In a deal valued north of $1 billion, Cablevision Systems and Sony Corp. of America plan to deploy an interactive TV service in New York next year that will let viewers watch video-on-demand, search the Internet, use e-mail and play videogames through a set-top box built by Sony.

Cablevision prexy and CEO James Dolan said Thursday it will pay Sony for the set-top boxes, networking equipment and software needed to offer the unnamed service.

Sony said the arrangement was not exclusive and that it could set up similar deals with other cable companies. It has a firm commitment to build 3 million set-top boxes and will begin deploying them with Cablevision in summer 2000.

Cablevision, the sixth-largest cable operator in the U.S., reaches 3.4 million subscribers in New York, Boston and Cleveland.

Linking Cablevision’s digital delivery net with next-generation open cable-compliant set-top boxes to offer interactive programming, the new platform will be ready for conversion to high definition television. Cablevision’s service will also incorporate interactive gaming, e-mail (with users using a wireless keyboard, as with WebTV) and an interactive program guide.

Plans to incorporate digital video recording capabilities (available with Sony boxes that include built-in hard drives) to store and save TV programming are also in the works but may not be part of the initial rollout.

For Sony, the system enables the studio to make its library of movies from Columbia TriStar, TV shows and PlayStation-branded vidgames available on demand for a fee.

Pricing terms for the new service were not available.

Other services to be built into the boxes are still in the works, said Howard Stringer, chairman and CEO of Sony Corp. of America. “We are building this as we go along,” he said.

Deal marks the first time Sony has entered the cable television arena. Sony has manufactured set-top boxes for satellite services such as DirecTV.

The announcement comes just one day after Canal Plus, Europe’s largest cabler, and AT&T-owned cabler MediaOne said they would begin testing a similar service, MediaHighway, in Florida next month. That service could roll out nationally next year.

It also follows Motorola’s announcement that it plans to acquire General Instruments, the largest set-top box maker in the U.S.

As for the Cablevision deal, Stringer said it was advantageous for Sony because the cabler “wants to be the industry leader in the biggest market in America with the richest customers.

Sony synergy

“For Sony, we see this as another critical step in our strategy to marry the power of our electronics and technology assets with our vast entertainment holdings,” Stringer said.

The service will also leverage programming from Rainbow Media Holdings, a 75%-owned subsidiary of Cablevision, which operates cable channels American Movie Classics and Bravo as well as Madison Square Garden, Radio City Entertainment and Fox Sports Net. It also owns the New York Rangers hockey and New York Knicks basketball teams.

In addition, the company owns and operates the Wiz consumer electronics retail chain, where Cablevision’s box could be sold in 40 locations.

Throughout the past year, cablers and electronics manufacturers have been predicting that future TV services will include interactive services.

Personal TV products from TiVo, Replay Networks, and OpenTV, as well as Microsoft’s WebTV, were the first players in the market.

The involvement of major cablers like MediaOne and Cablevision could mean that other interactive TV services will become available through cable operators nationwide beginning as early as next year.

The Cablevision and Sony deal didn’t prove a hit on Wall Street, however, with investors moving down shares of Cablevision $2.19 to close at $75.06, a loss of 3%.