|FROM ||Ruben I Safir
|SUBJECT ||Subject: [hangout] The new TIVO from AOL/Time-Warner (sniff can you smell DRM)
March 10, 2003
AOL Is Planning a Fast-Forward Answer to TiVo
By DAVID D. KIRKPATRICK
Personal video recorders like TiVo mock everything a television network is about. The devices let viewers thumb their noses at program schedules and, even worse, fast-forward past commercials. To many at the networks and studios, it is a cruel joke that could drive them out of business.
AOL Time Warner, however, is trying to beat TiVo Inc. at its own game.
A secretive team of AOL Time Warner executives has begun talking with other major cable operators and media companies about speeding up and co-opting the potential revolution that TiVo kicked off. The company's system, called Mystro TV, is AOL Time Warner's gambit in an imminent battle over the future of the television business. Satellite services, cable systems and television manufacturers are all racing to promote their versions of the TiVo-like technologies that threaten to wreak havoc on networks and studios, and AOL Time Warner wants to put its own stamp on the evolution of the medium.
Its plans will turn in part on whether the company can end two years of internal discord following AOL's acquisition of Time Warner. If the company's often antagonistic divisions can cooperate, their collective arms reach to all sides of the television business. The company's Turner Broadcasting and WB are the largest collection of networks. Warner Brothers is the largest television studio. And Time Warner Cable is the most technologically advanced and second-largest cable operator.
AOL Time Warner already has a track record of directing the technological course of the entertainment business, most recently by single-handledly forcing Hollywood to adopt the low-priced sale of DVD's. Now it has dedicated significant financial and personnel resources to Mystro TV. Two years ago, the company transferred Time Warner Cable's top executive, Joseph J. Collins, and top engineer, James A. Chiddix, to the secretive project full time. Meanwhile, the cable division has already implemented some elements of the technology. Viewers in New York and elsewhere can subscribe to an HBO on-demand channel, enabling them to watch "The Sopranos" and other offerings on their own schedule with fast-forward and rewind. Viewers in Hawaii can watch the nightly news and other programs whenever they want, and the cable system is testing new forms of targeted advertising there as well.
But as the company rushes to stay ahead of competing services from satellite and electronics companies, AOL Time Warner must also overcome questions about its technology. At the same time, Mystro TV needs to win the cooperation of networks, studios and the creators of shows. So far, most industry executives ? even some at AOL Time Warner's networks and studios ? say they are dubious about the feasibility of the idea.
The essence of AOL Time Warner's Mystro TV is a technology that uses a cable system itself to provide viewers capabilities similar to computerized personal video recorders like TiVo: watching programs on their own schedules, with fast-forward and rewind. But it also lets networks set the parameters, dictating which shows users can reschedule, and it also creates ways for networks to insert commercials.
Two senior AOL Time Warner executives said the company was hoping to begin rolling out service within two years. They said the company planned to sell the Mystro TV service to other competing cable operators, just as it sold HBO, potentially giving Mystro a central role as a gateway between television networks and viewers around the country.
For now, senior AOL Time Warner executives said the company is trying to keep its efforts under wraps, partly because details may still change. The company was also stung by excessive publicity surrounding a disappointing test of interactive TV technology in Orlando, Fla., in the mid-1990's. A spokeswoman for Mystro TV declined to comment.
A confidential CD-ROM demonstrating a prototype of the service depicts a viewer arriving home in the middle of "Friends," (produced by Warner Brothers and shown on NBC) and restarting it from the beginning. Another viewer pauses a broadcast of "Charmed" (produced by Warner Brothers and shown on WB). "Go ahead, answer the phone," the demo suggests, "Mystro TV allows you to pause what you are watching."
As with the current HBO on-demand service, viewers can scroll through an on-screen programming schedule to look backward and forward at available shows. They can watch "Sex and the City" while "The Sopranos" is on, or preview next week's episode of either. "Want to watch a show that aired last night or a few hours ago?" the demonstration asks, "Simply go backward in the guide and press `Play.' No advanced planning required."
Those capabilities frighten many at the networks, studios and Hollywood talent agencies, all of whom control crucial rights to the use of their shows. Letting viewers reshuffle the TV schedule cripples the network's ability to build audiences for new shows by putting them on after hits. More troublesome, the easy fast-forwarding promises to deprive networks of revenue by decimating the audience for commercials.
But the demonstration also stresses that the Mystro TV system offers networks and studios considerable advantages over in-home personal video recorders such as TiVo or ReplayTV, which is made by Sonicblue. Not only can networks determine the availability of their shows, but Mystro TV prevents consumers from making, storing or sharing copies (something ReplayTV allows). Mystro also does not automatically skip commercials or even include a fast-forward button that leaps past one 30-second commercial at a time (another feature of ReplayTV.)
While a program is paused or rewinding, networks can insert new commercials during the process or display them around the periphery of the screen. On the CD-ROM demo, for example, a viewer pausing "Charmed" might see a commercial for Special K or Pizza Hut.
The demonstration also promises advertisers new ways to target viewers. A viewer watching a car commercial might be able to select an additional view of the interior or safety features. Or one household might see a commercial for a luxury car while another sees a pitch for an economy model. "Increase the effectiveness of advertising by sending different ads to different homes," the demonstration promises.
Unlike TiVo or other set-top appliances, the demonstration notes, viewers could try out Mystro TV by pushing a button on their remote, an enormous advantage to wooing customers. (Consumers would presumably pay a monthly fee for Mystro service.)
But the thrust of AOL Time Warner's pitch to networks and studios is an implicit threat that the personal video recorder technology is coming, with or without their permission. So far, only about 700,000 of the most avid television mavens have bought TiVo devices, which are cumbersome to install and cost $200 to $400 in addition to a monthly fee. But two major satellite TV companies, EchoStar Communications and the DirectTV business of the Hughes Electronics unit of General Motors, have recently begun promoting TiVo-like set-top boxes as part of their services. In the fall, Toshiba is expected to begin selling a television with a similar device already installed. Time Warner Cable itself is hedging its bets by investing in TiVo-style cable boxes. It included similar functions in about 60,000 of the set-top boxes it has already installed, with 200,000 more expected to be delivered by next year.
Still, rolling out Mystro TV will not be as easy as an engineer pushing a button, mainly because of the elaborate telecommunications capacity required. TiVo and similar other devices store recorded programs in a hard drive on top of the set; the Mystro TV system would store the programming in hubs of cable networks. For the cable company, each additional user would mean squeezing another stream of video content through its cables. Then the system requires software to play digital traffic cop, managing the flow of so many distinct transmissions at once.
Michael Ramsay, the chief executive of TiVo, said he doubted AOL Time Warner could handle the capacity. "We have never been able to figure how you could do that economically," he said. But for their part, Time Warner Cable engineers have told industry audiences that they have been building their capacity toward this goal for years, so they think they are ready to tackle the logistics.
The requisite deals are even more tangled. Unlike recording on a personal hard drive, storing programming at a central location entails reaching licensing agreements with the owners of the shows ? studios, networks, producers, and others.
Executives at the major networks declined to comment. Privately, many acknowledge that they fear the spread of personal video recorders could do to their business what Napster did to music. They also worry that letting viewers watch shows like "Friends" at any time might sap the lucrative demand for reruns in syndication. For now, some senior network executives say they are putting their faith in the couch potato factor: many consumers apparently prefer to sit in front of whatever happens to be on, including commercials.
For now, said Josh Bernoff, an analyst at Forrester Research, the fear of personal video recorders is not potent enough to drive Hollywood into the arms of Mystro TV. But, he said, the idea behind Mystro TV was "the holy grail" of television ? a vast library of programming at the viewer's finger tips.
"If you could get the license to everything that was ever broadcast on television, could you create a tremendous video-on-demand service?," he said. "Oh yeah, then all the technical problems would be worth it. But its getting the licenses that is the problem."
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