Far from being hailed as a victory for rival middleware companies, Charter Communications' pullback from its deal with Microsoft is sending chills through the interactive television industry.
The move is seen by analysts and executives alike as foreshadowing a potential shift away from ITV as cable's next killer app in favor of a more aggressive move toward home networking.
Charter's action also raises another intriguing possibility that makes middleware companies nervous ? that Paul Allen's ITV company Digeo, until now a content producer, may jump into the set-top-software arena.
Digeo spokesman Pete Pederson declined to comment on that possibility. ?We are not talking about middleware or operating systems or any of those good things until NCTA,? Pederson says. But he adds, ?Digeo's staff is chock-full of not only software engineers but hardware engineers as well, so certainly something we've got expertise at is creating middleware.?
Microsoft has invested billions in the cable industry in hopes of getting its TV software adopted by operators. But Microsoft has mostly faced rejection. The latest chapter in that saga began in November, when Charter announced a seven-year deal that would put Microsoft TV middleware in 1 million Motorola DCT-5000 boxes.
Bill Gates's Microsoft crowed about the deal, saying it had become a ?principal partner? in the ITV future of Charter, owned by Gates's former partner Allen.
But the new partnership lasted only four months. Charter spokesman Andy Morgan says his company still intends to deploy Microsoft TV, but the operative words have become ?up to? a million boxes, and no timetable has been set.
Morgan sidesteps the issue of the quality of Microsoft middleware, saying the change stemmed from the discovery that trial users of the Microsoft-programmed DCT-5000s wanted more services than either the hardware or middleware could support.
Charter's solution was to switch its emphasis from the DCT-5000 to Motorola's newest box, the BMC (Broadband Media Center) 8000 sidecar and BMC 9000 box, which Microsoft as yet does not support with middleware.
?We'll be field-testing the BMC 8000 in the summertime and we'll be selling it in the fall,? Morgan says. The final decision on middleware ? Digeo or not ? has not been made yet, he adds.
Unlike the 5000, the new 8000 and 9000 come equipped with an array of home networking capabilities ? personal video recorder, built-in cable modem, wireless networking capability, telephony support, e-mail, music and photo storage.
Ed Graczyk, director of marketing for Microsoft TV, also points to the interest in home networking during the trials as the root cause of Charter's shift.
?Consumers wanted more than what the DCT-5000 kind of device lets you do,? Graczyk says. ?But I certainly would not read into a hardware change that they're going to shift software vendors or that Microsoft software didn't perform.?
Microsoft TV has a recent deal to run in 25% of Comcast's ITV deployments and is in negotiations with other cable operators, Graczyk notes.
The larger question is whether the cable industry may have tired of waiting for the fulfillment of interactive television's promise, says Josh Bernoff, principal ITV analyst for Forrester Research.
?What Charter is looking for is greater than ITV,? Bernoff says. ?It may be that you have to go up to the BMC 8000 to generate enough services to make it worthwhile.?
One sign that middleware providers fear exactly that is that Microsoft's rivals are not gloating about the company's problems. Instead, they see the unraveling of the Charter-Microsoft deal as a setback.
?I find any delay of interactive television in the U.S. market to be unfortunate,? says James Ackerman, CEO of OpenTV, which has enabled 24 million ITV boxes, 4 million of them in the United States, chiefly for EchoStar Communications.
But Ackerman says the new emphasis on home networking doesn't leave ITV out in the cold, because consumers will want those interactive services networked as well.
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