e.Digital Corporation (fka EDIG)

[Tinroad]

Set Tops Prep for Music on Demand
by Christopher Jones
3:00 a.m. April 25, 2000 PDT
http://www.wired.com/news/gizmos/0,1452,35867,00.html

With the major record labels taking their first serious plunge online this year, a growing group of Web, cable, and satellite broadcasters are eagerly preparing to launch the next wave of the business: on-demand music services.

A recently announced deal between OpenTV and World Theatre could become one of the more compelling examples of how an interactive digital music service becomes a mainstream hit, offering high-quality music, sampling and the convenience that couch potatoes demand.

The two companies are setting up a system to transmit digital copies of music directly to satellite TV subscribers, who will be able to sample and buy hundreds of albums worth of music made available every day. The service, expected to launch late this year, will allow viewers to purchase individual songs and full-length CDs on a digital set-top box, which will also act as a storage device.

"This is not like an Internet play where I have a new album and a million people come to my site and melt it because I can't serve all of them," said Kelly Sparks, World Theatre's CEO. "This is a single transmission of a single promotion, and I push the whole album, promotional materials, a video, other clips, the lyrics and land it in everyone's set-top box, and it's ready for them to preview, sample, and buy the next day in millions of homes."

Sparks said WTI has been negotiating with the major record labels, but no deals have been signed yet.

Once the business models are established, there is a real opportunity for set-top boxes to become the end-all, be-all entertainment device in the home.

The boxes are already hooked up to broadband connections -- either satellite or cable modem -- and can stream or download fat multimedia files with ease. And unlike PCs, set-tops are designed to easily attach to home stereos and TVs, where people are already accustomed to signing up for subscription and on-demand services.

OpenTV develops the operating system that runs in set-top boxes. The company has about 6 million digital set-top boxes in use around the world, and licenses its operating system to more than 20 digital set-top box manufacturers.

The second-generation set tops are designed to store content and connect with home stereos, PCs, and other devices. The boxes are equipped with hard drives, more powerful processors, support for 3-D graphics, and a triple-tuner architecture that will allow simultaneous video, data, and voice applications.

With so much concern over the security in digital distribution, some in the industry said it could take time for the majors to warm up to satellite delivery.
"In terms of digital distribution, we're trying to educate ourselves about that whole frontier," said Jed Simon, vice president of new media at Dreamworks Records, a label that has about 80 artists who are distributed by Universal Records.

"Really, we're much more focused on digital distribution over IP…we're looking to the big six (record companies) to let them forge the road" for new distribution methods, he said.

Sparks said WTI is collaborating with OpenTV on the application that runs on the set-top box, and also will handle the content and transaction side of the business.

The service can transmit 25 to 100 encrypted CDs per hour to its channel, Sparks said, with data moving at 21 to 23 megabits per second.

"We know what the set-top boxes are set up to look for. So we'll be pushing all that stuff through the channel, 24 hours a day, filling up all these set tops with music people like," Sparks said. "Since we're a TV channel, it's gonna be there in front of them and there is no downloading time."

Subscribers also will be able to sample songs from each album, and then decide whether or not to purchase them. Once purchased, the music could be sent to a PC, CD burner, or stored on the hard drive and played through a home stereo.

One of the biggest questions with these type of services, though, is how to divvy up money between all the players –- content owners, satellite broadcasters, software developers, and companies that broker the deals.

"The backend payment pieces is between us and the record companies. As far as dealing with the satellite companies, there will be different arrangements with each one," Sparks said.

There are a couple of factors that the majors will look for in distribution deals, Simon said.

"They need to ensure that they can control the content. Security is more important than it's ever been," he said. "They will also want to preserve their portion of the overall pie. I don't think they'll allow a third-party satellite company like OpenTV to come in and take a disproportionate share of the revenue stream.

Historically, retailers have taken about 20 percent of the gross, and Simon said the major labels will want to increase their share, not dilute it.

Traditional cable companies also are getting involved in on-demand music, but Sparks expects the satellite providers to take the early lead in offering interactive services.

"If you take a look at the hard-drive-based versions of set-top boxes, and the ability to do interactive applications on those, satellite seems to be in the forefront right now in terms of timing. We're trying to do something this fall and want to work with providers who are ready to go now," Sparks said.

See also http://www2.software.ibm.com/casestudies/swcsenet.nsf/customername/53A06DEAEC5EEAB6872569DE006517ED