Digital Tv: What Will It Be?

A super-sharp television, a TV that acts like a PC, or a PC that acts like a TV? Bill Gates has his answer. He and the PC makers want to shape the future of consumer electronics

William H. Gates III has never been a big TV watcher. But now that digital television is coming, he's suddenly fascinated by that tube in the living room. It's not the idea of catching Roseanne in the wide format of high-definition television that appeals to him. He's thinking about the 21st century, and how hundreds of millions of consumers around the world could be using Microsoft software to view Microsoft content on hybrid TV-computers.

The newfound interest in television by the mogul of Microsoft Corp. and his allies in the computer industry guarantees heightened conflict with broadcasters and television-set manufacturers. Those folks have spent the last decade wrestling with the Federal Communications Commission and one another to set the ground rules for the kind of TV sets and broadcast format to use when the U.S. switches over to a digital system. So the broadcasters aren't welcoming Gates's message. The likely upshot: The transition to digital TV will be dragged out by interindustry sniping. "It's a grand turf war," says Lee McKnight, an associate director at Massachusetts Institute of Technology's Center for Technology, Policy & Industrial Development.

Separating the camps are widely different concepts of what the new box in the living room should be. Digital TV could be as simple as a new set with movie-screen proportions and dazzlingly sharper pictures. But it could also be a hybrid--a personal computer with a big screen, or a TV with a PC's smarts. How that shakes out could determine the shape of the consumer-electronics business. If they're TVs, suppliers such as Sony and Zenith Electronics Corp. will lead the market. If they're PCs, companies such as Compaq and Gateway 2000 could prevail. Then there's the question of what consumers will want--a crystal-clear picture, or a moderately sharper one accompanied by new digital services, such as detailed sports stats? Or will a nation of Web-surfers tune in broadcasts on their PCs?

At the start, broadcasters have the biggest say in the outcome. On Apr. 3, the FCC signed off on a deal to lend each TV station a second channel--free--to transmit digital television and other material of their choosing starting in 1998. That means a new, high-capacity, digital pathway to the home is fully under the broadcasters' control. The FCC is also letting broadcasters send digital-television signals in the "interlaced" format (the term refers to how images are painted on the screen) used on today's sets. That's a victory for the TV-makers: Ordinary personal computers can't handle interlaced signals. Last year, Gates led an unsuccessful lobbying campaign to get the FCC to mandate a PC-compatible "progressive scanning" format.

But that was one battle, not the war. The computer crowd is pushing ahead with dozens of digital-TV plans. On Apr. 6, Microsoft announced it will buy WebTV Networks Inc.--a startup whose $350 set-top device provides Internet access through the TV. The deal--for $425 million in stock and cash--gives Microsoft the first commercially viable hybrid that points to the merger of television and the Internet. The WebTV Internet service is also a logical outlet for programming such as the Microsoft Network and the MSNBC joint venture with NBC.

Other programmers are also developing material suited for WebTV and, some day, digital TVs. CBS Inc., for one, will start a murder docudrama called Cold Case on Apr. 18, with clues on CBS' Web site for viewers with Internet access. "My show was made for WebTV," says producer Tim Johnson. "Watch the show, then get right into the data without even leaving the couch."

PC makers boast that PC/TV devices that they are developing will give them a huge new market opportunity. They'll push beyond the 40% of homes that now own PCs into the 98% that have TVs.

TV makers dismiss the notion that consumers want anything terribly complex perched across from the couch. "Consumers don't want to boot up a TV and have it crash," says Gary Shapiro, president of the Consumer Electronics Manufacturers Assn. Grumbles Gregg Gronowski, vice-president of consumer product management for Zenith: "There seems to be a race to slam a Pentium into everybody's television. There's not a lot of sense to that."

Some gritty technical issues also divide the two sides, such as the mode of displaying data on a screen. Last December, the FCC opted to let the market decide what formats to adopt. TV makers vowed to support a complete set of 18 possible formats for how sharp a televised picture will be and how material from different sources, such as film or video, will look on the screen.

The PC-industry leaders have their own ideas. Microsoft, Compaq Computer, and Intel on Apr. 7 set forth a proposal for just three basic display formats--not including the broadcasters' preference, interlaced. PC makers contend that would cut costs dramatically--to only about $100 on top of the cost of a $1,500 PC, vs. at least $2,500 for digital TVs that are capable of displaying all 18 formats. Broadcasters, however, worry that some of their material might not show up on these PCs. Says Michael J. Sherlock, NBC Inc.'s executive vice-president of technology: "I want 100% of the households who buy a new digital TV appliance to have the ability to receive it in full high-definition. I don't think the computer guys will be able to show that."

"WHERE'S THE BOOTSTRAP?" PC makers figure they have a way to change the minds of broadcasters and TV makers--by getting to market first. Robert W. Stearns, a Compaq senior vice-president, says he expects the PC industry to sell up to 40 million PCs equipped with digital-TV decoders by 2002. That compares with the consumer-electronics industry's estimate of 1 million digital TVs for the same period. TV makers can't sell enough digital sets to stimulate creation of new digital content, argues Gates. "Where's the bootstrap?" he asks. "How are you going to get enough viewers?"

And, computer-industry executives point out, they may not need to worry about what broadcasters want. If they can deliver tens of millions of "viewers," they figure programmers will circumvent the broadcast nets, by using the Internet, cable television, or satellites. "While [broadcasters] do have a bottleneck facility now, they understand that's not a sustainable position," says MIT's McKnight. Broadcasters counter that no format can succeed if it doesn't have the popular programs they own.

Don't expect any clear-cut victories, though. In this converging market, it's hard to find anybody who's locked into one camp. Take TV maker Sony. It manufactures the WebTV device, whose destiny is now controlled by Microsoft. It also makes PCs and video production equipment that's tied closely to broadcast standards. So Sony stands to win no matter which standards catch on. NBC, meanwhile, is a partner with Microsoft in MSNBC, but its technology gurus such as Sherlock are wary of Gates's plans.

Will the battle for digital-TV lead to digital convergence in the global electronics industry? "We all depend on each other to create this digital revolution. None of us can do it alone," says Michael D. Culver, vice-president and general manager of the consumer division of PC maker Acer America Corp. That's why, for now, the main action in digital TV will take place off screen.

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