Dr. Abe Peled: is CEO of News Corp.-subsidiary, NDS, a prominent player in both the conditional access and the ITV industries. He recently spoke to [itvt]'s Tracy Swedlow about his impressions of Rupert Murdoch, about why he turned down the opportunity to purchase Wink, about the market conditions that have ensured that ITV is more widely deployed in the UK than in the US, about the kinds of technologies NDS is currently working on, about the lawsuits facing the company, and more.

[itvt]: Could you tell us a little about your background?

Peled: I was born in Romania, and I left there at the age of 13…

[itvt]: Why did you leave Romania?

Peled: I left with my parents who were looking for a better future for themselves and for me. There was no future for a Jewish kid from a bourgeois family under the communist regime.

[itvt]: Did you get permission to leave the country or…?

Peled: Well, in 1958, the Romanian government started letting Jews leave--I think the United States paid a certain amount of money to the Romanian government for each family they let go. I moved to Israel and lived there until I was 26. I went to undergraduate school there, at the Technion-Israel Institute of Technology, and I served in the army. I participated in the Six-Day War as a second lieutenant in the infantry. Some time later, I was with the Signal Corps. They sent me to the United States to test some equipment, and I fell in love with the country, even though I was only there for a few weeks. I loved its openness. I saw it as a wide-open, meritocratic society.

[itvt]: Do you still feel that that is the case?

Peled: Yes, I am still a big fan of the United States. I am a US citizen. I went to graduate school in the US and ended up staying there.

[itvt]: You did a Ph.D. at Princeton, right?

Peled: Yes, I did a Ph.D. in digital signal processing, which at the time was a new field.

[itvt]: Did you realize at the time that digital technology would become so pervasive?

Peled: Together with my advisor, I wrote the first undergraduate textbook on digital signal processing. The motto on it was "Res sunt futura digitales" which is Latin for "The future will be digital." I guess that turned out to be a reasonable prediction. In any case, after graduate school, in 1974 I started working for IBM, and I stayed there for 19 years. I had a variety of jobs at IBM. For the first 6 years, I worked in digital signal processing, and then in 1980, I moved into technical management. I got a lot of experience managing R&D.

[itvt]: Were you interested in television at the time?

Peled: No. But during the last 8 years I spent at IBM--between 1985 and 1993--I was vice president of systems and software at the Research Division, in charge of, among other things, all the communications- related research. That's when I started being exposed to television…. I did an internal startup at IBM--this was back in 1991--that was the subject of a major feature article in the New York Times business section, "Abe Peled's Secret Startup at IBM." The startup built a supercomputer. Originally we built the computer to make it faster and easier to solve complex scientific problems that involved visualization. So that if, for example, you were simulating the ozone layer, the results would be displayed on a high-definition screen and you could detect whether a hole shows up or not. It let you visualize the results of a computation, and we were using high definition TV's for displaying the output. However, when we finished the project--which was a very exciting and fantastic project--we discovered that all these scientists who had given us feedback on how great it was had no money to buy it. Our business plan had been to sell around 15 of these computers in the first year, so this was a bit of a crisis for me. The supercomputer had been one of my pet projects, and my reputation was at stake. I started getting involved in seeing where it could be applicable. And, by happenstance, I was on a plane to the West Coast next to a guy who was in Hollywood, working on special effects.

[itvt]: And that's where you ended up applying the technology?

Peled: I was describing our computer to him and he said, "If you can bring it to Los Angeles next week, and it does what you tell me it does, I will buy two." These computers, by the way, were around a million-and-a-half each. So we brought the computer to LA, and his company bought two, and I really got exposed to the whole television/special effects domain.

[itvt]: His company wanted to use it for films, right, not for television?

Peled: For films, yes. They were also doing post-processing for television, and using a technology that Philips came up with called CD-i. So I got exposed to the whole issue of converting video--admittedly just from the special-effects point of view and from the compression point-of view. But that was my first exposure, and I found it quite interesting. Anyhow, I decided to leave IBM in 1993 because the company was starting to retrench and also because I felt I wanted to get more involved on the business side.

[itvt]: At that time, a number of early ITV projects were taking place. How aware of those were you?

Peled: We were actually dealing with the people at Time Warner, because IBM was trying to do a few things in this area. But, even at the time, I thought that what Full Service Network was doing was way too premature. I remember asking one of the Time Warner people, "How much more do you think a person will pay to see a movie on-demand, versus having to wait 15 minutes to watch it on a pay-per-view system?" I remember saying, "Would that person pay 100 times more? Because that is what it's going to cost to do it. It's 100 times more expensive to offer that movie on-demand than just to offer it at regular intervals." He hated the question.

[itvt]: Why?

Peled: He just didn't want to hear it. Even today, the idea of VOD is so compelling to people that they refuse to talk about the cost of it. But the fact of the matter is that it's still extremely expensive. So anyway, in 1993 I left IBM and--for various personal reasons and because the Israeli high-tech sector was booming--I decided to go back to Israel. I became senior vice president of business development at an Israeli high-tech conglomerate called Elron, and I started the first Internet Service Provider in Israel. Again, this was in 1993, so back in the early days of the Internet, when there were very few Web sites. In fact, even though I was only back in Israel for a brief period, some people credit me with, as it were, starting the whole Internet in Israel.

[itvt]: How did you end up at NDS?

Peled: Well, in 1995, Rupert Murdoch found me in Israel. He was looking for somebody to run what was called "NDC" at the time. It was a small company, 220 people--half of them in Israel, half in the UK. He was looking for a CEO for the company, having fired the previous one.

[itvt]: Why did he seek you out?

Peled: Greg Clark, who was head of technology at News Corp., knew of my reputation because he had worked at IBM in Australia and the US, and Alan Baratz, who had been hired by News Corp. to run Delphi, also used to work for me at IBM. And both of them said, "The only person to run this is Abe."

[itvt]: How much experience had you had with conditional access technology at the time?

Peled: Zero. Nor with television, for that matter.

[itvt]: What specifically did Rupert Murdoch want to do with conditional access technology at the time?

Peled: That's a very interesting question. He was personally interviewing people to fill the job. I flew out to see him in New York, and I said to him, "I have 3 questions: First, you are running a company that has $12 billion in worldwide sales, and this company has $50 million in sales and 2 or 3 customers. Why are you so involved in who is going to run it?"

[itvt]: What was his answer?

Peled: His answer was, "It's a small company now, but it has great potential. It has strategic importance in our plans for satellite worldwide, and so it could be very valuable to us with the right man in charge." Then I asked him my second question: "Why did you start a company like this back in 1988?" Because I knew by then the history of the company--that he'd invested $5 million in it, and partenered with the Weizmann Institute of Technology. And he answered, "Because it was clear to me that, when media become digital--whether it's newspapers, television or whatever--encryption will be very important. And I thought we should have access to the best encryption technology in the world. So I sent people around the world to look for it, and we found that the best encryption technology was being done by Adi Shamir in Israel." Adi Shamir is a professor at the Weizmann Institute, and he's the "S" in "RSA." There are 3 guys who invented RSA algorithms: Ron Rivest, who was a professor at MIT, Adi Shamir who was at MIT at the time on a sabbatical from the Weizmann Institute, and Leonard Adelman, who was at Stanford. Adi Shamir is still a consultant for NDS. So anyway, Mr Murdoch had found that the best encryption technology was being done in Israel, and so he had set the company up. Then, 2 years later, having launched BSkyB, they needed to encrypt movies, and so he asked this new company he'd founded whether it could provide a solution. So that's basically how the smart-card approach to conditional access came about. Because, prior to that, there were no smart cards in pay TV. Now, while I didn't know anything much about encryption technology, I thought that his answers to my questions showed that he had great foresight: he'd invested in encryption technology, not because he had any immediate, specific needs back in 1988, but simply because he thought that this was going to be a very important technology. And then, when there was a specific need, they had this little company that could solve the problem.

[itvt]: What was your third question?

Peled: My third question was along the lines of "How do you intend for me to run the company? I think that, in order to be a great technology company, it cannot be a captive supplier. It has to supply on the open market, and win business on the open market. It shouldn't do business only with News Corp. companies, and it shouldn't provide any particular preference to News Corp. companies--because that way, it will become fat and lazy very quickly, and will not be competitive." And his reply was: "I agree with that 100%."

[itvt]: What was your impression of Mr. Murdoch when you met him?

Peled: Well, I went to New York, having promised my wife that I was just going out of curiosity. I never thought I would take the job: I didn't want to move to London and all that. But, after my interview, I called her and said, "Guess what! I changed my mind. This is a really great and interesting opportunity." So he can be very charming, and very persuasive. But what was most impressive was his very clear vision of the importance of this area and of how the whole thing would evolve.

[itvt]: So you decided to pick up, move to London and take the job.

Peled: Yes. And I never regretted it. It was very exciting, because we got in at the right time, just as digital was starting to happen around the world. Digital satellite happened first, and we were really very busy: We bought a hardware company in England that did the compression, so we were able to offer end-to-end solutions for digital.

[itvt]: And NDS eventually became involved in interactive TV as well as conditional access…

Peled: Yes. Our first interactive-TV application was the SkyDigital electronic program guide, which was developed between 1997 and 1998.

[itvt]: Were you aware of the various ITV trials that were taking place around the world?

Peled: Yes, of course. But you know, there is such a thing as being too early. And, of course, being too late is not good either. The trick is to show up at the right time. That way, you don't spend too much money, and the technology is more reliable by then, and so on. Our real big move into interactive TV started in 1998, though we did most of the planning for it in 1997. The challenge was that BSkyB was going to launch digital and there were concerns. There was a lot of debate over the wisdom of that move, because the company already had a very successful business: they were making a lot of money with analog pay TV. They had 3.5 million subscribers.

[itvt]: Who was leading the charge towards digital?

Peled: Murdoch. As a matter of fact, some of the Sky management were against it. Their argument was quite simple. It was along the lines of, "We're going to have to spend one or two billion dollars--on set-top boxes, on infrastructure, on everything. And what happens if, at the end of it, we still have 3.5 million subscribers--the same subscribers--and they pay the same amount of money per month? Then we'll have thrown away 2 billion dollars." However, the picture for their analog service was not so rosy: they had 3.5 million subscribers, but they had been stuck at that level for 2 years, they had a very high churn--20%--and cable was gaining on them. So Murdoch felt that they had to change the game. And we, from a technology perspective, certainly were pushing for digital as well, saying, "You have to change the game because this game is a losing game. You keep losing ground every year. And it's better to be out front." The question that had to be answered was: how do you differentiate a digital platform from an analog platform, so that 1) you can convince the people who are already on the analog service to move voluntarily to digital, 2) you can get them to pay more in the process, and 3) the service attracts additional subscribers? And the reason we started focusing on interactive television was in order to answer that question.

[itvt]: This was back in 1997?

Peled: Yes, 1997 was when we decided we were going to start focusing on interactive television. At the time, a lot of people were thinking in terms of Internet-on-TV, but we resisted it, even though I love the Internet. I said, "It's the wrong medium, we don't want to send the viewer away from a television program to browse the Internet." Other problems with Internet-over-TV that were clear to me were the fact that the TV is the wrong kind of display for the Internet--you could display on the TV screen only around an eighth of what you could display on a computer screen; the fact that you have to sit up and use a keyboard to navigate effectively on the Internet; the fact that the set-top box doesn't have enough processing power to keep up with the PC, and so on. As a matter of fact, when Web TV was offered to News Corp., some people at the company were saying, "Let's buy Web TV!" because it's in the United States. I argued against it, and News Corp. didn't buy Web TV--a good thing in hindsight.!

[itvt]: When you argued against Internet-on-TV, what alternative vision did you present?

Peled: Our approach was that, if interactive TV is to enhance the viewing experience, it has to appeal to the person who's leaning back, so as to speak, but who is prepared to be just a little more active. We argued that, as part of the viewing experience, you want to provide little enhancements that people will actually want. So, whether it's alternative camera angles and background statistics you can access during a sports broadcast, or quizzes that relate to whatever program you're watching, it's all about enhancing what you're already watching, rather than taking you away from what you're watching.

[itvt]: Was this approach to interactive TV based on research you'd conducted?

Peled: No, we didn't do any research. It was more of a conviction. I'm on the News Corp. executive committee, and I deal with a lot of the television executives. So I get a good perspective on what television viewers want to do and what they don't want to do. It just felt right. And I knew that the other approach was wrong.

[itvt]: Did you think at the time that ITV applications were going to generate significant revenues?

Peled: No, let me emphasize that we didn't think that this was a big money-maker per se. Our pitch was 1) that it would drive penetration, and 2) that it would reduce churn, because it produces loyalty: as long as your competitor doesn't have these things you're offering, the viewer is going to stick with your platform. And indeed, I think the results have proven us right: for example SkyDigital now has 6.5 million subscribers and its churn is the lowest in the world, below 10%.

[itvt]: How did the audience respond to ITV when Sky started rolling it out?

Peled: Well, one of the first applications that was rolled out was Sports Interactive, and it generated a lot of buzz. Football fans would say to each other, "Did you try this? Did you do this?" etc. I think viewers also found the EPG very easy to use--it was very simple: nothing was more than a few clicks away. And then we started rolling out applications for Discovery, QVC, MTV and Nickelodeon, and so forth, and it was clear right away that people liked them.

[itvt]: Who conceived the multi-screen interactive sports application?

Peled: That was something that somehow evolved between us and Sky. It's basically about choice and convenience. If you give people more choice and convenience, they will always prefer that. If you're watching a 24-hour news channel on linear TV, it's inconvenient to have to wait until 10 minutes to the hour to see the latest weather forecast: you want to see it now.

[itvt]: Why do you think that ITV has become so much more established in the UK than in the US?

Peled: The platforms in the US are simply not capable of doing it. If you look at DirecTV, they didn't take the strategy of having common software on the set-top box. EchoStar is starting to move more in that direction, but hasn't been aggressive because nobody's chasing them. And with cable, the platforms are incapable of doing any of the applications I was describing.

[itvt]: People here complain that the cable operators are too cautious. If true, why do you think this is?

Peled: The reason they are moving so cautiously and so slowly is that they are subject to a vertically integrated, proprietary model, instead of what we have in the UK, which is an open, horizontal market. As you know, NDS are not the only ones doing applications on Sky: first there is Sky themselves and there are lots of little companies doing them as well. Sky can pick and choose at every level--both as far as applications are concerned and, say, set-top boxes. Whereas when you have a vertically integrated market, very little innovation happens. What a vertically integrated market means is, for example, going to Motorola and saying, "Send me your stuff to go digital," and getting something that is just not advanced compared to what you could buy for the same price if it were a competitive market. And that's the reason why ITV is behind in the US: There are 20 million digital cable boxes out there, and they can do very little.

[itvt]: What kinds of ITV projects are you working on now?

Peled: Well, as set-top boxes get more powerful, and hard disks get added to them, various new things suddenly become affordable. Clearly games are a high priority--I've been surprised by how much time people spend playing games on TV. We bought Visionik in part because we want to make games more sophisticated. If you have a hard disk in the set-top box, you can make games much better--they won't be PlayStation2 games, but pretty soon they will be the equivalent of what was on PlayStation1. We're also clearly focusing on evolving the infrastructure to be more powerful and more supportive of advanced interactive applications. We have iVideoGuard, a version of our VideoGuard conditional access technology, which has a lot of advanced features to support interactivity. For example, with voting, we can do authentication in such a way as to ensure that there is only one vote per person. It also provides shopping security, support for pay-per-play…whatever the commercial model for ITV that an operator wants to implement would be supported by iVideoGuard.

[itvt]: You believe that the availability of hard drives in set-top boxes will be important going forward?

Peled: Fantastically important. I think 5 years from now the standard digital set-top box will have a big hard drive incorporated into it. It's one of those technologies that gives a very clear consumer benefit when done right, and disks are rapidly declining in cost.

[itvt]: Is NDS involved in developing software for the Sky+ box?

Peled: Yes, it is based on our XTV technology. From an infrastructure point of view it is fully integrated with the SkyDigital system. We support the ability to keep content encrypted on the disk in its original transmission format. This will allow you to buy things off the disk, whether it is a movie that has been downloaded ahead of time, or a game, or whatever, using the CA and billing infrastructure already in place. The unique thing about Sky+ is that, when you, say, want to record a pay-per-view movie, you only pay for it when you actually watch it. It doesn't charge you when you record it, it only charges you when you watch it. We can send something to your hard disk, and then you buy it off the disk and the smart card knows how to handle all that, this is the future of VOD.

[itvt]: Do you think that the success of the Sky+ contributed to TiVo's apparent decision to abandon the UK market?

Peled: There's no comparison between using TiVo and using Sky+. Sky+ offers convenience and ease of recording, while TiVo has a mind of its own, in my view. It tries to decide what to record for you. We don't try to second-guess you.

[itvt]: So can we take it that, in general, you're not in favor of prognostication engines, of using artificial intelligence to help people find the programming that interests them?

Peled: I think they're a waste of time, and have thought that for a long time. When I was at IBM, we had artificial intelligence. I resisted it in the early '80's, because I thought it was just too complicated, and was not going to work in the foreseeable future. Indeed, we saved a lot of money by not spending it on some of these fads. It's just that I think second-guessing the human mind is very complicated. We don't understand why you make decisions. How can we second-guess you?

[itvt]: What kind of new technologies do you think we'll see with XTV in the next year or two?

Peled: Well, I think among other things you'll have the ability to play games on it, games that are supported by video, so that they present a much more interesting experience.

[itvt]: What other ITV applications do you see becoming popular in the near future?

Peled: Betting applications, of course, which are allowed in the UK. Especially applications that give you the option to bet during the game: you get odds on who's going to score the first goal, for example, and this enhances the viewing experience. Even if you only have 20 or 30 cents riding on it, it just makes watching the game more exciting. It's big in the UK, and it would also be allowed in Australia and some other places. And then also shopping applications, in conjunction with shopping channels. We've done QVC, which has been very successful. We're also experimenting with some interactive advertising, which I think will be slow to take off, but…

[itvt]: In the US, a lot of people keep looking to the advertising community to fund ITV…

Peled: Yes, but it's never going to happen. That's why I didn't buy Wink. We looked at it quite seriously, but we passed. People don't want to go away from the program they are watching to interact with an ad. The whole advertising industry has to change for this to happen.

[itvt]: Could you explain a little further why you decided not to buy Wink?

Peled: Because I didn't understand the business model. The business model they had was to pay the operator for carriage and to offer them minimum guarantees on revenue from advertising. So it was like an autopilot to spend money.

[itvt]: Do you think you made the right decision, or do you think Liberty knows something you don't?

Peled: Well, they may move it in a different direction, but I think I made the right decision. If I had paid whatever the market value of it was at the time, it would have been too high. Way too high. Even $100 million, I think, is still high.

[itvt]: You mentioned that you are, nevertheless, interested in interactive advertising.

Peled: We are starting to experiment with it, but I do think it will be slow. I think there is some mileage, but it requires a lot more work to figure out what works. And it will be a slow change, because the agencies are simply not set up to do interactive television advertising and not set up to deal with responses.

[itvt]: Though there are now a number of new agencies in the UK that are becoming very professional at providing hosting, backend tracking, things like that.

Peled: I think, obviously, that's going to happen. That's why we're experimenting with interactive advertising technologies. I just don't think it's going to be a big revenue-driver for a while. And it certainly won't increase penetration or reduce churn.

[itvt]: What other technologies are you looking at seriously right now?

Peled: Well, we're interested in delivery of television over broadband IP, such as was just launched in Japan by Softbank. And then we're also very interested in Digital Rights Management--in the issue of how you protect content once it's in the hard drive of the viewer's set-top box, in such a way that the viewer can send it to other devices in the home, but can't send it to a thousand of his friends. It's a big, complicated problem whose solution involves standards and legislation. So we are now active in some of the standards bodies, as well as trying to track what's happening with legislation. You can't just go in and say, "I have a solution." It really is more complicated, and as you know, it's a highly debated arena in the United States these days.

[itvt]: What about VOD?

Peled: We think that the right way to do VOD is an XTV server, which will serve VOD and an XTV client for the high-volume content. The most popular things are downloaded ahead of time to your hard drive, and then only the tails of the distribution (the infrequently requested) are served by the server. That's a more cost-effective way than to have everything on the server.

[itvt]: Why do you think the XTV-server approach hasn't taken off in the US?

Peled: Because I think the big buzzword in the United States is still VOD.

[itvt]: You do still offer solutions for headend-based VOD, though.

Peled: Yes, we're integrated with SeaChange, nCUBE and Concurrent, and we provide conditional access for that model. But, in the long run, we feel a hybrid solution is the most cost-effective way to do on-demand, and I think people are starting to pay attention to what we're saying, though it's happening quite slowly.

[itvt]: And do you think that such a hybrid solution will be seen in the UK?

Peled: Well, over time I think the Sky+ box will have a DSL connection, and then you could have a hybrid solution. However, cable in the UK is well behind, so they are not offering anything, and don't have any money to offer anything.

[itvt]: You generally generate revenues by licensing your technology. Do you also have any revenue-sharing deals in place?

Peled: I would say almost all of our revenue at this point comes from licensing and sales. We have very few revenue-sharing deals. However, we may consider doing them in the betting arena. So, with things that work, we are willing to engage in some revenue sharing, but we're generally a technology supplier that gets paid license fees and service fees.

[itvt]: Do you see the Asian market as presenting a lot of opportunities for growth? I know that you have an R&D center in Beijing.

Peled: Well, I think Asia certainly has long-term importance. In China, we now have interactive platforms that already have 10,000 plus subscribers. We also have deals and deployments with CCTV and a number of other operators. While the numbers of subscribers involved are still small, we think China is an important market. So far, though, Korea has been the most successful market for us in Asia in terms of subscriber numbers, having reached over 500,000 subs in 9 months. We have a set-top box integration center in Korea, where we work with local Korean manufacturers. And we've just launched on CNS in Taiwan, which has a million analog subscribers.

[itvt]: Even though the numbers of subscribers involved are presumably small, NDS does seem to have enjoyed a fair measure of success in China, both in terms of deployments and high-profile projects. Why do you think this is?

Peled: My perception, having gone to China many times, is that they want to see a commitment to doing business in China. We've now been there for 4 years. We have a partnership with CCTV, and our Chinese-language EPG was developed through that partnership and they share some of the royalties. We also worked with the Ministry of Broadcasting Science to help them develop their own encryption algorithm, rather than telling them that they have to use whatever we do. And I think that showed them commitment and willingness to work with them, and addressed their concerns about security and control. And we've also built up a capability for developing applications locally, and I think they really appreciate that.

[itvt]: Why do you think the Chinese are so interested in participating in the development of their television technology?

Peled: Well, I think there are 2 reasons, as far as I can tell. First, they consider television very important, and believe it should be controlled by the state. They view conditional access as something that should be for the state. And secondly, I think they are a proud nation and are taking very seriously this target they are shooting for of having 50 million homes digital in time for the Olympics. Now, even if they get 15 million, it would be remarkable. But I think they are quite clearly moving in that direction. They spent a lot of money on putting in a whole new fiber infrastructure to deliver things from Beijing to the individual provinces, and also upgraded some of their cable infrastructure. So politics and the Olympics--these 2 things are driving it.

[itvt]: Whom do you consider your biggest competitors in the Asian market?

Peled: Irdeto is still quite active, particularly in China, and then there's also Kudelski.

[itvt]: Presumably another competitive threat you face is from Sony's new Passage technology. How do you respond to that threat?

Peled: On the contrary, we see it as an opportunity, since Passage provides a way to coexist with the current Motorola systems already deployed. NDS has already implemented its Videoguard system on Passage.

[itvt]: NDS has had a number of legal problems over the past year or so--it has been sued by various companies and is also the subject of a federal investigation. How are you dealing with all this?

Peled: I've said that we will not be distracted and that we'll keep our eye on the business, because ultimately this is what counts. I think the legal challenges have no merit. The drawback is that, obviously, they cost money. But we've been able to continue outpacing our competitors, and I'm pretty proud of the fact that everyone at NDS has kept their eye on the ball, and that we have kept winning business in spite of all these issues. And as time passes, these legal things turn out to either disappear or are going our way.

[itvt]: Why do you think NDS is facing these lawsuits?

Peled: If we were not successful we wouldn't attract this attention, so it would be easier--but I'm not prepared for that trade-off. I think, frankly, there is probably also another aspect, which is that we get involved in some fights that may have to do with News Corp. and its competitors, not just with NDS.

[itvt]: Do you think you made any mistakes in strategy in the handling of any of these cases?

Peled: Well, it's too early to tell, but I think we've handled the DirecTV situation quite well: 90% of their claims have been dismissed out of hand. And our counter-claims are very solid. We are confident we will prevail. As for the rest of the litigation, Canal+ sued for a billion, and then settled for zero as part of the Telepiu acquisition. There's no question that there was no premium paid for Telepiu--on the contrary, a negative premium: it went for a lot less money than people thought.

[itvt]: Why do you think that was?

Peled: That's what it was worth. I'm just emphasizing the point that there wasn't some hidden premium. Because people are going to say that there was a premium paid for Telepiu in order to get rid of the lawsuit. But the contrary is true. So, overall, I think we're optimistic that good guys finish first.

[itvt]: Speaking of DirecTV, do you think NDS will continue to supply technology to DirecTV in the future?

Peled: Well, I think that depends on the outcome of our lawsuit and on who buys DirecTV. Certainly there's uncertainty in that area.

[itvt]: What do you think is the likelihood of News Corp. buying DirecTV?

Peled: I think News Corp. has not made a secret of their interest in buying it. They also made the point that they wouldn't overpay for it either.

[itvt]: Have you already been in discussions about how, if News Corp. does acquire DirecTV, you would transform it?

Peled: I think DirecTV could be a fantastic platform, if managed correctly. DirecTV spends a lot more money per subscriber than Sky does, and has a considerably inferior service. And there is no reason that should be the case. Absolutely no reason.

[itvt]: What changes would you make to DirecTV?

Peled: Well, I don't think it's appropriate to comment at this point. But, suffice it to say, if you look at the example of Sky Italia, what News Corp. said we would do in order to fix Telepiu and make it a successful platform is that we would use NDS technology to eliminate piracy and that we would use NDS technology to introduce a set of features that would emulate Sky's success in driving penetration and reducing churn. It's that simple. I would think that our approach to DirecTV should be similar.

[itvt]: Why do you think ITV is taking off now, at least in some major markets? What is it that's so compelling about it?

Peled: In my view, for a new technology to be adopted by consumers, there are 3 key necessary conditions: The first is that the technology must be inexpensive enough to be affordable by a mass market. The second is that the consumer actually must see a benefit--something that he or she enjoys and sees some added value from. And the third is that it has to work flawlessly. Consumers have zero patience for experiments. When we do interactive applications--wherever we're doing them in Israel or Korea or Taiwan--we always ask, "Is it affordable? Why would the consumer be interested?" If they're interested in trading stocks and they don't have something that lets them do it, we'll offer them that. It's a benefit. The EPG is a benefit: it helps them navigate, and it has to be easy to use. And the software has to be bulletproof: you can't reboot your TV every once in a while. And I think these conditions are starting to be in place: the cost is now low enough; consumers are starting to see the benefits of voting, quizzes, games or interactive sports and music, as these things put them in control and give them more choice; and we can make the service work reliably.

[itvt]: Who do you think your greatest competitors are these days in terms of interactive applications?

Peled: They vary by country; there isn't one global player. Now, Liberty Media is maybe going to try to establish such a global player, but at the moment, I think our competition consists of individual players in individual markets.

[itvt]: Do you think John Malone understands the potential of ITV the way Rupert Murdoch does?

Peled: I think John Malone is a great visionary as well as a very shrewd businessman, so I would think that he does, yes.

[itvt]: What do you think Malone and Murdoch understand that everybody else does not? Why are they both thinking in terms of building ITV as a global platform?

Peled: I don't want to speculate on that, but I will tell you this: Murdoch always says that you have to ask, why will a person spend 50 cents to buy your newspaper every day? You have to think like a consumer, because ultimately, we're doing a consumer product. I don't have any secrets beyond that.

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