Business Models: Jumpstarting digital/interactive TV

This article considers the Catch-22 scenario broadcasters face in implementing DTV/iTV, and explores WOW Digital TV’s attempt to solve the problem.

Jumpstarting digital/interactive TV

By Don Keller

Digital/interactive TV is just around the corner. That's what consumers have been told. The problem is, they've been hearing that promise for years, and it's beginning to ring hollow. When the subject comes up in casual conversation with friends and acquaintances, most say that it's too expensive right now, and they'll wait for prices to come down before they buy into it.

WOW Digital TV’s $200 set-top box is compatible with conventional analog TVs, as well as digital TVs and HDTVs.

Ironically, this is part of the reason that digital/interactive TV is floundering. Other, more cynical consumers think that digital/interactive TV is just another government screwup and a waste of taxpayer money. But it's not the taxpayers' money that's on the line; it's the broadcasters'.

Catch 22

Broadcasters, of course, are all too familiar with the difficulties they face in implementing digital/interactive TV. It's the old chicken-and-egg conundrum, also known as the Catch-22 scenario. Most consumers won't buy the equipment — mostly because it's too expensive, but also because there isn't much DTV/iTV programming available anyway. So very few consumers own digital TVs. For advertisers, this makes for a small market. And, since the vast majority of broadcasting is supported by advertising, broadcasters can't attract the advertising revenue they need to support DTV/iTV. Meanwhile, the FCC is forcing broadcasters to spend huge amounts of money to buy and install DTV broadcast equipment and prodding them to provide DTV/iTV programming and services. It's a sure bet that many broadcasters, especially the smaller ones, feel like beasts of burden being herded onto barren pastures by a cattleprod-wielding rancher.

But there are signs of hope. Some broadcasters are banding together with producers, advertisers, set-top box vendors, software providers, billing vendors and others to form complex revenue-sharing arrangements to make DTV/iTV an economically viable venture. One company may have even found a way to solve the chicken-and-egg problem by making DTV/iTV affordable to consumers.

WOW's solution

Utah-based WOW Digital TV plans to make DTV/iTV available to the masses by marketing a set-top box for about $200. The box will pick up over-the-air DTV/iTV broadcasts in all of the 18 allowable ATSC formats. When connected to a conventional NTSC television receiver, the box converts the ATSC signals to analog 480i and produces a DVD-quality picture. When connected to one of the new digital-ready TVs, it displays the ATSC signal in whatever form the digital TV is capable of displaying.

Currently, most ATSC STBs cost well over $500, which is more money than most consumers pay for a TV set. And most of these boxes cannot be used with a conventional analog TV set. WOW Digital TV is counting on its STB's low cost and compatibility with conventional TVs to break the ice — to attract consumers to DTV/iTV and open up the market for broadcasters and advertisers.

Howdy, pardner

To do this, WOW Digital TV has come up with a strategy that involves several technology partners and broadcast partners.

Hardware partner Advanced Digital Broadcast manufactures the box while STMicroelectronics supplies the semiconductor chips used in the boxes. STMicroelectronics says its chips are two generations ahead of those in competing cable boxes, and are therefore less expensive. In addition, Advanced Digital Broadcast has agreed to subsidize the cost of manufacturing the boxes in exchange for equity in WOW Digital TV. Even with these concessions, WOW doesn't expect to make a profit on the boxes — at best, it expects to break even. To stay in business, WOW will help its broadcast partners provide enhanced and interactive services, and share in the profits these services generate.

WOW's software partners develop the STB middleware and the enhanced and interactive services used by the broadcast partners. OpenTV, which is WOW's largest investor, developed the middleware that allows multicasting and interactivity. Intellocity works closely with WOW's broadcast partners to develop interactivity tools and applications geared toward the broadcaster's needs. Enhanced and interactive services are available to the user through the STB's remote control, and appear as a second window on the TV screen so that the viewer never leaves the on-air program — a key feature for both viewer and advertiser. Enhanced services offer viewers features such as downloadable arcade-style video games and movie soundtracks, electronic program guides (EPGs), on-demand sports statistics, alternate camera angles during sports events, enhanced news or weather information, traffic cameras, etc. Interactive services, which would make use of a telephone-line back channel connected to the STB, will allow viewers to respond to a poll, order a pizza or perform other so-called T-commerce functions.

WOW's broadcast partners develop and design specific programs that use WOW's enhanced and interactive services. They also advertise the WOW box during their programs.

Finally, WOW itself finances the box, recruits broadcasters and negotiates agreements with them, and aggregates national programming content for local broadcasters.

Birth of a notion

WOW Digital TV was co-founded in 1999 by Kevin Doman, Steven Lindsley and Louis Libin.

Doman and Lindsley had grown up together in Salt Lake City. Before co-founding WOW, Lindsley had been president of Salt Lake City's NBC affiliate KSL, and was involved with forming a combined DTV facility with KSL and seven other stations from other networks. He became acquainted with Libin when he hired him to help build the combined DTV facility.

Lindsley said that, after completing the combined facility, it dawned on him that neither he nor the other seven stations had an audience. He says that broadcasters continue to find themselves in the tenuous position of being mandated by law to build out their digital transmission facilities and send the signals out into the marketplace — an essentially empty marketplace. In response, he co-founded WOW Digital TV with the fundamental premise that WOW will carry certain burdens and the broadcasters will carry certain burdens, and then both sides will share revenues. Specifically, WOW will create the technical platform and take the risks of building the boxes and the backend systems. In return, participating broadcasters will create iTV programs using tools supplied by WOW and promote the service.

Drum roll, please

But the big question is, will it succeed? Will WOW be able to jumpstart DTV/iTV? Will it become the model that others emulate? To a large degree, that depends on how many broadcast partners WOW can recruit, and whether or not consumers buy the STBs. So far WOW is negotiating agreements with about 50 stations.

As for the STBs, WOW conducted tests on its STBs during the 2002 Winter Olympic Games and over the summer months with several broadcast partners.

The company expects to begin rolling out fully-fledged STBs and DTV/iTV services sometime this fall. Stay tuned.

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