Originally created 07/23/98

Internet companies set their sights on toppling TV



The stunning stock market debut of Broadcast.com Inc. last week was widely attributed to Wall Street's ongoing infatuation with anything related to the Internet.

After all, Broadcast.com embodies one of the most tantalizing and tenuous hopes for the Web: Someday it will rival, if not supplant, television as a conduit of entertainment for the masses.

But if toppling television is the Internet's destiny, it remains a distant one, analysts and industry executives said, because of technological, financial and creative hurdles that stand in its way.

"For some time, people have looked at the Net as the next broadcast paradigm," said Patrick Keane, an analyst at Jupiter Communications in New York. "But the Net is just not ready for that yet."

The main constraint is bandwidth, the capacity of the network to carry data.

Most people are already impatient with how long it takes to download static pictures and information from the Web. Video and sound strain that capacity even more.

Which is why "video on the Internet is still like watching Soviet television," said Melinda Moore, vice president of marketing at Intertainment Inc. in Santa Monica, Calif.

So far, much of Broadcast.com's popularity stems from its audio offerings. The company, formerly known as AudioNet, carries hundreds of radio broadcasts, enabling displaced sports fans, for instance, to tune into hometown radio broadcasts of games.

But Broadcast.com's potential lies in its growing video services, according to analysts. The Dallas-based company serves up everything from cable news channels to John Wayne movies 24 hours a day to anyone with a modem and a computer.

Broadcast.com says it is attracting 400,000 users a day, and its Web site is ranked among the top 20 entertainment sites on the Net, according to ratings firm Media Metrix.

Still, most people hadn't even heard of Broadcast.com until last week, when it sold its first shares of stock to the public and shattered Wall Street records.

The company's stock started out at $18 per share, but raced to as high as $74 per share before closing the day at $62.75 on the Nasdaq market. No other company has ever had such an impressive debut.

The amazing run-up gave Broadcast.com a billion-dollar market value, even though it has never posted a profit. Its founders, Mark Cuban and Todd Wagner, became instant multimillionaires.

Broadcast.com describes itself as "the leading aggregator and broadcaster of streaming media programming on the Web."

But it is by no means the only company doing so. Media giants, such as NBC, are developing services similar to Broadcast.com's. And countless smaller firms are trying to create their own fledgling online networks.

"We're going to do to cable what cable did to network television, and what network television did to radio," said Joshua Harris, chief executive of Pseudo Programs Inc., a New York company that creates original shows for the Web.

That might sound like hollow hubris. But even cynics agree that the Net's potential as an entertainment medium is vast.

Still, analysts caution that consumers won't be tossing their TV sets any time soon because broadcasting video over the Net still faces significant obstacles.

The bandwidth problem is being attacked from all sides. Software companies are working on better ways to compress video signals. Telephone companies are using new technologies that boost the capacity of copper phone lines. Cable TV has introduced modems and set-top boxes that can connect to the Net using high-bandwidth coaxial cables already in place.

But none of these fixes is catching on quickly. Jupiter Communications estimates that in 2002, 78 percent of all online households will still be connected to the Net through plain old phone lines.

There are other problems, including the fact that even though computers are getting simpler and cheaper, they remain more expensive and complicated than TVs.

"I don't think the Net is going to be a mass medium the way TV is," said Gary Arlen, a media analyst at Arlen Communications in Bethesda, Md. "The reality is that 98 percent of households have a TV and 40 percent have a PC because computers are too difficult and too expensive."

If streaming video technology improves as quickly as online audio transmissions have during the last few years, analysts say Broadcast.com could be poised to become an entertainment powerhouse.

But even Broadcast.com is hedging its bets. Aside from serving up video and audio entertainment on its Web site -- and collecting advertising fees -- the company is positioning itself as something of a Webcaster for hire.

Companies that want their shareholder meetings broadcast on the Net, for instance, can hire Broadcast.com to do the job. If the entertainment side fails to take off, this service business could become the company's bread and butter, analysts said.