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Promise, Pitfalls of Interactive TV

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SAN JOSE, Calif. (AP) — America Online Inc.'s pending takeover of Time Warner Inc. promises to create unmatched cross-marketing muscle. And with such promise often comes pitfall, and in a marriage like this, the biggest pitfall could be consumers themselves.

AOL's game plan in acquiring Time Warner is simple: Use any and every means to grow its subscriber base — currently 25 million in the United States — by leveraging Time Warner's mighty portfolio of news, entertainment, broadcasting and cable TV holdings.

But will consumers truly crave interactive TV, the new media product expected to be the most valuable fruit of this and other similar unions? Will they be willing to pay much for it? And will the programming be as laced with advertising as what they're now watching?

The answers are as unclear today as the nature of our digital entertainment and information future. Some important indications, however, can be divined from how the AOL-Time Warner union, now under the scrutiny of federal regulators, looks to be shaping up.

Unlike other major media and entertainment companies, Time Warner has a cable pipeline through which it can deliver high-speed Internet to about 22 percent of U.S. homes. Concerned about a possible AOL monopoly over that coveted cable conduit in many markets, regulators have insisted that AOL-Time Warner open its cable systems to Internet providers.

Cable will provide the high-speed data transmission needed to deliver interactive television, a two-way service that would allow consumers to watch their favorite movie, sports or game show on television while simultaneously playing along, participating in polls or surfing the Web.

Do TV viewers really want all that interaction? Mark Snowden, senior analyst for media and entertainment at Gartner Group, believes they do, but with a caveat: ``People just don't really care to pay for it.

``Internet on TV doesn't seem to be an idea that really resonates with a lot of people,'' Snowden said. ``But people do interact with their TVs in ways they're not always aware of, and they just need the right combination of services and the right pricing to make it attractive.

``If companies get the formula right, I think it will be bigger than the Internet,'' Snowden ventured.

Even if the price is right, however, consumers are now being offered more ways to get information from the Internet. Who is to say that cellphones and handheld computers won't grab a big share of the dollars spent on Web access?

Further, the battle for high-tech access in the living room is also being fought by computer manufacturers, and soon they'll be joined by game console manufacturers. That has not helped early interactive TV efforts.

For instance, Mountain View, Calif.-based WebTV Networks has had little success boosting its subscriber base above 1.1 million subscribers in four years of operation.

And of that number, a large portion are senior citizens who do not have computers and use the service mainly to play along with game shows, according to WebTV, a Microsoft Corp. subsidiary. That's clearly not the target age group for advertisers, who are salivating over interactive TV's prospects for online commerce and promotional tie-ins.

Still, research firms contend the future is bright for the technology.

Gartner Group predicts the interactive TV market will grow to $4 billion in advertising and access fees by 2004, and that 17 million U.S. households will subscribe. Research firm Jupiter Communications Inc. is even more optimistic, predicting 30 million households.

Attorney Larry Bobiles of Folsom, Calif., says he's been pleasantly surprised by the amount of interactivity already on his $22-a-month WebTV subscription. He signed up so he could monitor his 5-year-old's online activity.

``It's something I didn't think I'd use very much, but I like the way it integrates nicely with your use of the TV,'' Bobiles said. ``The neat thing about it is with picture-in-picture, you can watch a game, then go to a Web site and get realtime statistics. And when you surf on the Internet, everybody in the living room can share in that.''

Some analysts expect more people to embrace interactive TV when true convergence begins — when companies move away from merely providing TV-like computers and PC-like television offerings. But as that happens, major issues like personal privacy will crystallize.

While interactive TV gives consumers more power over what they view, it also gives programmers far greater knowledge about their viewers. That's because the major players are beginning to incorporate relatively new technology created by companies such as TiVo and ReplayTV Inc. called the personal video recorder.

The machine records live television onto built-in hard drives, and their features allow viewers to pause and even rewind a show as they're watching it. Forrester Research estimates the personal video recorder market will expand from just over 100,000 now to 14 million American homes by 2005.

The TiVo machine, built by Philips Electronics and Sony, records information about what people are watching and builds a profile. Then it offers suggestions that match that profile. AOL recently took a stake in TiVo, and satellite operator DirecTV is launching a two-in-one set-top box with the Silicon Valley company.

The next-generation WebTV offering, due later this year, is called Ultimate TV and will come with a set-top box offering 30 hours of video recording space and the ability to replay DirecTV satellite programming.

Because that viewing information might someday reside in the same box that connects a consumer to the Web, a cable or satellite company could determine what programming a person might be watching and choose ads to specifically target that person — all without the end-user ever being aware. Or the set-top decoder box might be configured to give priority to certain programming.

That's the fear of critics seeking to block the AOL-Time Warner merger, among them the Consumers Union, Consumer Federation of America, Center for Media Education and the Media Access Project

``There's a genuine concern that the Internet continue to be a platform for free expression, creativity, growth and innovation,'' said Andrew Schwartzman, chief executive of Media Access Project, based in Washington.

AOL senior vice president, Jonathan Sacks, says his company has no intention of limiting its customers' content options.

``The America Online way is to serve the consumer, and consumers don't only want Time Warner property,'' he told The Associated Press. ``You are not going to see Time Warner getting premium position on America Online. You are going to see the media properties that people want getting premium position on America Online. In some cases, that will be Time Warner properties. In some cases, it will be properties that compete.''

Many analysts argue that Time Warner should not be singled out because there are other cable operators with virtual monopolies over programming in their areas. The largest is AT&T Corp., which has investments in the Home Shopping Network, Priceline.com and MTVi and could demand preference for those holdings in new set-top boxes.

``The interactive TV issues, broadband access issues — they're things that regulators haven't come up with the right way to deal with,'' said Gartner's Snowden.

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On the Net:

http://www.mediaaccess.org

http://www.corp.aol.com

http://www.timewarner.com
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