When a guy like Steve B. Burke likens TV viewers' stampede online to a "wildfire," you know the cable industry is feeling the pressure. Burke is the president and chief operating officer of Comcast, America's largest cable distributor. He notes that Hulu.com and other popular Web sites that offer access to TV shows and films attract a fraction of the viewers that cable does. But Burke acknowledges that he and his rivals can't afford to sit still--not when Americans can get many favorite shows online for free.
So Comcast (CMCSA), Time Warner Cable (TWC), and their ilk are going on the offensive. Long technology laggards, the cable companies have set up skunk works. The aim of doing so is twofold: putting more of their content online and making the regular television viewing experience more Weblike. "We don't want to be alarmists," says Time Warner Cable CEO Glenn Britt. "But we really need to look at what consumers want."
Comcast's skunk works is called Comcast Interactive Media. CIM has a decidedly Silicon Valley vibe and recruited heavily from the tech world, including Yahoo! (YHOO), AOL (TWX), Vonage (VG), and others. Fifteen months ago, CIM created a free online video site called Fancast, which is much like Hulu. Later this year, Fancast will be joined by a premium online service (as yet unnamed) just for Comcast subscribers. What will they get for their money? Among other things, shows that aren't currently available online, some of which will run at the same time as they air on TV. Eventually the cable industry may force viewers to subscribe to pay TV if they want to see any shows on the Internet.
CIM is even getting into social media. Using technology from the social networking site Plaxo, acquired last year, Comcast aims to create a community of viewers who can comment on and recommend programs to friends. Other experiments are under way. "We are still only in the second inning for online video," says Samuel H. Schwartz, one of CIM's top executives.
Even as they move online, the cable guys are scrambling to make TV as interactive as the Web. For years they've tried and largely failed. Exhibit A: the multiple buttons and screens viewers must navigate to find and rent a movie.
Now the industry may have hit on the answer. It's called tru2way, a service arriving in the coming months that will allow viewers who have the latest generation of set-top boxes and televisions to more easily search for TV shows, play games, chat, and even browse the Web.
Beyond improving the viewing experience, the technology also will allow the cable companies to offer interactive commercials. For example, viewers will be able to request more information about a sponsor's product and, at some point, even buy it through their televisions.
Craig Moffett, a veteran cable analyst at Sanford C. Bernstein, says tru2way could crack open the television much the way the iPhone's operating system did the mobile computing world. Creative software jockeys, he says, will be able to create apps and "bring Internet magic to TV."
Naturally, for tru2way to reach its potential, the remote control will have to change, too. Despite a proliferation of buttons, remotes typically lack a keyboard, which would make searching for shows easier. Time Warner Cable is testing a prototype with a touchscreen. Built by Panasonic, the remote includes an iPhone-like keyboard that makes searching for programs more simple.
As the cable companies scramble to get these technologies out of the lab, they are trying to prevent cable networks from putting their shows online. In recent months, Big Cable has reminded USA, Bravo, TNT (TNT), and hundreds of other channels that the cable companies provide about half their revenues, in the form of fees to carry their shows. The implicit warning: put your content online and forfeit nearly $30 billion. "If I don't have a customer," says Time Warner Cable's Britt, "the programmers aren't going to have a customer."