High-speed access — the missing link between pent-up demand and a wealth of entertainment services — is expected to reach critical mass by years end, opening the turnpike to a new media marketplace worth $200 billion per year.
After years of watching the slow but steady growth of broadband networks, entertainment giants such as Sony, Vivendi Universal and Warner Bros. are revving their engines at the high-speed on-ramps, with truckloads of games, movies and consumer products custom-made for upscale audiences.
The time is finally right for the race to begin, said James Williamson, Sonys director of technology standards. Key factors coming into place include protection of copyrighted material, creation of content tailored for interactive media, reliable and scalable networks, and partnerships among players, he said.
Technology vendors idling in the slow lanes of the personal computer market are forming a broadband caravan to the promised land of home entertainment. Drop by Hewlett-Packards shop, and the company will tell you about the new HP Digital Entertainment Center that feeds Internet-linked amusement to your stereo or television. With entertainment products that demand a steady flow of digital media, its not hard to see why HP and other traditional tech manufacturers have added their powerful voices to the broadband chorus.
For the first time, manufacturers associated with the PC industry are joining forces to lobby Washington, D.C., for faster broadband rollout, and entertainment companies are joining in.
HP hosted a gathering of tech executives this summer to discuss policy initiatives in the broadband effort, and other groups have efforts under way to set an agenda.
“I think the manufacturers may have realized that there are public policy implications that may affect the current malaise,” said Randy May, director of communications policy studies of the Progress & Freedom Foundation in Washington. “Our view is that up until now, theyve tended to sit on the sidelines of the public policy debate because they havent wanted to offend anyone whos participating.”
The leaders of IBM, Intel and Motorola were among those who met with lawmakers earlier this summer to push tax credits for building high-speed networks in rural and poor areas. Other executives have proposed broader tax breaks.
While the industry giants have not yet detailed their plan to lobby hard for broadband deployment, many showed up at the PFFs Project Broadband conference last month in Palo Alto, Calif., indicating some degree of support for the foundations libertarian regulatory views. Backed by the powerful regional Bells and closely allied with the Bush administration, the PFF insists that less regulation would lead to more DSL deployment by the Bells.
Regardless of how the government responds to a widely perceived broadband bottleneck, things are getting in gear.
Jeff Campbell, CEO of Core Networks, a Halifax, Nova Scotia, supplier of software to the cable industry, estimated that by the end of the year, broadband will be deployed to 8 million customers — more than 10 percent of the households — in the U.S. and Canada. Industry experts say that number represents the threshold of a critical mass for expensive broadband services, such as video-on-demand and interactive TV.
“Suddenly, 8 million people is enough wallet to make things start to make sense,” Campbell said. “Consumer services is all about critical mass.”
According to a Brookings Institution study commissioned by Verizon Communications, high-speed Internet connections across half of the U.S. would add $200 billion per year to the economy; more widespread deployment could add as much as $500 billion.
As broadband becomes more prevalent, the content roadblock is being lifted. Fearful that their digital movies and audio would become master copies for pirates, the major studios closely guarded their content, sticking to traditional venues. But a deal last week between Sony and AOL Time Warners Warner Bros. on a standard to protect copyrighted movies clears the way for new distribution deals.
While Sony conservatively sat out much of the Internet revolution, the media powerhouse is one of the global giants staking its future on a “broadband society,” expected to arrive by 2005.
Sony is designing virtually all of its products — from the popular PlayStation game device to Trinitron TVs — for broadband interactivity. Microsoft is also making big broadband investments, including $5 billion in AT&T and a satellite deal with News Corp. last week.
“By 2005, people will be paying more for content than for food,” Sonys Williamson said.
His optimism is fueled by the growing interest among companies that control the pipes. New technology makes video-over-DSL profitable for the incumbent local carriers. Now, the application for which DSL was originally invented — video — is achievable, allowing the regional Bells to join the contest with the cable companies. BellSouth, Qwest Communications International, SBC Communications and Verizon are already negotiating deals with studios to provide content. VoDSL is likely to take root in dense residential neighborhoods, and branch out to wealthier suburbs.
Competition has shifted from upstart local competitors to established giants. While competitive carrier NorthPoint Communications is gone, its assets are now in the hands of AT&T, which plans to continue the rollout of DSL, even competing with its own cable broadband operation.
Meanwhile, AT&T Broadband could become even more entrepreneurial in the hands of suitor Comcast, the nations No. 3 cable operator. While AT&Ts board spurned Comcasts starting offer of $53.5 billion last week, the ante is sure to rise, with other bidders certain to surface.
The wild card may be what happens in Washington.
“To the extent that we would like to see even faster deployment, one impediment is the regulatory overhang that requires the sharing away of potential profits,” the PFFs May said. In other words: Why would the incumbent carriers build a DSL network if they have to share it with upstart competition at reduced rates?
Seen from the other side, competitive carriers say that such a position proves that regional Bells, long protected as government-sanctioned monopolies, are deliberately stifling competition and defying the 1996 federal Telecommunications Act, which was designed to deregulate the industry.
A more interventionist approach comes from the proposed Broadband Internet Access Act of 2001, legislation sponsored by Sen. Jay Rockefeller, D-W.Va., and Rep. Phil English, R-Pa. The proposed tax incentives for broadband deployment serve as a counterweight to the hands-off approach proposed by the chairman of the House Committee on Energy and Commerce, Rep. Billy Tauzin, R-La., who is seen as the Bells best friend in government.