Time Warner turned up the heat in the new world of interactive cable services yesterday by announcing the construction of an electronic “superhighway” in one of its largest franchises outside Orlando, Fla.
Time Warner chairman Gerald Levin outlined a broad strategy of what he dubbed a full-service network, which will bring video-on-demand, interactive games and shopping and long-distance telephone service to 4,000 Orlando-area residents. It will begin in the first quarter of 1994, eventually expanding to 500,000 subscribers. Orlando is Time Warner’s second-largest franchise after New York City.
“This is not a test,” Levin said. “This is a template for as far as we can see in the future. It’s the superhighway of the 21st century.”
Speaking directly to Hollywood, he added: “This is a challenge to the creative community. We have a dedicated path to every home.”
The network will rely on fiber-optic lines, data storage, digital compression and large computer directed switches. All information, pictures, text and audio, will be converted into the digital language of ones and zeros, for transmission and then decoded at the TV set.
But once encoded, practically everything can be stored on computer hard-drives or on microchips. More important, the switches will be able to direct a movie, game or even telephone call to a single house, as requested.Channels, as we know them, will no longer be relevant since each household will have virtually an unlimited number of options.
By offering a broad mix of services atop basic cable, Levin intends on reaping incrementally higher revenues as each new function is added. He also will be mining TW’s tremendous cache of copyrighted material, the largest in the world, for sale and resale.
“The strategy is sound,” said Steve Reynolds, an analyst at Link Research Inc. in New York. “A successful network in the future will and must have the right combination of multimedia programming, communication capabilities and in-home services.”
Joseph Collins, chairman/CEO of Time Warner Cable, said the system will start with video-on-demand.
“Customers will be able to stop and start it like a VCR today,” he said. “We’ll be substituting the electronic highway for the road to your local video store.”
Unquestionably, the effort raises the ante in the long debate over who would bring these services to consumers–telephone companies or cablecasters.
Levin firmly pressed his case: “It’s clear to us, with cable, it can be faster, cheaper than other pathways into the home.”
But building such a pathway will likely push Levin closer to striking a deal with a computer or telephone company, to incorporate the switching and storage capability to transfer a movie to just one house on demand. TW has long been rumored to be talking to both IBM and AT&T as potential strategic partners.
“The advanced consumer services blur the distinction between entertainment and communication,” said Paul Saffo, a research analyst at Institute for the Future in Palo Alto. “Companies that succeed will find creative ways to bridge both. Which means partners.”
The use of fiber-optic cable permits the use of an enormous amount of bandwidth, which is increased expotentially by compressing the data that flows through it.
The most daring aspect of TW’s game plan has been to embrace the capability of piggy-backing telephone services on its cable system. According to Time Warner’s Dennis Patrick, a former FCC chairman, the company is aiming to take a slice of the $ 28 billion local access market, where calls are connected to long-distance carriers.