Goal: TV On Demand

Setting its sights on cable's future, AOL Time Warner Inc.'s new interactive-video division intends to move the on-demand concept well past movies and toward an expanded wealth of television programming.

The new unit is designed to speed the growth of video-on-demand, subscription-VOD and a spate of other advanced services and applications, including Internet-protocol telephony, personal video recording, targeted advertising and access to multiple Internet-service provider.

In forming the ITV division, the media giant last week realigned its staff, assigning new roles to several key Time Warner Cable executives.

Former Time Warner Cable CEO Joseph Collins will head the division as chairman, reporting to corporate CEO Gerald Levin. MSO president Glenn Britt succeeds Collins and, like his predecessor, reports to AOL Time Warner co-chief operating officer Bob Pittman.

Tom Rutledge, Time Warner Cable's senior executive vice president, has been upped to president of the MSO.

Collins' ascent is another sign that the cable unit has held its own in internal philosophical battles with AOL executives. For example, the MSO unit hasn't announced any major staff cutbacks along the lines of the layoffs at Turner Broadcasting System Inc. earlier this year or the rumored dismissal of 1,000 staffers at America Online last week.

On the technology front, AOL Time Warner also elevated Jim Chiddix to president of the new unit's Interactive Personal Video Group. Chiddix, who reports to Collins, was Time Warner Cable's senior vice president of engineering and technology and chief technical officer for the last 15 years.

AOL Time Warner has yet to say who will fill Chiddix's shoes at the MSO. Chiddix last week said he will collaborate with Britt and Rutledge on selecting his successor.

If the company decides to seek out internal candidates, potential contenders could include Time Warner Cable vice president of advanced engineering Mike Hayashi and vice president of plant engineering Paul Gemme.

Chiddix, whose group's activities will be based in New York, said he'll assemble a small, focused team to handle the projects under his auspices.

"We'll have strong ties to Time Warner Cable's technical staff in Englewood, [Colo.]," he said.


Time Warner Cable, which has spent billions of dollars to upgrade its plant for two-way communications, now has the chance to offer array of on-demand programming straight from the headend, according to Chiddix.

It's too early to tell exactly what shape those new services would take, but Chiddix's division will continue to make strides on existing forms of VOD and SVOD and place a sharper, longer-term focus on headend-based PVR technology.

Those "individual video channels" can be customized and tailored for each of Time Warner Cable's digital set-tops in the field, Chiddix said.

As of June 30, the MSO had 2.5 million digital-cable subscribers. Time Warner Cable could have between 6 million to 8 million digital boxes deployed by the end of next year, Chiddix estimated.

This "TV-on-demand" approach will eventually be fed from both live feeds and a cluster of servers that enable viewers to time-shift programming over the MSO's broadband network.

Collins said AOL Time Warner will continue to explore all storage possibilities for time-shifted programming, including PVR-integrated boxes and the "sidecar" approach. A key goal for the new group is to "basically develop that kind of PVR on-demand capability on a headend basis," Collins said.

"You can do a lot with a set-top with a hard drive, but there are limitations," Chiddix said. "The network-based approach is potentially much more powerful, and has the ability to provide the service to all of our digital set-tops."

At the same time, Chiddix said his group would continue hammer out scaling issues connected to a headend-based PVR service.

That issue was brought to light early in Time Warner Cable's Home Box Office SVOD trial in Columbia, S.C. After high subscriber demand for impulse access to shows like The Sopranos
and Sex and the City
taxed the network's set-top-to-headend session-management systems, the operator decided to pull an undisclosed number of its 26,000 subscribers from the test.

Chiddix said the problem could be fixed with software.

"The good thing is that we have the bandwidth on our cable plant to do [SVOD]," he said, noting that AOL Time Warner will continue to aggressively pursue VOD and SVOD.

AOL Time Warner's assertive stance on VOD, SVOD and the network PVR could be good news for video-server vendors such as Concurrent Computer Corp., Diva Systems Corp., nCUBE Corp. and SeaChange International Inc.

"I applaud [AOL Time Warner] in devoting even more effort into the growth of VOD," said nCUBE president Michael Pohl.

Pohl's company unveiled a headend-based "nPVR" system at this year's National Show. Today it's operating at two sites in the Middle East and Far East. Singapore Telecom runs the application over digital subscriber lines, Pohl said.


The new unit will also work on an enhanced version of the AOL TV service, which hasn't exactly set the world on fire in its current iteration. Last month, AOL Time Warner tapped Samsung Electronics to develop a next-generation AOL TV box with integrated PVR capabilities.

The enhanced AOL TV will immediately focus on adding such AOL-branded communications functions as electronic mail and instant messaging to the set-top, Britt said last week.

He added that those communications pieces will also be made to fit within Scientific-Atlanta Inc.'s 2000-class Explorer digital cable set-tops.

Collins said his interactive-video unit will move swiftly on the open-access front. He projected that multiple ISPs would be available in 20 Time Warner Cable markets by the end of the year.

That access initiative is linked to conditions that the Federal Trade Commission imposed on the America Online Inc.-Time Warner Inc. merger. The agency called for Time Warner Cable to provide access to at least two unaffiliated ISPs in cable markets where it also offers AOL's broadband service.

Collins said the introduction of additional ISPs, with their different products and features, would infuse more advertising into the marketplace and help Time Warner Cable expand its cable-modem customer base.

In July, Time Warner Cable said it would offer EarthLink Inc.'s high-speed data service on a commercial basis to customers in Columbus, Ohio, and Syracuse, N.Y., this September.

Though the MSO has been aggressive with VOD — with large deployments in Tampa, Fla.; Honolulu, Hawaii and Austin, Texas — it has not moved beyond the trial phase with cable-based VoIP services. Time Warner Cable has conducted trials of a second-line, VoIP product called Line Runner in Portland, Maine, and Rochester, N.Y.


Some analysts expressed excitement about AOL Time Warner's further advance into the interactive realm, and said the new division would likely trigger additional rollouts of VOD and other interactive services.

"This is clearly good news with regard to VOD and with the company emphasizing VOD and trying to deliver video in all sorts of different formats," said Morgan Keegan & Co. Inc. analyst Murray Arenson. "[These developments] point to broader and quicker proliferation of all of these types of on-demand services."

Although Time Warner Cable continues to be among the most aggressive MSOs in the VOD space, Carmel Group vice president of business development Sean Badding said deployment of the technology on an industry-wide scale is probably another three years away.

VOD infrastructure and deployment costs remain high, and digital-video and cable-modem services are still the two main priorities for most MSOs, said Badding.

Nonetheless, it's "encouraging for the cable industry to be talking about interactive TV and building new services around interactive TV, because cable is playing catch-up with satellite," said Badding.