traditional exhibition format). By shooting more frames per second, the image quality is of significantly higher resolution and higher definition. This film is also shot with a fisheye lens and then projected onto the 180-degree screen for a wraparound image.
“Luxor Live.” Episode Two, titled “Luxor Live,” is a parody of a live talk show. This attraction accommodates 350 audience members in an auditorium that resembles a live talk show stage. The 17-minute multimedia presentation combines rear-projected film produced in Showscan, a computer-generated 3D film projected at 48 fps onto a giant screen, several large, multi-image video projection screens, a series of physical effects and a live actor.
Showscan — also patented — is a 70mm, high-speed, high-resolution film process invented by Trumbull in 1974. Images are photographed and projected at 60 frames per second. (Trumbull was presented with a Scientific and Engineering Award from the Academy of Motion Picture Arts and Sciences in the spring of 1993 for the concept behind Showscan.)
“Theater of Time.” The final episode, titled “Theater of Time,” is a 15-minute, high-resolution VistaVision film projected at 48 fps onto a 70-feet by 35-feet curved vertical screen. The 350-seat theater is raked at a 45-degree angle, making it the steepest theater ever built, according to TCI. In addition to its 10-channel digital stereo sound system, each of the seats have transducers in the seat backs and floor to create physical shockwave effects. The overall effect of the attraction is intended to be somewhere between a movie and a ride.
THE TRUMBULL TOUCH FOR IDEAS USING FILM
At the core of the attraction is “technology and film art,” says Fyzee. “Film is really the base of all these attractions…. We wanted to see how far we could work film into it — providing people with entertainment they have never seen before and which is outside of what they usually expect from film.”
For Trumbull and Fyzee, the Luxor project represented a chance to try out some new ideas for creating immersive audience entertainment. Aside from Episode One, which is a modified version of technology used in Back to the Future — The Ride, the attractions are the first of their kind.
Film and technology at the core. TCI claims the film is one of the most digitally intensive ever made, using digital technologies throughout virtually every stage of production. The attractions make use of three central components — live action, motion control photography of miniatures and computer-generated imagery. All production was done by TCI, with the exception of the computer-generated imagery from Kleiser/Walczak Construction Company based in Los Angeles.
TCI’s headquarters house a complete movie studio, including stages, screening facilities and a simulation theater, as well as a film laboratory, art department, editing facilities, and commissary and production offices. The studio is a fully integrated filmmaking facility with state-of-the-art computer technology for all phases of project development.
Trumbull’s career path has been one of innovation and experimentation. His involvement in the high-tech entertainment business began in Hollywood in the 1960s. His list of film credits includes work as a special photographic effects supervisor for 2001: A Space Odyssey, The Andromeda Strain, Close Encounters of the Third Kind as well as Star Trek: The Motion Picture. In addition, Trumball was also the writer and director of Silent Running and a visual effects designer for Blade Runner.
Eventually, his desire to stretch the boundaries of film experience led to exploring ways technology could be combined with film to create powerful experiences. In 1973, Trumbull formed the Future General Corp., a subsidiary of Paramount Pictures, to develop innovative film techniques. While at Future General, he created the first movie ride by combining 35mm film and a flight simulator motion platform. Trumbull holds 11 U.S. patents (with two pending) that have applications in the field of entertainment.
Trumbull founded TCI in 1992 to develop and produce film attractions, focusing on simulation rides and other special-venue films, including large format and 3D films. TCI also provides consulting and creative services for the entertainment and amusement industries.
Fyzee, codirector of the Luxor project, has worked with Trumbull at TCI for more than four years. He worked as the line producer and project manager for Back to the Future — The Ride, and directed a special-effects movie ride entitled Muggo! for Sega Enterprises, Ltd. Fyzee began his career producing and directing documentary films on jazz.
URBAN ENTERTAINMENT OF THE FUTURE?
More than 200,000 served. So far, Circus Circus says the draw of the new complex has been tremendous. In the first 15 days of business, the company claims more than 200,000 visitors have been inside the pyramid. (No figures were available for the rides.) Although the company had no estimates on how many people would purchase tickets for the high-tech attractions on an annual basis, it anticipates more than 11 million people will visit the Luxor in its first year.
A plus of high-tech attractions is the number of people that they can host an hour (and tickets that can be sold). At full capacity, Episodes Two and Three can each accommodate 1,000 and Episode One 1,200 people an hour, according to Paulos. At $4 per ticket for Episodes Two and Three, and $5 for Episode One, a steady stream of customers over time would provide a lucrative source of revenue.
Uncertainty is exciting. With Luxor, both Circus Circus and TCI are dabbling in the uncharted waters of high-tech entertainment. Circus Circus appears to be doing many things right with Luxor — hiring talented developers as well as developing a highly themed site, high-quality productions and surrounding attractions that are a proven draw. But, as both parties are aware, there are no formulas or guarantees for success in the young and unproven industry. Perhaps it’s because of this uncertainty that Circus Circus is adopting a wait-and-see attitude on Luxor before signing on to any future projects involving high-tech entertainment, despite its stated commitment to technology.
As Fyzee sees it, it is this combination of uncertainty and excitement about creating something new that draws people to the technology. “Clients want something that they haven’t seen before,” he says. “The movie business always wants the fifth and sixth versions of something, not something they haven’t seen before…. There’s an opportunity to define what you want in this business. It’s a wide open field.”
Amy Johns
MATSUSHITA UNVEILS DIGITAL HDTV CAMERA
Prototype based on hybrid Japanese standard
The Matsushita Applied Research Laboratory (MARL), in cooperation with Matsushita’s Image Technology Research Lab, has developed the first fully digital, high-definition broadcast-quality television camera.
The prototype camera is configured to operate on the hybrid analog-digital Japanese HDTV standard, but Matsushita says the camera can be easily modified to accommodate any HDTV standard that emerges.
THE ADVANTAGES OF DIGITAL HDTV
Although analog HDTV cameras are already available, digital HDTV cameras offer superior stability and repeatability. With analog studio cameras, it is nearly impossible to get the same precise reading from one day to the next. Elements, such as heat, may effect camera performance.
When camera functions are all digital, exact settings can be programmed and recorded for consistent results. Also, functions, such as shading, color balance, gamma correction and edge enhancement functions are calculated more precisely and are more easily adjusted. These functions can be modified instantaneously by the operator through a master camera control unit or software.
Managing digital data. One of the greatest challenges in developing the digital camera was building a system with enough bandwidth and speed to process the increased amount of data in an HD video signal, according to Jukka Hamalainen, director of MARL.
The digital HDTV camera has been under development at Matsushita on and off for three years, according to Hamalainen. During the course of this development, a total of more than 12 U.S. patents were issued or are now pending.
The device consists of three main components: a camera head, a video processor and a master controller unit. The camera head contains analog circuitry for CCD (an image sensory unit) timing and video signal recovery. The core of the unit is the digital video processor where all the software processing and control functions are found.
As signals come from the CCD, the digital video processor amplifies the signals and turns them into a digital format. The video processor handles many adjustments, such as converting the signal to a nonlinear format, pixel-by-pixel shading correction and dynamic contrast compression, automatically and in real time.
The final component, the master control unit that was developed by Matsushita’s Image Technology Research Lab, provides the user interface and displays the camera set-up parameters and status.
In search of a standard. Matsushita doesn’t envision developing the camera for commercial use until after a U.S. HDTV standard is selected by the Federal Communications Commission. However, the company says it will be prepared when this happens. “The key thing was to develop the technology,” says Hamalainen. “The technology is something that it’s good to know if you have to develop something in a hurry.”
Amy Johns
>EVENT
WINTER CES
Jan. 6–9, Las Vegas
Electronic Industries Association
(202) 457-8700, fax (708) 344-9018
Last year, show sponsor Electronic Industries Association (EIA) drew the computer world into its fold with keynote speeches by Jack Kuehler of IBM and John Sculley, then of Apple Computer.
This year, though somewhat later than the rest of the world, the EIA is touting convergence as the buzz. Robert Kavner, AT&T executive VP and CEO of Multimedia Products and Services, will kick off the winter Consumer Electronics Show with a keynote address focusing on the convergence of computing and communications.
In addition to the usual product displays of audio and video hardware, new product areas such as videogames, multimedia, computer products and personal communicators are expected.
In fact, the show is opening new multimedia, desktop video and desktop publishing pavilions on the floor. Approximately 20–30 companies, including Creative Labs, Intel, Mediavision, Microsoft, IBM and the 3DO Company, are expected to participate in the multimedia pavilion. In all, more than 1,500 exhibitors are expected at the show.
In addition to the exhibitions, an extensive workshop program is being offered. The workshops will focus on one of three areas: industry directions and trends; technology roundtables; and retail and marketing.
The workshop program covers 14 track topics including audio/video, DBS, high-end audio, finance, government relations, home theater, mobile electronics, multimedia, multimedia titles, TV-based multimedia and playback devices, personal video/desktop video production, retailing and small office/home office.
Show sponsors are estimating nearly 80,000 people will turn out for the event. (Read: Book your hotel room now.)
EIA is a 69-year-old Washington, DC-based trade association representing all facets of electronic manufacturing. EIA’s Consumer Electronics Group, which runs CES, represents U.S. manufacturers of audio, video, home office, home automation products, mobile electronics, accessories, as well as devices to assist people with disabilities.
Amy Johns