Internet Returns To TV Sets At CES

By Greg Tarr -- TWICE, 1/6/2001

LAS VEGAS -Both new and established consumer electronics manufacturers will be lining up at the 2001 Consumer Electronics Show to unveil Internet devices aimed at bringing a range of interactive functions to the television set.

Despite the fact that Microsoft's WebTV terminals have been available for over four years and have had subscriber numbers (approximately 1.5 million to date) well below early expectations, the new Internet-TV marketers believe they can build the category with more attractive subscription offers and lower hardware prices.

Ironically, it's been the success of TV-based Internet appliances in other parts of the world-most notably the Far East, Latin America and Eastern Europe-that is in part encouraging manufacturers to rethink the U.S. market potential, said Gerry Kaufhold, senior analyst with Cahners In-Stat market research.

Kaufhold said sales of Internet-TV products have been successful in other parts of the world because of the comparatively low household penetration of PCs in those areas. That success, he said, enables manufacturers to produce devices at lower cost, which is key to building U.S. market demand.

Nearly half of consumer homes here are used to accessing the Internet by PC and have demonstrated a reluctance to pay more than $200 for the hardware, plus $20 a month for service fees.

TechTrends, a Boston-based market research firm, recently issued an interactive TV report stating that interactive set-top boxes should become popular "with a majority of consumers, but not at prices above $200, where most consumers lose interest."

Product pricing will be the most important determinant of market success, since most digital set-top boxes that support Internet access, personal TV, digital video recording, video-on-demand, t-commerce and cable/satellite service will cost more than $200. But new research suggests that companies can improve their results by focusing on consumer segments that are less price sensitive, TechTrends stated.

The firm said companies that succeed with new devices will be those focusing on market segments that are predisposed to interactive services, namely heavy Internet users, direct-broadcast satellite subscribers, and consumers who engage in simultaneous PC/TV viewing.

Manufacturers said they still see the primary audience as technophobes who have no interest in purchasing a PC but would like to access e-mail and the World Wide Web for limited browsing applications.

Added to that audience in a bigger way now, they said, are PC owners who have desktop-PC Internet accounts that they would like to share with a TV system for speed and convenience. They also want that capability for little or no extra subscription cost.

"By building terminals into television sets, as TeleCruz proposes, Internet access can now be offered as an extra feature at the point of sale," said In-Stat's Kaufhold. "That's what makes sense to buyers. Accessing the Internet becomes an easy step-up capability."

Following the trend, WebTV, the veteran in the Internet TV field, is going through a metamorphosis as it combines with satellite and cable providers to offer enhanced TV services as an added-value feature. This now involves integrating hard-drive-based personal video recording-as in EchoStar's DishPlayer and the forthcoming DirecTV/WebTV Ultimate TV receivers-to expand the passive-viewing TV experience.

Additionally, the service has teamed with parent Microsoft's MSN ISP to enable joint desktop and PC accounts, in a manner very similar to that now offered by rival AOL in the just-launched AOLTV service.

Microsoft-which has previously announced a collaborative effort with Thomson Multimedia called TAK, which is designing Interactive TV devices for Europe-has also said it intends to enter the "enhanced tele-vision" space through cable-industry partners including Excite@Home, a leader in high-speed Internet access via cable TV systems

The companies are looking to jointly develop new television services, including a website designed specifically for TV viewers, and other applications that work with Microsoft's "TV platform."

The TV platform is a set of software programs that will run on cable network servers and consumer set-top boxes, and advanced TV sets.

Meanwhile, Philips (one of the first manufacturers in the WebTV camp) recently began selling the WebTV Classic terminal for $129.95 plus up to one year of free service (after using a mail-in coupon for the last six months of the offer) through infomercials appearing on late-night television spots.

Another outlet to the Internet via televisions is provided by the new video game platforms such as Sega's Dreamcast, Sony's PlayStation2, and forthcoming platforms for Microsoft (Xbox), Nintendo and Indrema-each of which offers a modem or modem option and a browser optimized for television display.

The following is a glance at some of the many new TV-centric Internet products and services to be showcased at CES:

CMi Worldwide plans to show new features for its Information Communication Entertainment Box (iCEBOX), billed as an "infopliance designed specifically for the kitchen."

The new unit incorporates a DVD video player and a dial-up Internet-access function that is "ISP agnostic," meaning users can select from a range of ISP service carriers. Manufactured for CMi by Samsung, it includes a 9-inch direct-view tube in a kitchen-white cabinet, built-in DVD drive, and an Internet browser optimized for video screens.

The iCEBOX, which carries an $899 suggested retail price, offers consumers TV tuning, Web access, e-mail, DVD playback and multimedia capabilities in one device.

The new version of the iCEBOX is scheduled to ship in the first quarter and will be distributed through Salton, the kitchen-appliance giant with control of such infomercial hits as Juiceman juice extractors.

CMi said it would offer purchasers its own ISP service for those who require it. Monthly fees will be $15.95 for families, and the first year of service will be offered free.

The company will support the product with special cooking-related video programs on video-CDs that can be played in the DVD player and sold as aftermarket accessories.

Salton is distributing the iCEBOX primarily through its network of kitchen appliance dealers, although a CMi spokesperson said consumer electronics accounts are also being recruited.

EspriTV will unveil the EspriTV Internet Television, a line of flat-screen television sets with integrated Internet-access terminals offering a full range of interactive entertainment, communication and information capabilities.

EspriTV said it would market sets through CE, computer and department stores starting in September. It is also considering distribution partnerships with established CE and private-label brands.

The products are manufactured by Finland-based Turku TV, formerly owned by Nokia. Two screen sizes will be available, a 27-inch unit carrying a $998 suggested retail and a 16-inch model at $798. The company plans to take retail orders at booth # 1477 in the Las Vegas Convention Center during the show.

A Planetweb browser optimizes the display of text on the interlaced television screen and simplifies the Web-navigation process. Users will be able to connect to the Web, access and send e-mail, chat online, access message boards and conduct e-commerce transactions via a supplied wireless keyboard and remote.

A Smart Card is used for e-commerce shopping to provide immediate user access and security.

Consumers will be able to select any ISP for Web access, enabling them to shop for the best service fees and functionality.

Fuze 3 Technologies, a San Jose, Calif.-based business-to-business hardware supplier, will unveil a line of Internet-enabled analog television sets it intends to sell to consumer electronics vendors and/or ISPs as an OEM resource.

The initial line, called the 100 series, is comprised of three direct-view TV displays in the 14-, 21- and 27-inch screen sizes, and two plug-in modules, one with a dial-up modem and one that is Ethernet-ready for broadband connections

Fuze 3 designed the products to be upgradable, so consumers can add functions and capabilities by changing out the module instead of replacing the whole set.

The company said its system renders sharp text and graphics images on the interlaced screen through a direct connection to the RGB circuitry inside the set in combination with high-quality anti-aliasing software.

Initial models will have a bare-bones Internet connection, but the company envisions next-generation products offering faster processing speeds and added memory, Java, RealPlayer and MP3 capability, plus HomePNA network compatibility.

Fuze 3 is looking for customers who wish to sell the products under their own labels, using their own ISP partners or services.

In addition to the direct-view sets, Fuze 3 will be "gauging reaction" to a 15-inch countertop LCD TV that will accept a connection to the same module.

Fuze 3 expects to be ready to make the first product deliveries at the end of first-quarter 2001.

Hughes Network Systems is again expected to show prototypes of its variant on the device, a combination AOLTV terminal and DirecTV receiver, which is slated to roll out this year.

Panasonic was planning to announce a 32-inch analog direct-view set incorporating a TeleCruz chip for Internet connectivity. The set (model CT-32D41) will ship next summer at an $800 suggested retail price.

Features include a traditional 32- inch PanaBlack picture tube, two-tuner PIP, 56.6-Kbps dial-up modem, wireless keyboard, mouse and wireless phone jack, and the ability to take EarthLink Internet service that can be shared with a traditional desktop PC account.

Pegasus will show its iTV set-top dial-up Internet terminal that will access the Pegasus-administered ISP service with its "enchanted forest" user interface. The system is designed to push the services and information of most interest to the viewer through an area that is easily and quickly accessed. Viewers will also be able to browse the Web, send and access e-mail, and engage in online chats.

Pegasus began the system rollout last month in Jackson, Miss., and plans to continue into the Scranton and Portland, Maine markets, where Pegasus operates TV stations.

The Pegasus iTV product will be similar in function and benefit to WebTV but is expected to offer local-access numbers to users who typically don't have them with such ISPs as WebTV or AOLTV.

The iTV hardware includes an Acer-made set-top box powered by an ARM 50 MIPs processor and 8MB of RAM and ROM memory. It will carry a $200 suggested retail.

Pegasus is working with Genuity on deploying the dial-up access network and will eventually add HNS' DirecPC dial-up broadband satellite system to complete its assortment. Pegasus originally planned to start with the one-way broadband satellite system but postponed that plan until it could offer its rural territories better coverage of local dial-up access numbers.

Philips, which with Sony set the pace for TV-centric devices through the rollout of the first WebTV terminals, recently added the first AOLTVterminal to its platter of Interactive TV options. Philips has partnered with the king of desktop ISPs to market a stand-alone version for the AOLTV terminal, which includes a dial-up 56.6-Kbps modem.

The terminal is currently available for $249.95, and AOL asks a $14.95 per month subscription fee. Included are "the most popular AOL features and services," including e-mail, instant messaging, online chats and Web browsing.

Users with desktop AOL accounts can use the AOL service on the computer and AOLTV at the same time, so two members on one account can enjoy an interactive experience at once.

A key feature is AOL's program guide, which provides television listings and show summaries, and offers a one-touch remind/record function from the program grid.

Sony will show a host of Interactive TV products, including its previously announced UltimateTV recorder, that combines a hard-drive video recorder with a WebTV terminal and DirecTV IRD. The SAT-W60 is slated to ship this month at a $449 suggested retail price and offers up to 35 hours of programming storage capacity.

The company was also expecting to display its new Wireless Home IT product, which was shown at CEATEC in Japan under the name Airboard.

The Wireless Home IT is a self-contained IT device for portable or tabletop use. It includes a 10.4-inch TFT LCD screen for viewing data and for keying in input via an onscreen software-based keyboard. The screen is designed to slide off of the device for laptop use.

The Wireless Home IT has inputs for connection to a DVD player or VCR. A modem terminal is offered for 56.6-Kbps dial-up modem connections, although long-range plans are to use it with Wireless ISP services and/or broadband systems.

Zenith will unveil at CES a 27-inch analog TV set including a TeleCruz chip that enables Internet access as an additional product feature. Because Zenith is internally integrating the TeleCruz chip without going through S-video or composite video inputs, graphics are said to be rendered with a level of clarity rivaling some progressive-scan video displays.

TeleCruz also adds OpenTV's Device Mosaic browser that optimizes text and graphics for display on interlaced video screens. The chip-which is a 32-bit RISC processor with 64 Mbit of SDRAM-will add a $100 premium to the set, which will carry a $600 suggested retail.

TeleCruz has partnered with a new TV-centric ISP, Palo Alto, Calif.-based Transcast to offer service to consumers with no monthly fee.

Transcast will derive revenue from advertising, transaction fees with content partners and other sources. It is providing both TeleCruz and Zenith with an undisclosed portion of that revenue, company executives affirmed.