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Interactive-TV Firms Play Merger Game

The elaborate competitive dance by cable interactive-TV-software vendors is becoming more fun to watch as consolidations and digital deployments add to each partner's strengths.

Liberate Technologies' acquisition of MoreCom Inc., PowerTV Inc.'s merger with Prasara Technologies and Microsoft Corp.'s continued efforts to galvanize broad segments of the broadcast and programming sectors around "Microsoft TV" bolster each company's strategy to capture a bigger share of the emerging market.

Working behind the scenes, Sun Microsystems Inc. is pushing its "Java TV" application-program interface to be the cornerstone of the middleware layer as defined by standards groups such as Europe's Digital Video Broadcasting and Cable Television Laboratories Inc.'s OpenCable initiative.

Control of advanced digital set-top operating systems, middleware and application-software layers has engaged Liberate, PowerTV and Micro-soft in a flurry of activity.

Microsoft has been throwing its considerable weight around to spark a wider adoption of interactive TV, especially its Microsoft TV platform.

According to Alan Yates, director of TV-platform and WebTV Networks marketing for Microsoft, until recently, there was a lot of skepticism in the cable industry that interactive TV could take off in a big way.

Since that time, though, Microsoft has successfully placed soft in a flurry of activity.

Microsoft has been throwing its considerable weight around to spark a wider adoption of interactive TV, especially its Microsoft TV platform.

According to Alan Yates, director of TV-platform and WebTV Networks marketing for Microsoft, until recently, there was a lot of skepticism in the cable industry that interactive TV could take off in a big way.

Since that time, however, Microsoft has successfully placed its platform in major interactive-TV deployments by AT & T Broadband, Canada's Rogers Cable Inc. and Europe's United Pan-Europe Communications N.V. (UPC).

These operators are intended to serve as "showcasepartners" to prove the viability of interactive TV and of Microsoft's platform, Yates said.

Microsoft's evangelism and steep investments in AT & T and Rogers paid off in a whopping 14 million to 15 million set-top software orders for its Microsoft TV platform. Deployments will begin later this year, Yates said.

He added that deployments of interactive services will follow a basic trend: Initial rollouts, bundled as part of digital-TV subscriptions, will be packaged as walled-garden services. By offering virtual channels that are Web-page-based, operators can focus and customize content to appeal to and entice consumers. "The variations of packaging are quite numerous," Yates said.

Moving into full-blown interactive TV and multi-media computer-based applications later, operators can deliver Web pages in conjunction with TV programming, enhancing both programming and advertising.

Yates likened this step to the types of programming offered by Microsoft's WebTV service, which includes interactive programming tied to Wheel of Fortune, Jeopardy and MSNBC shows.

With its acquisition of Peach Networks Ltd. Feb. 28, Microsoft expanded on its showcase scenarios to "satisfy the broader requirements that network operators have" by providing services that run on first-generation digital boxes, Yates said.

Peach's focus has been to bring Windows and multimedia applications to the set-top. Its services are "the best, most efficient way to deliver interactive services to existing boxes," he added.

Liberate's acquisition of venerable interactive-TV-application provider MoreCom "brings us a really good set of technologies, people and expertise around MPEG [Moving Picture Expert Group]," Liberate senior vice president of corporate development David Limp said.

MoreCom's products include headend servers and client software designed to merge Internet content with digital video.

MoreCom said in December that it would work with German firm BetaResearch, a unit of The Kirch Group, on broadband Internet products and services. Limp said an opening into the German cable market-the world's second-largest-was important to Liberate.

In the United Kingdom, Cable & Wireless Communications plc uses Liberate's middleware to deliver digital, two-way interactive-cable-TV services. Limp said CWC has signed up more than 100,000 digital subscribers since November.

Liberate is also supplying Britain's Telewest Communications plc with client-and-server software for a deployment that was announced earlier this year.

The Telewest deal is important in that the two companies were able to deploy interactive services a mere four months after Telewest selected Liberate, while the Liberate/CWC collaboration took 18 months to move into the field, Limp said.

In the U.S., Limp pointed to Liberate's three-year relationship with Motorola Broadband Communications Sector (formerly General Instrument Corp.). This allowed Liberate to gain a foothold in Motorola's set-tops-including the "DCT-2000" and "DCT-1200," as well as the advanced "DCT-5000+." "We're the only interactive provider shipping a solution in volume," he added.

Deals with Insight Communications Co. Inc. this year placed Liberate's middleware on Motorola DCT-2000 set-tops for rollouts in Rockford, Ill., and Columbus, Ohio.

In Canada, Shaw Communications Inc. (a Liberate investor) will use Liberate software on current DCT-2000 and upcoming "DCT-5000" deployments, with interactive services available to more than 300,000 subscribers later this year.

Significantly, Liberate strengthened its ties to America Online Inc. in March by naming Barry M. Schuler, president of AOL's interactive-services group, to its board. Limp said details of Liberate's middleware as part of "AOL TV" are forthcoming.

Liberate also licensed AOL subsidiary Netscape Communications Corp.'s "Gecko" browser technology this year. "Significant components of the Gecko technology will be rolled into our platform over time," Limp said. Citing Gecko's modular architecture, he added, "We're big Gecko fans."

Although most of Liberate's U.S. deployments have been on the Motorola platform, it also signed an agreement with Cox Communications Inc. (another Liberate investor) to provide client software for use on Scientific-Atlanta Inc. "Explorer 2000" digital set-top boxes and to provide server software, too.

That Cox digital deployment-in an unnamed major city-is expected to launch in the middle of this year.

S-A's interactive platform is dominated by its PowerTV subsidiary. PowerTV claimed that more than 1.5 million set-tops use its software on systems owned by Adelphia Communications Corp., Charter Communications Inc., Comcast Corp., Cox, the United Kingdom's NTL Inc., Rogers, Time Warner Cable and Canada's Le Groupe Vidéotron Ltée.

CEO Steve Necessary said PowerTV's software stack-which includes an operating system, middleware and an application layer-has also been ported to the Pioneer New Media Technologies Inc. "Passport" platform. And it is in the process of being ported to Pace Micro Technology plc for Time Warner, as well as for NTL in the United Kingdom.

PowerTV beefed up its portfolio last month by merging with Prasara, an offspring of Time Warner's Full Service Network project in Orlando, Fla.

Prasara offers video-on-demand, television commerce and back-office applications. Necessary hopes the fact that Prasara's VOD software is ported to Motorola will give PowerTV an opening into the S-A competitor's boxes.

While Necessary wouldn't comment, PowerTV could be spun off from its parent, S-A, to give it a fighting chance to expand beyond the S-A platform. "We're ready, willing and able to operate on any set-top platform," he said. "Scientific-Atlanta does not dictate with whom we do business."

With Prasara, PowerTV hopes to offer an integrated solution "analogous to a one-stop shop," he added.

PowerTV competitors Microsoft and Liberate have accumulated huge market capitalizations through public stock offerings that can fund acquisitions, as well as research and development. So Necessary is counting on PowerTV's track record as S-A's platform of choice and its relationships with network operators to keep its platform alive and well.

While an integrated PowerTV solution is most desirable, Necessary said, the company is more than willing to separate its operating system, middleware and application products and sell them separately.

Seeking a foothold in the middleware layer of the digital set-top software stack is Sun. Its Java TV API has been adopted by the DVB Project as its interactive-TV broadcasting standard, enabling the completion of the DVB-Multimedia Home Platform specification.

Through various standards bodies, Sun is pushing Java TV as a spec for a standard application environment for digital TV, business-development manager for digital TV Bill Sheppard said. He added that PowerTV, OpenTV and Liberate have adopted the Java TV API.

Sheppard said the presence of the Java TV API allows interactive-TV application developers to write in Java or in a program that outputs Java code-such as 4DL's authoring tool-and have them play on any set-top.

"We position Java TV as a platform, and different content types can run on that platform," Sheppard said.

Because Java is portable, code that's written for Java runs across any platform that supports Java, whether that platform runs in the PC or set-top realms. At the same time, a developer can write applications for the PC and also customize them for digital-TV audiences without completely rewriting the code.

In the end, it's unlikely that one interactive-TV-software provider will dominate the market, as most operators, including AT & T Broadband, are adopting solutions from multiple vendors.

"There will always be multiple middleware solutions in the marketplace," said Jos Swillens, president of Philips Consumer Electronics Co.'s set-top division.