Defending The Living Room

How TV makers intend to fend off cyberlopers

Joseph L. Ness expected customers to like the 29-inch hybrid PC/TV on display in the Studio, an upscale furniture and home-electronics shop he manages in Los Gatos, Calif. But when it went on sale on May 31, he was blown away by the reaction. One shopper put in an order for two units, totaling $7,500. Another discussed buying 20 for his school in Fresno, Calif. Then, at 7 p.m, a television crew arrived from the local NBC Inc. affiliate to shoot a two-minute feature on the product. "The response was amazing," says Ness, 35. "People kept bringing friends back to try it out."

Ness shouldn't have been surprised. The WorldVision system, designed by startup NetTV Inc. in San Rafael, Calif., was one of the first such gizmos on display at a U.S. store. Combining features of TVs and net-ready computers, it was certain to cause a stir among Silicon Valley's well-heeled digerati.

SKILLED PLAYERS. Soon, WorldVision won't look nearly so exotic. A wave of PC/TVs and other hybrid digital gear is coming to retail outlets in the U.S., Europe, Japan, and Asia. Most will be sold by consumer-electronics giants such as Zenith, Thomson, and Philips. These companies are racing to launch the new infotainment gear that can fend off an assault by PC makers on the living room. Gateway 2000 Inc., for one, is already shipping Destination, a $4,000 WorldVision-like PC/TV combo.

Consumer-electronics companies bring some important skills to this game. They know how to make gadgets easy to use, and they know how to market single-function devices such as CD players. These machines have a better track record in the home than multipurpose PCs. A computer's infinite programmability turns into a liability when it comes to luring the uninitiated into cyberspace. For them, simplicity is key.

Whichever side wins, competition for the digital living room is a boon to consumers. Clicking on a variety of newfangled trackballs and wireless keyboards pointed at the TV, sports fans watching a kickoff will be able to open a window on the screen and download player stats from the National Football League home page on the World Wide Web. Eventually, predicts John Mitchell, a product-development manager at General Electric Co., information appliances in the living room and home office will spread throughout the house. "There are big opportunities, which could include all appliances in the home."

For the consumer-electronics camp, the PC/TV information appliance is, potentially, the next big thing--the first new product category to hit the industry since camcorders. And these companies sorely need a hit. Amid intense competition and market saturation, Philips, Zenith, Thomson, Sony, and Matsushita have all grappled with write-downs and losses in the 1990s.

Each sees salvation in the digital revolution. Philips is betting on a family of products called Multimedia Access Terminals, or MATs. For about $300, Philips customers will get a sleek black box that converts an ordinary TV into a computer monitor with basic Web-browsing and E-mail functions. More upscale versions will add telephony features such as caller ID and voice mail.

Thomson Consumer Electronics, owner of the RCA brand, is counting on an alliance with Compaq Computer Corp. to blaze digital pathways. Each company has appointed a team of 10 designers and engineers to meet daily to brainstorm about PC/TVs and other multimedia products. So far, says Thomson Vice-President Guy D. Johnson, "it's been a battle of cultures just deciding if this thing should be called a PC/TV or a TV/PC." Still, he intends to get products to market by early 1997.

Zenith, like Philips, plans to add computer functions to its large-screen TVs. Rather than try to wed a full-blown Windows PC with a TV, as Gateway did, Zenith struck a deal to use technology from Diba Inc., a Silicon Valley startup pioneering low-cost Internet appliances. By August, Zenith plans to market "NetVision" PC/TVs containing Diba software, Motorola Inc. processors, modems, and gobs of memory to handle the flood of bits. The machines, says Zenith President Albin F. Moschner, will permit simultaneous Web browsing and TV viewing on screens as large as 35 inches. One Diba advantage: software that eliminates the flicker that occurs when TV screens act as computer monitors. Zenith also makes fast cable modems, which it will bundle with advanced TVs when the technology is ripe. "We have to be first in providing new features on a rapid-fire basis," says Moschner.

ASIAN EYES. The trouble is, dozens of computer and consumer-electronics companies are flocking to the digital-convergence market. Low-priced Korean and Taiwanese electronics makers are eyeing PC/TVs. So are diversified Japanese giants such as Toshiba and NEC, which both have a foothold in U.S. markets for computer monitors, TVs, and notebook computers. This month, Sony is also launching a new Windows PC (table).

Long before the new hybrid televisions become a fixture in every home, video-game makers will bring Web-browsing ability to TV sets through special plug-in circuit boards on their game consoles. Owners of Sega Saturn machines will get such an option, called Net Link, for $199 this fall. That will let Saturn users challenge friends across the Net. Apple Computer Inc. and Japanese toymaker Bandai Co. are already shipping their $600 Pippin subcomputers. Connected to a TV, Pippin lets users browse the Web and enjoy multiplayer games.

Consumer-electronics companies are also creating the software to run the new digital devices. Thomson has sunk $25 million into a company called Starsight, which provides onscreen program guides for navigating 150 channels of satellite TV. Thomson hopes to extend this guide to Web browsing. At its plush research labs in Indianapolis, teams of PhD computer scientists and psychologists tinker with complex programs called "agents"-- the ultimate assistant for navigating floods of digital information. A prototype in the form of Nipper--RCA's canine mascot--already inhabits a glowing workstation screen at the lab, ready to offer tips on upcoming sports events. "We don't believe we should just roll over and take whatever [navigation] software Microsoft develops," says Thomson's Johnson.

"YOU DONE, WASHER?" If Microsoft comes up with killer software, however, consumer-electronics chiefs will have to go along. Indeed, most are paying close attention to Microsoft's scheme for "Simply Interactive PCs" that will be able to "talk" with appliances throughout the home. The idea could spur demand for a variety of smart products, including kitchen appliances. GE's John Mitchell envisions a home computer that could query the washing machine, find out whether the spin cycle is complete, and notify whomever is watching TV in the living room. "Consumers might pay extra for washers that had the ability to respond," he says.

Then again, they might not--at least, not right away. The digital home may be the type of business that takes years of costly market-building. In that case, the consumer-electronics industry would have another advantage over PC companies: They've learned to survive in saturated TV and VCR markets. In a pinch, they can weather zero sales growth and negative margins for years at a stretch. What's more, they're already well-ensconced between the sofa and the mantelpiece. When PC companies try to make the trip from the home office to the living room, they may find that their technology already has been embedded in a few circuit boards at the back of a large-screen TV labeled Sony, RCA, or Zenith.

Before it's here, it's on the Bloomberg Terminal.