Changing Channels When You Have 500 of Them

John M. McCann
Fuqua School of Business
Duke University

March 6, 1995

The World Wide Web is an infrastructure that exists on the Internet, which is an instance of a multimedia public packet network (MPPN), which in turn is part of the multimedia landscape that includes other forms of multimedia material such as television.

An MPPN is very different from the 500 channel version of the information highway that has been hyped by the press. The most common view of that highway is a broadening of the existing cable television structure. There are several dimensions to this broadening that will likely occur in various combinations:

In this model, the consumer "changes channels" as they do today. The key differences: there are many more channels and there is an upstream channel that permits the viewer to respond, thus creating an interactive system.

Where does the channel get changed? Today, we change it via the television or the cable box. All of the TV signals are on the cables that comes into our houses and attaches to the device. By changing channels, we are just tuning our TV receiver so that it looks for the signal that exists at a particular frequency. Channel 2 has one frequency range, channel 3 another range, and so on. Channel 2 is thus just a band of spectrum, Channel 3 is the next highest band, etc. Thus cable TV works like radio and regular television. All the signals are in the air and on the cable; we simply tune our set so that it picks up the desired signal and ignores all the others.

Another version of the 500 channel system moves the signal selector outside the house. It moves "upstream," perhaps to the point where the cable from the house connects to the "pole" on the street. From the consumers viewpoint, nothing changes because s/he uses the TV control to change channels just as s/he does today.

But the new set-top box sends a message to the external control box, which then "tunes in" the appropriate frequency band and routes it to the house. Thus the cable from the street to the house does not have to be a high bandwidth cable; it only has to handle a 6 MHz TV signal ... one signal at a time. This allows for a cheaper set top box and allows deployment of the system over existing cables or wires. This feature provides one path for telephone companies to get into the cable TV business in the next few years.

One aspect of this approach is that the consumer's choice of signal is known by the provider. Just as the telephone company records what number you call, they will be able to record what TV show you select. This is true because it would be a "switched" system. Just as the telephone switch connects your telephone to another telephone, the TV switch will your TV to a desired TV signal.

From a marketing perspective, this new model has a lot of appeal because the signal provider is free to select the content that is sent over the tuned frequency. If, for instance, the viewer selected Channel 22 in order to watch an NBA basketball game, s/he would receive the game along with embedded advertisements. The particular ads that are placed on the wire going into the house could differ from house to house.

Thus a company such as Budweiser could buy advertising time on the NBA game and give the signal provider five different commercials, along with instructions about how to select the commercial that goes into each house. For instance, Michelob could be sent into all the houses that are in ZIP code areas that have high household incomes, Bud Light ads into neighborhoods with above average female populations, and Bud Dry into neighborhoods with large number of young men. In fact, the selection could be made at the individual household level if data were available on each household. If nothing else, the advertiser would have access to the viewing habits of each house. Thus it could send Bud Dry ads to only those households that tended to watch TV shows that were targeted to young men.