ICTV Inc. will sweeten the revenue pot for potential MSO
customers by guaranteeing a monthly, per-subscriber stipend to cable system operators.
Last week, ICTV executives detailed its new business plan,
designed to attract cable operators who may have been reticent to take the ICTV plunge
because of concerns about capital and the system's long-term scalability.
The new approach: An $8 a month per subscriber guarantee,
paid by ICTV to MSO takers.
Analysts called the move a gutsy one.
"That's bold, very bold," said Bruce Leichtman,
an analyst with the Yankee Group. "It's not going to be easy [for ICTV], because the
larger the population, the larger that number will be -- but I like their chutzpah."
Wes Hoffman, president of ICTV, said the cash guarantee is
financially sound because of the amount of Internet, e-mail access and game-playing
activity the company measured during trials in Cox Communications Inc.'s Santa Barbara,
Calif., system.
He said that a handful of domestic MSOs and one
international company is already in serious conversations with ICTV about deployments. So
far, the system has not progressed beyond trials, even though Cox is an equity investor in
ICTV.
At press time, ICTV was very close to signing a contract
with a 27,000-subscriber system "in the Midwest," for an October launch, Hoffman
said. He declined to name the operator until contracts are finalized, which is expected to
happen this week.
Hoffman and other ICTV executives are hopeful that the
first MSO nod will open the floodgates to a wave of other launches, under the theory that
nobody wants to be first.
"We're getting very significant positive reaction to
the full-service alternative," said Hoffman. "Operators don't necessarily want
to take a capital risk, so we guarantee cash flow to them."
The arrangement, which ICTV describes as its "full
service model," is as follows: Cable customers pay roughly $9.95 month for Internet
access and e-mail, and additional, per-use fees to rent and play CD-ROM software from
ICTV's library of over 200 titles. The MSO keeps the first $8 from each customer. CD-ROM
rental revenues are split down the middle.
Chris Dorst, vice president of marketing for ICTV, said
that the company's internal research and trial data points to a revenue potential of $12 a
month or more per customer.
Hoffman pegged the cost side of the equation at about $160
a subscriber, including headend equipment. ICTV's technical underpinnings center around a
headend-based approach, which theoretically guards operators against sinking large sums
into set-top boxes that later become obsolete.
As a result, the system is bandwidth hungry, requiring
operators to free up three to four 6 megahertz channels to sustain moderate traffic level.
For example: In a 500-home node where 75 customers (15
percent) take the ICTV service and four of them (5 percent) go online at the same time --
a phenomenon known as "peak simultaneous usage" -- then the operator would have
to free four channels, or one per user, in order to comfortably handle the traffic.
The Yankee Group's Leichtman called scalability ICTV's
biggest challenge. "Evolving the channel capacity needs over the long term is a tough
issue for ICTV, but they went in the right direction," he said, referring to an
overhaul ICTV initiated two years ago to address its bandwidth needs.
In the headend, ICTV supplies a $50,000 rack of gear that
holds up to 45 line cards, each of which serves 20 to 25 customers. A network system
operator can get started with as few as nine of the $3,000 cards, Hoffman said.
In return, operators can transmit user requests, conducted
via a wireless keyboard, to the headend via a low-cost two-way box or over existing analog
set-tops, executives said. The system by its headend-centric nature is intrinsically
compatible with forthcoming digital and OpenCable-based set-tops.
In its research with Cox in Santa Barbara and other
undisclosed locales, ICTV found that 60 percent of users spent their time prowling around
the Internet, followed by CD-ROM game access, at 25 percent. The remaining 15 percent
checked and sent e-mail, Hoffman said.
"Over time, as we provide stronger, multi-player game
offerings, we're expecting game usage to grow to about 40 percent of the time a person
spends on ICTV," Hoffman said, predicting a usage breakdown of 50 percent online, 40
percent playing games, and 10 percent sending and receiving mail.
