NEWS ANALYSIS : Interactive TV: A Thorny Horn of Plenty : Telecommunications: Enormous technical, marketing and regulatory obstacles might keep the new technology away until late in the decade.

By JONATHAN WEBER and JOHN LIPPMAN

June 14, 1993 12 AM PT

TIMES STAFF WRITERS

Interactive television has emerged as the Holy Grail of high technology.

The disclosure over the weekend that Time Warner, Tele-Communications Inc. and Microsoft Corp. may join forces to set crucial software standards for interactive TV is just the latest in a series of high-profile alliances--or potential alliances--promising untold entertainment and information wonders.

It is supposed to be the biggest new business opportunity of the 1990s. But hoopla aside, interactive TV still faces enormous technical, marketing and regulatory obstacles. Widespread deployment is likely to begin not next year--as some have predicted--but in the second half of the 1990s.

Many of the recently announced alliances, in fact, are essentially political maneuvers by companies trying to stake their claims in a highly speculative business.

Several executives familiar with the Time Warner/TCI/Microsoft negotiations said over the weekend that the talks were just one among several sets of ongoing discussions and were far from complete.

Companies such as Silicon Graphics, which will supply a wide range of computer gear for a Time Warner interactive TV trial in Orlando, Fla., and Kaleida Labs, an Apple/IBM joint venture, insist that Microsoft is a long way from becoming the interactive TV software standard. Many believe it will be at least a year or two before any such standards are established--and a couple of years beyond that before full commercial rollouts begin.

Moreover, many of the new interactive TV services highlight the weaknesses of the concept rather than its strengths, and show how long it is likely to take before the reality of interactive TV matches the hype.

“Interactive television” includes features such as pay-per-view movies or programs “on demand,” as well as more sophisticated technologies that could allow a viewer to select a camera angle when watching a sporting event.

The new networks could provide potentially innovative educational applications such as long-distance learning between students and teachers or professional training for employees. And they would offer advanced home shopping services, ticket ordering and other transaction services that could be operated easily with the touch of a remote control.

For now and the foreseeable future, however, interactive TV is much less glamorous. Dozens of companies, many of them start-ups, are developing interactive television products and services--mostly game and sports shows--where viewers can guess the answers or call the play before the umpire.

“Everybody’s looking for the power application that will drive interactive television into the consumer’s home,” says John E. Galmiche III, chief executive of Interactive Systems Inc., a Beaverton, Ore.-based company that develops interactive TV programs.

Sony Pictures, for instance, is trying to launch a new cable TV game show channel where interactivity is the technological centerpiece. Sony, which has partnered with United Video and game show producer Mark Goodson Productions, says its research shows that 70% of TV viewers watch game shows and want them “on demand.”

Yet so far, most of Sony’s Game Show Channel programming is old reruns of “Wheel of Fortune” and “Password.” The interactivity consists of playing along at home with a remote control that can register simple Yes/No or Choice 1/Choice 2 answers.

Similarly, NTN Communications Inc. allowed viewers to play along with “Jeopardy” at home. “Which list was James Earl Ray on?” asked the question that popped up on the TV screen. “The 10 worst-dressed list or the 10 most wanted?”

“Ultimately, we want to get original material developed for the games,” conceded Michael Brockman, executive vice president of Mark Goodson Productions. “There are a lot of good ideas here that still need to be fleshed out.”

One of the companies that has the highest profile in interactive television is Reston, Va.-based TV Answer Inc., which over the past seven years has spent at least $100 million developing its interactive system. Backed by Mexican investors, TV Answer will utilize a newly-allocated part of the radio spectrum, thus bypassing cable.

The core of TV Answer’s system is transactional services that would permit viewers to shop, bank or order a pizza via their TV set, in addition to interacting with game shows and so-called educational programming. TV Answer estimates that it will sell one million special decoder boxes, which will retail for about $500 each, in its first year.

Companies such as TV Answer and Castro Valley, Calif.-based Interactive Network Inc. are moving ahead even though the market for interactive television still is largely untested. There are at least 125 companies at work on various aspects of interactive television, according to a recent report by New York-based research firm Frost & Sullivan.

They estimate interactive TV will be a $1.6-billion business by 1996--peanuts compared to what some analysts expect it to mushroom into a decade from now, when it becomes a major communications tool in education and business.

Michele DiLorenzo, senior vice president at Viacom New Media, who is developing interactive programming for testing in the cable operator’s Castro Valley pilot program next year, says much of what she has seen from programmers peddling interactivity now misses the point.

“The application everyone shows first is ordering pizzas--as if there was some great problem in America with ordering pizza. I mean, you pick up the phone, you order. What’s the big deal?”

The technology is not simple, either. Cable companies are eager to build these networks as quickly as possible--in part to head off a long-term competitive threat from the telephone companies, satellite TV providers and other communications carriers.

But they need help in building their networks, specifically the highly advanced computers and software that will make it all work. The simple cable box atop the TV set will have to be replaced by a sophisticated but low-cost computer. In addition, powerful video computers and software will have to be integrated into the relatively low-tech cable networks.

Microsoft wants to position itself as the software supplier for these networks, establishing standards in the same way it did with personal computer software. It already has an alliance with cable equipment firm General Instruments and chip maker Intel to develop a computerized set-top box.

And Time Warner and TCI announced two weeks ago they would cooperate to assure that the cable industry pursued a common technical approach to interactive TV. Microsoft is eager to be at the center of that effort.

But there are plenty of other companies, such as Silicon Graphics and Kaleida, that covet the same role. The situation in the PC industry, where Microsoft exercises extraordinary power, is in fact exactly what many in interactive TV would like to avoid.

Michael Noll, dean of the Annenberg School of Communications at the University of Southern California, suggests that the flurry of recent deals and increasingly inflated expectations for the still-embryonic technology are reminiscent of the atmosphere that surrounded video text a decade ago. Until fading off into near obscurity, video text promised to deliver at-home shopping, dial-up banking and an array of news and other information via a combination of the television and the PC.

But rather than video images, the service offered only words that scrolled slowly across the TV screen.

Viewers were turned off, and industry giants such as IBM, CBS, Sears, AT&T; and a host of newspaper publishers, including Times Mirror Corp., publisher of the Los Angeles Times, sustained big losses.

“I have to wonder if this isn’t just a new gang of suckers that doesn’t know history,” Noll said.

Times staff writers Carla Lazzareschi, Kathryn Harris and Amy Harmon contributed to this report.