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An Expensive Experiment
One subscriber, Jody Weiss of Wekiva, mother of two teenagers, calls it "a dream come true." Weiss, a software consultant and self-confessed news junkie, says the Full Service Network allows her to breeze through four weekly newsmagazine shows in one 50-minute sitting. Her 16-year-old son, Jesse, and his friends spend more of their evenings in relative safety, watching recent-release movies at each other's homes instead of roaming. Daughter Kelsy, 14, cruises Time Warner's virtual mall. "It's so easy," she says, staring at the large-screen TV in the family's living room, "because you don't have to bug your parents to drive you out to the video place."
But don't cancel your cable service yet. It appears that the couch-potato saint won't be visiting your home anytime soon.
In various trials around the country, including Orlando, subscribers selected for test marketing of interactive television appear to be enthusiastic about the service - but not enthusiastic enough to pay a lot more for interactive TV than for regular cable. Given the public's price resistance, not to mention the high cost of setting up a system like Time Warner's in the Orlando area, full-scale interactive TV likely will be stuck in the testing phase for a while longer.
"The interactive TV industry has gone into a stall," says Emily Green of Forrester Research, a consulting firm in Cambridge, Mass. Forrester's analysts first predicted problems for interactive TV two years ago - about the time the Orlando trial was being started by Time Warner and its high-tech partners.
"The phenomenal cash requirements to set it up are causing people real headaches," Green says, noting that tests around the nation similar to Time Warner's in Central Florida have been canceled. "People are losing sleep committing millions and ultimately billions to trials and rollouts."
Time Warner hasn't discussed many details of its spending on the Full Service Network, but this clearly has been an expensive experiment. Among the big-ticket items that connect Orlando-area homes to the network: central computers that deliver movies and other special-order programing, high-capacity fiber optic lines that connect computers to homes, and the functional equivalent of a desktop computer on top of each TV set.
Forrester Research estimated in late 1994 that it would cost a typical cable company about $1,200 per household to introduce interactive TV as a new subscriber service. Other estimates have run as high as $2,000 per household.
"The Orlando trial is a high-wire technology show, a money-is-no-object display," one researcher scoffed soon after the Full Service Network went into operation. "True rollout of ITV [interactive television] will leave a long trail of blood and sweat."
A separate cause for doubt about interactive TV is the competitive threat posed by the World Wide Web. If the Web comes to be seen as a lower-cost alternative, interactive TV might be delayed even longer.
That point hasn't been lost on Time Warner. The company has been test-marketing a high-speed, cable-based modem called the Road Runner in Elmira, New York. It soon will install the Road Runners as standard equipment in the 4,000 households linked to the Full Service Network in Central Florida, adding Web access to the long menu of services already available to the Orlando-area subscribers.
Thomas C. Feige, the boyish, energetic Time Warner executive who oversees the Full Service Network from his office in Maitland, is confident that the service eventually will make a profit.
He expects the price of computer power to decline, thus lowering the cost of setting up an interactive TV network. "It's just a question of timing," Feige says. "Trends in the prices of computer capacity say that we're really not very far away from this." Feige adds that the Full Service Network will be enhanced substantially by development of a new version of the small computer stationed atop subscribers' television sets. The new set-top box, known as Pegasus, will be capable of delivering the entire Full Service Network, although Time Warner officials plan to start with a much more limited menu of services, such as a program guide and the ability to order movies shown at scheduled times. Time Warner plans to roll out the new box in 1997.
For now, however, Feige admits that the cost of certain technical components in the Full Service Network, known as video servers, remains too high. "The costs of the servers themselves today have still not gotten low enough for us to deploy this on a mass basis," he says.
Yet even if the setup cost of an interactive TV network declines, there is no guarantee that enough households will support it. Studies by computer manufacturer Hewlett-Packard and other companies found that, in general, cable TV customers didn't appear willing to spend more than about $10 a month extra for interactive features.
"On the Internet, consumers are starting to realize they don't have to pay for anything," says Green of Forrester Research. "It's continuing to invalidate the idea that people are willing to pay to have a lot of these things."
Jody Weiss, the Wekiva subscriber, says she loves the services provided by the Full Service Network - but she's not necessarily willing to pay a lot more than the $24 she spends each month for basic cable television service.
"I wouldn't want my cable bill to go up more than $10 for the services," she says. Not even for the miracle of interactive TV? "No," Weiss says. "There's more to life."
Subscriber revenue could be supplemented by advertising revenue at some point in the future. Still, no one seems to know how soon interactive TV might become a common part of cable service.
"The Full Service Network is where most [cable] systems are going to be," predicts Steve Wilkerson, president of the Florida Cable Telecommunications Association, "but I'm not going to give you a time frame."
Forrester researchers say the type of enhanced cable TV service Time Warner is testing in the Orlando area won't become commercially available for years, if ever: "The Full Service Network will share the fate of the monorail - a joy to experience, but not practical for real-world applications during this century."
Business Beat - Week of May 3rd
