Bill and Rupert's big adventure
Gates and Murdoch are going head to head for mastery of the next generation of TV and telecom devices. By Owen Gibson
Monday March 21, 2005
The Guardian
http://www.guardian.co.uk/online/news/0,12597,1442815,00.html
Since the first cable company disrupted the traffic flow in the early 1980s and the first Sky dishes started mushrooming around the country, the broadcasting industry has changed beyond recognition.
But if the past 15 years have been characterised by increased choice and an attendant willingness to pay for it, telecoms companies globally are now set to gamble billions on the idea that viewers will in future choose to receive television down their telephone line.
It is a battle that will pit Rupert Murdoch's News Corp - which has a formidable lead in pay-TV by investing in satellite technology - against Bill Gates' Microsoft. The pair have fundamentally different outlooks on the way television will evolve in the next decade. Murdoch, who has a sizeable head start, remains convinced that consumers will continue to pay a dedicated pay TV company to provide for all their viewing needs, attracted by exclusive content and technological advances such as Sky Plus-style personal video recorders and high definition pictures.
But Gates is equally adamant that the future lies in IPTV - television delivered over broadband internet lines to a set-top box, DVD player, PC or games console attached to the set. He has wasted billions since 1992 trying to break into broadcasting and anticipating the convergence of home entertainment devices. But Microsoft now senses this could be its moment to break into the industry.
Over the past two years it has been investing heavily in its Microsoft TV division. Just as most consumers are now used to running PCs using Microsoft software, it hopes that in decades to come they will be watching television on networks running its systems.
"Microsoft's efforts in this area have gone through turns and twists," explains Moshe Lichtman, vice president of Microsoft TV. "If you look at our business today - $40bn plus revenue - 96% of that business is coming out of a single phenomenon, the PC.
"It is a phenomenon that has taken about 30 years to come together and now there are about 750m PCs out there. But if you look at what is happening around us and is touching consumers' lives, there are two huge phenomena that are coming into play in a big way in terms of the ability of software to change them. One is mobile phones, of which there are 1.6bn in the world today, and the other is pay TV.
"In both those categories you are already looking at devices that are smart, they already have memory, they are all connected. So we are very interested in the role of software in those devices and how they can improve the whole experience."
From a standing start 14 months ago, Lichtman argues that Microsoft TV has made real progress. It has sold a version of its software tailored for cable companies (the so-called Foundation Edition) to cable giant Comcast in the US and has a 40% market share in Latin America. And it has signed deals with some of the biggest telcos to use its IPTV edition software, which works over phone lines and which it hopes will fundamentally change the broadcasting landscape.
It has struck deals with partners including Bell South in Canada, Telecom Italia, Verizon in the US, Swisscom and Alcatel. "Internally, we called it TV2 because that's what we think it is going to be, the next generation of TV," says Lichtman. "Today it is called IPTV Edition." There are several more partnerships still to be announced, he adds. "We have done a lot of education on what IPTV is and what it isn't. It is not television over the internet. It is a closed, secure network. That means the delivery of any content, whether it be to the TV or the PC or the cell phone, will be absolutely protected."
Lichtman insists the company has made real progress: "14 months later, we are looking at about 25% of the world's access lines and 75% of access lines in North America and Western Europe. Altogether, that's about 200m consumer active lines. That is a pretty phenomenal achievement."
But what does all this mean for the viewer? Microsoft insists that the growth of IPTV will result in prices coming down and new services springing up. Because the investment is in the network rather than the customer's set-top box, a theoretically unlimited number of channels, interactive services, video on demand and niche content such as "ultra local" programming can be added at will. "IPTV is right for anybody who has a broadband network, cable or telcos. Cable companies think that five to 10 years from now it will all be IPTV," says Lichtman.
In the UK, NTL is experimenting with TV channel delivery via IPTV rather than the more bandwidth-hungry standard broadcasts. And BT has been working on plans to deliver television services to consumers over the telephone line via a set-top box, but has yet to announce whether it will use Microsoft's system.
All of this excludes satellite, Lichtman says, because it lacks a so-called "return path". And if consumers want all devices in their home - telephone, TV, PC and stereo - to talk to one another, they will want them all to be speaking the same Microsoft language, he reasons.
"The TV today is an island. You want to be able to connect services so you can see caller ID on your TV, so you can programme your entertainment experience on your PC and so on."
Once chips that can decode IPTV are in everything from DVD players to games consoles and mobile phones, Lichtman sees no reason why it will not become the dominant viewing platform. "That is where this gets very interesting, when you see it appearing in every consumer electronics device."
Analysts predict around 26m households globally will have IPTV subscriptions by 2008, around 4.5m of them in Europe. But thereafter, the technology is expected to grow more quickly as prices come down and broadband speeds continue to rise.
But Murdoch has not achieved his current dominance without anticipating likely threats. That is one of the reasons why BSkyB, and Murdoch's other pay-TV companies, are investing now in new set-top box based technology to see off the telecom upstarts.
"Storage trumps bandwidth," Sky chief executive James Murdoch has said, encapsulating News Corp's vision. Sky sees the majority of its consumers upgrading their set-top box before the end of the decade to new versions with hard disk space, HDTV capabilities and the ability to archive shows and save them to portable devices. Sky has also dipped its toe in the water by making a handful of channels available to Homechoice, the London-based broadband TV provider.
But Lichtman insists times are changing. "There is definitely a lot of scepticism and concern. The folks who have invested tens of billions in their infra structure have a hard time reconciling the fact that now their competitors are going to be able to offer a superior service for much lower investments."
In the UK, things are seen as less cut and dried, partly because of Sky's dominance. Andrew Burke, head of BT's recently-created entertainment division, believes significant changes to the way TV is delivered will occur over the next five years, but adds: "This is evolution, not revolution."
BT remains intent on being an enabler for others over its network. Attractions such as time-shifted TV, allowing viewers to see any programme from the previous seven days, and on-demand archived content will be early drivers, Burke believes.
It plans to launch a Freeview box with a broadband connection next year but has not yet decided whether to use Microsoft's network, despite partnering it in other areas.
Ultimately, much will depend on whether telecoms companies can ever begin to think like broadcasters. But Lichtman insists that, in much the same way that they upstaged terrestrial TV, Murdoch's satellite networks will eventually become yesterday's technology.
================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu
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