There was a time when you could measure the size, if not sophistication, of your hometown by how many TV stations you received. Today, that’s all changed. Before those of us raised on channels 4, 5, and 7 retire, there will be more TV choices than there are viewers.

Accept that premise and you’ll see a communications industry turned on its head. Channels lose their meaning when viewers can select programs directly. Programs could be produced for interested viewers, not just to appease the lowest common denominator. Imagine terabytes of bandwidth filled with interesting programs. Before you dismiss this as perhaps another George Gilder wave division, multiplexed pipedream, consider that you can already see evidence of the development of this infrastructure.

By now, you’re probably thinking I am a new media optimist, ready to lavish praise on the TV killer app du jour. So let me shift gears with a quote:

“Television is the supreme time waster of all time,” said Jonathan Tapin of Intertainer, a video on demand service, at last year’s Digital Hollywood convention. Of all the exciting new bells and whistles promised by the interactive television hype, Tapin said, “First, give me what I want, when I want it.”

What I extract from Tapin is support for a long-held belief. What people primarily want from their television is television programming: that’s full-screen, full-motion video images with sound that matches the lips. It’s striking how many millions of dollars have been invested in companies that provide some TV function other than that! People may want their program to start when they want. They may want to pause it or skip ahead when they want. They may even want that program to be compiled in a manner that is uniquely relevant to them. But it is still a TV show.

Just to avoid a lot of bothersome apologizing, I should admit that personalizing the stock ticker on my TV screen, buying a pizza with my remote control, or playing along with Jeopardy! are all swell things that some genuinely clever people have figured out how to do. These too will be part of the future. But there’s a reason they call such things enhanced television. The main lure isn’t the enhancement; it’s the object being enhanced—namely, the full-motion, full-screen pictures and sound. In this grand future, where will these come from? Who will own them? How will I select them? How will the money be made?

These answers are more straightforward than you might guess. For at least the near future, the primary television programming people are going to watch are the same programs they’ve been trained to watch for all these years. Sure, videochat may one day reign with Baywatch 2010 atop the Nielsen ratings. But while videochat and its illicit cousin, VoyeurCam, will become the ultimate (full-screen, full-motion) reality programming, that doesn’t mean our appetite for all the other staples (movies, sports, news, sitcoms, soaps, etc.) are doomed to become artifacts of a lost culture.

A Brave New World

To figure out how these programs will get from the corporations who own them to you, just subtract those parts of the current delivery infrastructure that have outlived their usefulness. If I’m Paramount, I traditionally had but one avenue to make money from my 168 episodes of Hogan’s Heroes. I licensed a TV station to run the series within certain guidelines, and then the station paid me. The station sold commercials, paid its expenses, and pocketed the profit. This model existed because there was never an alternative. More recently, distributors have had the option of skipping the middleman. Thus, Hogan’s Heroes is on TV Land, a cable channel owned by Paramount’s parent, Viacom.

The next step is to augment, though not necessarily replace the “packaging” function performed by the TV station. The moment I’m ready to watch Hogan’s Heroes, I can plop down on my couch, and navigate to a menu that lets me chose the very episode. It might even be a TV Land branded menu. I click, it starts. Full-screen, full-motion video. I would argue that many viewers would be willing to pay a nominal charge for this service. If not, many advertisers would be willing to buy the first few spot positions in my broadcast day, whenever it may start and whatever programming it may contain. Direct mail meets television.

The first steps along these lines are happening now. In a handful of communities across the United States, cable operators are introducing video-on-demand (VOD) movies. Many cable systems offer pay-per-view films today, but those are scheduled services. Pay a couple of bucks, and you can select among a handful of titles that start at certain times. These new on-demand services, as the name suggests, enable the user to select what movie he or she wants to watch, then play it at the desired moment, and even pause it when nature or telemarketers call.

On-demand movies are one thing. Watch next as the A&E cable channel, the latest in a small handful of cable channels dabbling in this area, starts placing some of its original programming on cable VOD servers. Many years may span from when A&E accepts its first VOD purchase of a Biography rerun, to the day NBC premiers the latest episode of Friends (or whatever that era’s Friends might be) on a menu-driven service. These years will mark a transition period from television viewing that is fundamentally based on broadcasting to viewing that is fundamentally offered on-demand.

The Underlying Infrastructure

This change alters the infrastructure that’s supposed to deliver the programming. Although we’ve got a lot to learn about usable design for television, our experience with the web suggests it’s not a technological stretch to assume TV viewers might navigate among menus of content companies, drilling down first to a specific series and perhaps even to an individual episode. The less intuitive part is trying to understand what system will bring this content from wherever it is stored to my local headend or central office, and then on to my TV in glorious full-motion, full-screen quality.

Let’s tackle the wholesale problem first: how the content gets to a vendor your TV can talk to. Currently, if you’re among the fortunate few with access to video on demand from your cable system, you can choose from the titles that are physically stored in your local cable head end. As a result, you’re getting the equivalent of Blockbuster’s Current Releases shelf. (Well, almost current: cable VOD windows are a whole separate story.) That makes sense: there’s a limited number of homes accessing the material, there’s a limited number of disks to store material upon, and there’s a limited upside to parking less popular items on a server with restricted reach.

Logic and business sense tells you there will always be finite limits on how much content can be stored in the local server. Yet it also tells you that spread across a national audience, virtually any program or film ever made has, even at 50 cents per play, the potential to make more money than whatever it costs to park it on a server and offer it for sale.

Here’s where we revisit a familiar graph: the quality of video compression is improving; the cost of bandwidth is decreasing. Companies like Akamai, I-Beam, Enron and many others have begun to build backbone networks capable of connecting server farms operated by content owners with servers located in cable head ends or telephone company central offices. Caching concepts are so well understood that it takes little imagination to contemplate a network where the most popular content is stored as close to the users as possible, while perhaps just the first few minutes of other material is close at hand. The system can go fetch the rest when it knows a user wants it.

But that still leaves the famous “last mile” problem. Internet-style streaming media isn’t good enough. Few of us have enough Internet bandwidth to receive enough bits fast enough to represent full-motion, full-screen video. So you need a fat pipe. Furthermore, you need a fat pipe that connects to the television. Lecture me all you like about the Internet generations. In my opinion, the device for watching entertainment programming in the home is the box with the large screen that sits in front of the couch or on the kitchen counter. People change more slowly than technology.

So what we need is a delivery infrastructure that enables each and every television viewer to potentially watch something different, at the same time. Not 500 channels, but one channel per television set. At the moment, four different kinds of companies are competing to connect your home to these types of services.

If you’re a telephone company, or a cable overbuilder, the one channel per TV paradigm is not a future problem, it’s today’s problem. Using XDSL and Ethernet, respectively, these vendors’ pipes are much thinner than cable TV or direct broadcast satellite (DBS). Thus, instead of sending your TV or set top box all the channels and letting you tune to the one you want, the XDSL and Ethernet vendors will just send you the channel you select, in effect offering a remote control channel change where your clicker actually switches a tuner located across the street or even across town.

In this model, even ESPN Sunday Baseball is an on-demand program: you don’t control the start time, and you may not pay for it directly, but the program isn’t delivered to you until you ask for it. That means these are the guys most ready for the future: they’re already delivering one program for every TV set. But widespread rollout of video over DSL or Ethernet is stymied by a force more powerful than technology -- money. Construction of both new systems and press releases touting new systems have slowed dramatically since the NASDAQ’s decline.

Direct broadcast satellite operators have a lot of bandwidth, but not enough to send each subscriber his or her own channel. Furthermore, there’s the troublesome problem of the return path. To even consider responding to a viewer’s click, you first have to be able to receive that click. Using a telephone line works for nightly billing queries, but not for real-time operations like pausing an on-demand movie.

New tools are on the horizon for DBS, but each has its own quirks. Ka-Band satellites offer “spot beams” so that individual channels could be re-used dozens of times across the United States. Still, that’s unlikely to provide enough bandwidth to support the one-program-per-TV paradigm. Two-way satellite communications are available, but the dishes are slightly larger and would require consumers to swap their existing equipment. Personal video recorders (PVR) are the Great White Hope for DBS video on demand: store the movies in the consumers’ homes, but only “unlock” them when purchased. Already both major US DBS vendors are offering receiver boxes with PVRs inside. The marketers’ thinking is that maybe combining these functions within one box will finally open people’s wallets. Thus far, PVRs clearly represent the most life-changing home entertainment technology that few are willing to buy.

Your cable television operator, on paper, has the return path issue solved and enjoys bandwidth that can be expanded dramatically. In practice, many systems still have a fair amount of money to spend to upgrade noisy systems and rollout digital services to the bulk of their customer base. Cable’s hybrid fiber coax (HFC) architecture uses fibre optic cable to send signals from the cable headend to “nodes’ located in neighborhoods. These nodes—really just pole or street-mounted boxes—take the signal from the fibre and send it down copper wire (coax) to subscribers’ homes. Each coax cable might feed 500-5000 homes. While the copper coaxial cable to your home limits the cable system to a finite number of channel positions, statistical multiplexing and modulation techniques can be used to fit 10-16 digital programs in each channel slot.

Today’s video-on-demand systems are only beginning to exploit a compelling advantage of the HFC infrastructure: a different assortment of channels can be fed down the fibre that feeds each neighborhood node. Thus, channels can be re-used from neighborhood to neighborhood without interference. When you order your pay-per-view movie from the comfort of your armchair in West Central Anytown, the cable system finds the movie file on its server, and then finds a channel slot that is not full that is feeding the West Central node. For example, the system may designate your movie as the tenth stream inside West Central channel 97. It then tells your set top box to tune to that particular stream, and enables your set top box (but no others) to disable the encryption of that stream so that the scrambled film becomes unscrambled. All of that happens today, but only in the handful of cable systems offering video on demand “trials.”

Slow Going

Truth is, the slow pace of change is worthy of note here. Not only have most U.S. overbuilders and XDSL vendors abandoned or delayed video plans, cable operators--the only players left standing who have enough bandwidth to deliver true video on demand--are on the cusp of making a tragic discovery: in tight economic times, VOD is not a very good investment.

There are a number of reasons for this. The costs of provisioning their networks for all of those “personal channels” can’t be offset by the income generated from the limited array of recent but not-quite-new film titles the movie studios have been willing to license. Personal Biography reruns are novel, but don’t radically change the return on investment on a $15 million system. The “interactive television” applications that were supposed to help justify the infrastructure have been slow to materialize. And those far-reaching wholesale content delivery networks, if successful, could essentially make today’s VOD equipment investment obsolete.

For viewers, what all of this suggests in the near term is more of the same. Everybody knows there’s a big bold future out there, but no network operators want to write the big check. Change will come not in forklift plant upgrades but in incremental equipment purchases. One box links the home delivery network to a wholesale content network brimming with video programming. Another offers content from a clever movie studio. A third integrates data or voice services. Network operators will thus be empowered to spend their money on individual applications that they think can make money, instead of painful investment in “infrastructure,” for which stockholders now demonstrate limited patience.

When those “boxes” are integrated with common management systems, the future begins. And the television industry will change dramatically, for the better.

Chris Lee is Director of Marketing, Advanced Platforms for Terayon Communications Systems. He can be reached at clee@terayon.com.