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Cable Nets Eye New Interactive Services

The interactive-television marketplace has quickly become a
lot more interesting.

In what was once an industry occupied only by Microsoft
Corp.'s WebTV subsidiary, a handful of companies are now vying for the attention of
cable companies, and especially programmers.

In particular, WorldGate Communications Inc. of Bensalem,
Pa., has become a noteworthy competitor to WebTV with its December announcement that it
has formed partnerships with 31 cable programmers.

The charter members of WorldGate's 'Channel
HyperLinking Partner Program' cover most of the biggest names in the industry,
including A&E Network, Cable News Network, MTV Networks, Showtime Networks Inc. and
The Weather Channel.

As is the case with WebTV, the programmers will provide
various degrees of customized content for the WorldGate service. In return, WorldGate will
provide programmers with a way to link value-adding multimedia content to their channels.

WorldGate differs technically from WebTV. Unlike WebTV,
which delivers interactive Web content to a TV screen via a modem and telephone line,
WorldGate uses the vertical blanking interval, or VBI, in video signals to carry
multimedia information. Every video signal has leftover bandwidth that isn't used to
process the TV image, and WorldGate uses this 'blank' space to carry digital Web

Typically, however, the VBI can only carry a relatively
small amount of data -- just enough for simple text messages, for example. But WorldGate
president Hal Krisbergh said his company can harness the VBIs from all of the video
signals on a cable network in order to carry richer interactive content, such as Web

Users can send 'upstream,' or return signals, via
the set-top's pay-per-view mechanism.

Krisbergh said WorldGate's technology makes the
service more accessible to consumers. Since the service runs all interactive signaling
through the set-top box, consumers don't have to buy additional hardware.

WorldGate includes a wireless keyboard in its suggested
$4.95 monthly fee.

WebTV, on the other hand, runs $10 to $20 per month, and
its receiver can cost up to a few hundred dollars.

But WorldGate's approach is particularly dependent on
cable operators. Unlike WebTV, WorldGate is cable-centric. It needs the cooperation of
these companies to carry and coordinate interactive data on the VBIs of multiple channels.

So far, WorldGate has only signed up two midsized cable
operators -- Shaw Communications of Calgary, Alberta, and St. Louis-based Charter
Communications Inc. -- to roll out its service. Overall, the two represent 3.4 million
subscribers, but it's unclear how many systems will launch WorldGate.

Trials of the service are also planned with Comcast Corp.,
Cablevision Systems Corp. and the United Kingdom's General Cable.

Also, WorldGate can only work with advanced-analog and
digital set-top boxes, since the set-tops process and manage the VBI signals.

Peter Bissonnette, senior vice president of operations at
Shaw, said WorldGate is an excellent complement to his company's rollout of digital

Shaw is starting to test WorldGate on the new devices.
Bissonnette said he has particular concerns about how effectively the set-top will share
computer memory between the WorldGate application and the preview channel viewing guide.

Bissonnette said his company will only roll out the
WorldGate service if Shaw's trial with approximately 1,000 subscribers in Calgary
proves successful.

Shaw said WorldGate was particularly appealing for reaching
consumers who don't have personal computers.

'For a PC-less home, this is an easy way for them to
be exposed to the Internet,' Bissonnette said.

He added that he expects WorldGate to have a higher
penetration rate than most interactive services because of its lower cost and ease of

'We see WorldGate as a significant part of Internet
access for our customers,' Bissonnette said.

Bissonnette added that he anticipated that as more
consumers bought PCs, they would migrate to cable modems and away from WorldGate's

Naturally, Krisbergh is quite bullish about interactivity
and the cable industry.

'The future is in the cable model,' Krisbergh

But like WebTV and the other recently launched interactive
services in the market, the ultimate success of WorldGate depends on content, and not on

'What we really need is for programmers to focus on
creating innovative interactive programming,' Krisbergh said.

Indeed, that is the case for all of the new interactive
services. As a result, cable programmers are actively testing different ways to provide
interactivity to television viewing.

WebTV and WorldGate, however, are not the only games in
town. E! Online, for example, already has distribution deals with high-speed-data service
@Home Network and NetChannel. And at the Western Show in December, it announced deals with
AirMedia; MediaOne Express and Road Runner (which have announced plans to merge); and
Turbocast, in addition to WorldGate.

'We want to be platform-agnostic,' said Jeremy
Verba, president of E! Online, the interactive sister company to E! Entertainment

Verba said E! Online's strategy is to become involved
with any TV/Web hybrid products on the market in order to make his company's brand as
ubiquitous as possible.

'We want to have a pervasive e-brand,' Verba

Jeff Morris, senior vice president of new media for
Showtime, also said his company is busy negotiating with other convergent services.


Most of the interactive-content development in the cable
industry so far has focused on WebTV, since it was the first and still the only company
with an established service. As a result, WebTV has provided the first glimpse of hybrid
programming involving Web content and television.

A handful of cable programmers including Showtime, E!,
Nickelodeon, Discovery Channel and MSNBC are part of WebTV's 'premiere'
partners. They provide Web content that is modified to take advantage of the WebTV format.

Showtime, for example, is testing various ways that it can
use WebTV to let users become more involved in its programming, such as operating e-mail,
polls, or chat rooms; providing archives of information on programming; and sending out
electronic reminders about programming schedules.

Showtime is also trying a promotion called
'Pick-a-Flick,' in which viewers can vote over the Web for which film Showtime
will run during a specific time slot.

Showtime has also used WebTV, as well as the Web, to let
people submit their scores for boxing events. The results of the viewer scores are
aggregated and broadcast during matches.

E! Online has also produced 'Webcasts,' such as
its recent live coverage of the premiere for the movie Scream 2. WebTV viewers
e-mail questions, which an E! Online reporter can use during his or her celebrity

Tom Hicks, publisher of Discovery Channel Online, said
WebTV is forcing his designers to think in terms of screen-based images, rather than the
scrolled pages that are typical on the Web.



As with WebTV, WorldGate wants its partners to develop
show-specific content for its service. But one of the biggest challenges facing WorldGate
and its partners is designing a system for synchronizing Web information with
cable-television programming. In this way, when viewers click from a TV show to a Web
site, the information will relate specifically to the current program, rather just
providing general information on the channel or corporate information.

Krisbergh refers to this as 'scheduling URLs,'
and he said his company is hammering out operational and technology standards with its
content partners for timing interactive information with television programming.

As with WebTV, WorldGate looks to its content partners to
reauthor their Web pages for viewing on the larger format of a TV screen, Krisbergh said.

In return for creating programming tailored to the
WorldGate service, Krisbergh said he provides his company's partners with several

In particular, the company offers a way to link television
advertising to interactive content -- what Krisbergh calls 'click ads.' Thanks
to the embedded interactive VBI signals, viewers can push a special button on the
WorldGate keypad while an ad is playing. The button switches the picture from the video ad
to the Web site that is specifically related to the video ad.

All of the new interactive services attract
cable-programmer interest by providing new venues in which the companies can build their
brands, improve viewer experience and learn about interactivity.



Morris said Showtime views the Web as a 'back
channel' to his network. In other words, the Web provides another way that his
company can attract viewers to Showtime.

WebTV and similar efforts, Morris said, tie this
potentially profitable channel closer to the television and to Showtime's

'I believe that there is a largely unfulfilled
consumer interest in interacting with TV programming,' Morris said.

According to a study by Showtime, one-half of the
households in the United States have a TV in the same room as a PC. A total of 40 percent
of these households said they use both appliances at the same time. Morris estimated that
this figure represents 8 million homes.

WebTV, WorldGate and other interactive services reach
consumers that may not be using the Internet.

'The biggest benefit is exposure,' Hicks said.
'It's a way to reach people beyond the PC crowd.'

Discovery estimates that WebTV accounts for 5 percent to 8
percent of its site's Web traffic, which averages 5.8 million page views a month. And
E! Online said Web TV is the signal largest source of visitors to its site.

WebTV currently has over 200,000 subscribers, according to
the company.

Hicks said that could change with the improved version of
WebTV, called WebTV Plus. The update promises such features as full-screen, full-motion
video playback and icons in TV pictures that link directly to Web sites.

'That's a pretty exciting product,' Hicks


Although the numbers are promising for potential profits,
cable programmers admit that the impact of these new interactive services on their
businesses will be minimal for at least a couple of years.

Morris and other cable executives said the biggest benefit
from working with the new interactive services is educational.

'Over the next 18 months, we plan to support WebTV and
do a lot of learning,' Morris said.

Hicks said Discovery is only spending
'incremental' dollars to participate in WebTV.

'To exploit WebTV, we could spend a lot of money, but
it's not justified at this point,' Hicks said. 'If audience and traffic is
there, we'll invest against that in the future.'

Even MSNBC, which is co-owned by WebTV parent Microsoft,
admits that the service has a ways to go.

'We recognize that the WebTV audience is not that huge
right now,' said Cheryl Lynne, marketing manager for MSNBC.

Verba said the deals with each of its distribution partners
were unique, with some involving promotional trade-offs, content requirements, or
financial deals.

Verba said the slew of new distribution options is
influencing how E! Online designs its Web site. Rather than reformatting the material for
each service, E! Online designs its pages so that they are equally attractive and
functional on a screen that is two feet away or 10 feet away, Verba said.

Most cable programmers were unwilling to provide financial
details on their agreements with WebTV and other partners.

However, they said the investments generally did not
require significant resources. Hicks, for example, said Discovery only needed to slightly
modify its existing Web content for use on WebTV.

Karen Lennon, director of business development for new
media at Atlanta-based TWC, said the content needs of each service are similar, which
makes it easier to work with multiple partners.

'From a creative standpoint, I think that we'll
find parallels among the services, although the technology is different,' Lennon

While WebTV, WorldGate and the other new services promise
the first inroads to fully interactive television, the market is in its infancy.

'It's a market learning to crawl,' said Joe
Bartlett, program manager with The Yankee Group, a Boston-based consultant.

Verba, however, said he believes that WebTV, WorldGate and
most other options will all find a place in the multimedia future. He said some platforms
will work best with the television in a more casual entertainment environment, while
others will run on information-rich devices, similar to computers, used for more practical
tasks such as shopping or looking up phone numbers.

That's why cable networks such as TWC are willing to
partner with so many different interactive services. Weather is working with WorldGate, as
well as with WebTV, NetChannel andWink Communications Inc.

'I think that we have to stay as close as possible to
the changes in this market,' Lennon said. 'There are so many elements in play,
and it's constantly changing.'

She said her company plans to partner with these companies,
and possibly with more interactive services during the next few years.

'It's premature to give up on any of the
platforms,' Lennon said. 'But over time, it will be like Beta and VHS.'