iTV on European Cable: Down But Not Out

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By Barry Flynn

Barry Flynn is a freelance technology writer and consultant. He can be reached via e-mail at barryflynn@compuserve.com.

The European cable industry used to be regarded as the Great White Hope of interactive TV (iTV), rolling out high-end digital set-top boxes with integrated cable modems that promised sophisticated, Internet-based services that would revolutionize the customer experience.

Today, with many of those operators only just beginning to emerge from Chapter 11 or engaged in painful restructuring, what's happened to that dream? And do the providers of iTV middleware still perceive them as representing an attractive market? Microsoft, once the high priest of the Internet-centric, cable-based approach, says it now rates the European market as its 'number two' focus after the US and Latin America. "It's obviously a big TV market," says Ed Graczyk, Director of Marketing for the Microsoft TV division. "It's gone through some pretty tough times in the last couple years, but the operators seem to be slowly coming out of their financial woes."

That said, it's clear Graczyk will not be selling European MSOs iTV solutions that demand boxes that are almost as powerful as PCs - an idea he says Microsoft jettisoned over a year ago." [Our] strategy before had been focused more around advanced set-tops," he agrees, pointing out that "operators like NTL, Telewest, UPC and AT&T had plans to roll out new expensive hardware and wanted high-end middleware to provide all these new services." But then, as the value of telecommunications stocks crashed, "all the operators focused on trying to cut back capital expenditures, and trying to squeeze more value out of the investments they'd already made, as opposed to continuing to make significant new hardware investments in set-top boxes."

All of which forced a radical re-alignment on the Microsoft TV division. "We restructured everything around […] solutions for thin-client set-top boxes - which really means solutions for those set-top boxes that are already out there, deployed in people's homes. And that's been the product focus for the last year."

The extent of Microsoft's commitment to this strategy was underlined at this year's NCTA show in Chicago, where Microsoft TV launched its new Foundation Edition, a platform that extends the thin-end philosophy into an entire, end-to-end client/server product. Described by Graczyk as "a totally brand-new design from the ground up," it is aimed squarely at existing low-end set-tops such as the Motorola DCT 1700, 2000 and 2500 series.

Although the new iTV product follows a modular approach, allowing operators to use it as an interactive core onto which they can bolt whichever applications they want, it does integrate some interactive functions - such as Microsoft's Interactive Program Guide (IPG) as well as some sophisticated VOD-related functionality.

Significantly, the initial version sits on top of the existing Motorola set-top box OS - it doesn't require Windows or Win CE. Graczyk says this product will be adapted for Europe's digital cable market in due course, although he is cautious about committing to a date.

So far, it must be said, Microsoft's attempts to penetrate this market haven't proved particularly successful. Portuguese cable operator TV Cabo, which announced in late January that it had just 8,000 subscribers using the high-end version of Microsoft's middleware, represents its biggest European customer so far.

Such deployments are dwarfed by the likes of Liberate Technologies (whose middleware features in around three million European digital cable boxes) and Liberty Media-owned OpenTV (whose software features in around two million European cable homes). OpenTV's CTO, Vincent Dureau, notes that although in theory, cable is the superior infrastructure for iTV, "in practice, interestingly enough, it's not the case. So if you look at the more advanced platforms for iTV, they're actually satellite. I think the typical example of that is the UK, where in general the offering on BSkyB (and I'm not saying that because it's an OpenTV customer) is far richer than the offering you have on cable - in spite of the fact that the BSkyB set-top boxes have less processing power than NTL or Telewest set-top boxes and that BSkyB is constrained by a telco modem (the NTL/Telewest boxes have a DOCSIS modem)."

Dureau nevertheless still plumps for Germany's cable market as Europe's most interesting prospect, describing it as "potentially a very strong market for iTV […]. If you look at Germany the deployment of digital television out there on cable has barely started - it's a green field," he declares.

However, he believes, there remain several possible barriers to the deployment of iTV there. "I think that the business case for digital pay-TV television on cable in Germany needs to be made," he says, "because there is some competition from free-to-air, so that's number one. Number two, even if we assume that digital pay-TV is going to launch in Germany, cable operators are very keen to pursue a retail model where they would be launching very cheap boxes. And in order to reduce costs and to reduce prices these boxes may be non-interactive - which I think would be a big shame."

Significantly, Microsoft's Graczyk also rates the German cable market: "I think it is an untapped market, but until the ownership issues and all of that is decided. […] I think it's a bit of an unknown." He accordingly describes Microsoft as being "lightly engaged" in Germany. "We don't have an army of people on the ground," he says. "But we certainly keep in touch with the operators and the content owners there and try and keep a pulse on the marketplace. As that starts to move, hopefully we're well positioned to take advantage of it."

Neither Liberate (which is currently in a 'quiet period' as it re-states its earnings) nor the remaining major middleware player, Canal+ Technologies - the former Vivendi technology unit taken over by Thomson Multimedia at the beginning of this year - is likely to let Microsoft and OpenTV exploit this market on their own.

Francois Carayol, Canal+ Technologies' CEO, says "we're very active in the German market," which, like his competitors, he describes as "probably the largest open opportunity right now in Europe."

But it's clear that he ranks the prospects in the US as equally promising, pointing out that "the US market is more or less half the world in terms of DTV." As he says, "the land battle is not over in the US, whereas in Europe most operators have chosen their digital TV solution. [The US] is a place where there are still some big markets to grab."

Carayol graphically illustrates the other downside of the European cable market with the following comparison: when negotiating with major MSOs in the US, he tends to get told "I will make a decision in the next 12 to 24 months." European cable operators, on the other hand, typically tell him "I don't know who my main shareholder is going to be in 12 months." Notes Carayol dryly: "It's a little less predictable!"

It's also the case, as Graczyk points out, that the term iTV is interpreted differently in Europe than in the US. "In the US it's all around better programming guides, better consumer experience and video-on-demand. In Europe you don't hear about VOD much: there's much bigger focus around the enhanced programming. There are things like gambling and betting that are big in the European iTV platforms that are just not even allowed in most of the states here in the US."

However, there's one important lesson that applies regardless of geography, ventures Graczyk: More isn't always better. "When you look at TV Cabo […] the service has incredible depth. But […] in hindsight maybe it would have been a better user experience if you rolled those features in over time - as opposed to a big set of features all in one fell swoop."

Certainly, it appears to be the simple apps that work best in the European cable market. Carayol notes that one of the most often used applications at Canal+ client NC Numéricable is the ability to call up a local weather forecast. However, in terms of minutes spent online, "the iTV application they spend most of their time on is the games: the average user spends hours on them." For all that, the application that generates the most revenue appears to be betting on horses. Here, the Numéricable set-tops have one significant advantage: subscribers just insert their credit card into a slot built into the box to place their bets.

Meanwhile, one shouldn't forget there are two ways iTV can make money for a cable operator: it can generate additional revenues - or it can reduce costs. OpenTV's French cable customer Noos' subscriber support application is a case in point. "The first component is a magazine that updates customers about important facts about the cable service," says Dureau. "That's been pretty successful. It actually reduced the number of calls to the call centre, which is a good thing for Noos, because it reduces the cost of supporting your customers. The second thing they've done is actually a self-provisioning application that allows their subscribers to change on the fly the programmes that they're entitled to watch. So, for instance, if you have subscribed to a particular package - say there are 20 channels to choose from and you're allowed to select 10 - you can do that from your set-top box without calling an operator."

That also saves on the pennies. That is probably one critical respect in which the approach to selling an iTV solution is the same on both sides of the Pond. "The overall pitch probably isn't that much different," concludes Graczyk, "because the high-level message to the cable operator is always going to be about helping them make more money from that cable box."