If the cable industry is able to get widespread distribution of the digital set-top boxes over the next five years, Mr. Malone told the convention in Anaheim, "the impact of interactive opportunities for marketers would be "a bombshell on Madison Avenue."
REDUCED COST ON BOXES
If cable operators "all work together," he said, "we'll be interoperable [nationally]." As a result, he said, "the [economic] scale [of producing that many set-top boxes] will be so large that the unit prices will come down dramatically, and we will be a must-buy for advertisers."
Mr. Malone added that "a 5%- or 10%-penetrated platform is going to be of some interest to some advertisers in some markets. A universally deployed platform is going to be of huge economic value to every advertiser everywhere."
Mr. Malone later described a scenario in which the cost of producing each box, about $300, could be spread among several companies involved in their development: "If you talk in terms of a box that costs [a given amount to cable companies to produce] and, on a per-customer basis, a communications company is willing to commit to a third of that and a computer company is willing to [commit to] another third . . . and the video functions it performs can easily underwrite the other third, then you've paid for it," he said.
"So you have to think of this in incremental terms rather than the massive [overall cost of deployment] -- the numbers collectively are huge," he said.
The communications company in Mr. Malone's scenario is reportedly AT&T Corp. and the computer company Microsoft Corp. Mr. Malone has been in talks with both.
"Of course we've heard Malone and his colleagues tell us we were going down the yellow brick road before," said one ad agency media executive when told of Mr. Malone's remarks. "But if AT&T and Microsoft get interested, this could be real this time."
In his address, Mr. Malone also raised the possibility cable operators might allow only certain advertisers to have interactive features. Broadcasters, he noted, "have 'must carry'; we might have 'may interact.' The point is that technology changes the dynamic of the negotiations between our industry and virtually every other industry that will be interactive, because we're bringing something new to the table."
New-media consultancy Next Century next summer will test a software system for the set-top boxes called Opti-Mark. Using the software, developed by Groupe Bull, an advertiser will be able to direct commercials to specific households.
"[Mr.] Malone's comments confirm that advertising is necessary to make the economics of the set-top boxes work," said Ted Livingston, formerly senior VP-marketing at Continental Cablevision (now MediaOne) and a senior consultant to Next Century.
Another feature of the new set-top boxes will be free e-mail.
"A service like e-mail should be automatic -- everybody gets it," Mr. Malone said. "That's a service that benefits from the broadest possible distribution. We can support, we believe, a free e-mail system profitably just on advertising."
TV viewers using the set-top boxes who want to e-mail would have to have a small, lightweight keyboard; Worldgate Communications demonstrated such a system