Michael Collette is CEO of Ucentric Systems, a Maynard, MA-based company which develops set-top box software that allows personal video recording (PVR) on multiple TV sets in a household. Ucentric recently announced that it will begin a field trial of its technology with MSO, Comcast, and set-top box manufacturer, Samsung, later this year (see [itvt] Issue 5.04 Part 2 5/14/03). Collette recently spoke to [itvt]'s Tracy Swedlow about that trial, about the problems he sees with TiVo's approach to PVR, about how he sees the PVR industry developing in the future, and more.

[itvt]: Michael, could you tell us a little about your background.

Collette: I'm actually a Marin County boy. I was born and raised in the North Bay, I went to college at UC Berkeley, where I studied English and Social Philosophy, with a special emphasis in poetry. After college, I had no idea what to do with myself, and ended up traveling to Japan to hang out with one of my best friends there, and teach English.

[itvt]: Do you speak Japanese?

Collette: I speak some Japanese--actually, 10 years ago I was reasonably good, but it has been some time now. Anyhow, I wound up in Tokyo doing research for a city planner who was helping the City of Tokyo design a very large new-business incubator. That was really the beginning of my career in business. I got to know this global community of people who build and run business incubators, science parks, and research parks. I later went back to school at UCLA, and then got into the satellite/pay-per-view business, working for a little company called TVN. Stu Levin, the original founder of TVN, gave me my start. I worked with him for a while, then took what I learned to Playboy TV, where I helped build what was, at the time, a fairly innovative system: it allowed people to call up and use automatic number identification--it automated pay-per-view orders for the backyard dish C- band market, and launched a whole pay-per-view market for Playboy. After 2 years at Playboy TV, I was recruited by what was then General Instrument to run the operations center for the C-band business.

Through all that, I learned how the TV infrastructure worked and I had an opportunity to study the emerging DTV world. I then started a consulting company called MediaTech Strategies, and ran it for 3 years. During that period I transitioned into strategic marketing and, eventually, into venture financing: we started helping larger companies do acquisition searches and smaller companies position themselves for investment or acquisition. I worked with Phillips and Samsung, as well as with a host of small companies. One of the companies I worked for was Comstream, which was where Bob Clasen was at the time. Bob and I later teamed up to help ICTV raise money, and subsequently we got lured in by Gary Lauder to run the company. That was when I really entered the cable industry: until that point, I had been mostly into satellite. I think you know the story of ICTV: our main claim to fame was that we really drilled some holes in the middleware industry's thick set-top box strategy--primarily by pointing out that it didn't support any plug-ins at the time.

[itvt]: What do you think of ICTV today?

Collette: I think ICTV's biggest problem is that the problem they've solved isn't one that is on anybody's priority list. Out there in Cable Land, there are 2 or 3, maybe 4 problems a year that get attention, and if you are not one of the companies that solves one of those 3 or 4 problems, you are dead.

[itvt]: So, back to your career path…

Collette: After leaving ICTV, I spent 6 months trying to relax, failed miserably, managed to found the Bandies and CTAM Silicon Valley, and ended up working at OpenTV for a little over a year. I left OpenTV really as a byproduct of its downsizing: when they were acquired, they reduced marketing and business development really dramatically. They obviously didn't need me from an administration standpoint.

[itvt]: Can you talk about how well you think Ucentric is positioned to play in the DVR market, a market in which it faces competition from larger brands like TiVo?

Collette: I think the DVR market in general is starting to rationalize and diversify. I think Ucentric is extremely well-positioned to be the supplier to OEM's, a) because we are unbranded--which means we don't bring a lot of baggage, and b) because of the nature of our technology. We built it to be very modular, with lots of carefully thought-through abstraction layers. So, for us, moving from hardware to hardware is not hard. Moving from EPG to EPG is also not hard. We are well-articulated to live within different types of middleware and OCAP software environments. This mobility--our deployability in diverse environments--is one of our greatest strengths, and it is something that companies like TiVo and ReplayTV (or D&M or whatever ReplayTV is called now) don't do very well at all. That's because they built their product originally as a company-specific stack that had to stand on its own. It is what we call a "monolithic" stack: it just doesn't deploy easily. When I was at OpenTV, I tried to license the TiVo middleware and I couldn't do it. It wasn't compatible with the OpenTV system.

[itvt]: Why do you think they have taken this approach that you criticize?

Collette: I really think that TiVo has a view that they have the right answer, and they want people to do things their way. I think it is a cultural thing over there. We have the same issue with networking: we can't network their software either. I also think that another significant problem facing TiVo is that in the retail DVR market, you are seeing a lot of new entries by first-tier OEM's with much bigger budgets and larger shelf-space than TiVo.

[itvt]: Why should cable operators be interested in your DVR/PVR technology as opposed to TiVo's?

Collette: Well, we have had really broad interest from cable operators, and it's really just a question of getting a few pieces in place to be able to go to market. I have not heard any interest in TiVo on the part of cable operators: I think they see TiVo as a retail brand that wants to have a brand presence with their customers--so that is a big problem. I think also that TiVo's financial objectives are a problem for the cable operators: they are trying to get recurring revenue, monthly fees, out of the operator, whereas we charge them a one-time, out-of-the-box fee that is really not that large. The net value of our product compared to TiVo's is incredibly competitive financially. The operators don't want to incur costs if they don't have to, and I don't think they need the TiVo brand at all to be competitive. The largest-shipping DVR in the US is actually a fairly mundane product from EchoStar. It is not a high-feature product, it is pretty straight-forward, people love it, and it works just fine. The operators have learned from that. Also, we have not spent a lot on personalization: we think it is neat but we do not think it is necessary.

[itvt]: What features do you think are necessary in a DVR/PVR product?

Collette: Honest to God Tracy, I really think that basic DVR functionality is still a revelation for the average consumer, and will be for a long time. So pause, fast-forward, rewind, one-touch record and the ability to go to a list of things recorded and play them--these by themselves are an absolute revelation for the 102 or 105 million households in the US. If you add to that, it's too much. When I look for places to innovate in DVR technology, I look more at enterprise-level stuff, at ways to bring the profitability of the system up and bring the marketing and advertising and the transactional power up. I am not really looking into improving the consumer side of the experience right now. That will come in the future, and I think there will be a roadmap to it. But I just don't think that is where the point of competition is.

[itvt]: Could you elaborate on where you think the "point of competition" is and on how you would improve the profitability of DVR/PVR technology?

Collette: In our DVR business, we drive a couple of key competitive points with our prospective OEM customers. First, we think our business-to-business focus helps us a lot. We don't have a retail brand. We don't compete with our customers with a retail service. And our software modularity and portability reduces the cost and time-to-market to implement in a multi-vendor software environment. Second, the extensibility of our DVR application to support multi-TV DVR provides us with significant competitive differentiation. Third, in the market for DVR software, we have to be very, very price-competitive.

With respect to profitability, we think DVR is quite profitable today. The $5-12 per month that operators are currently able to charge is the largest new source of free cash flow in the last few years. Combined with the very large economic value of reduced churn, DVR is a very substantial win for operators. In the future, we see 3rd parties rolling out additional applications and services for incremental monthly fees. I can't tip our hand too much, but we strongly believe that the business cycle for this platform is still just getting started.

[itvt]: As you develop your technology going forward, do you envision working with 3rd-party developers, or do you plan to do the work in-house?

Collette: I promise you we won't try to do it all ourselves. No way. We will take a few pieces of the market that we think will be interesting to develop ourselves, but there are going to be aspects of the system for which--simply by virtue of the relationship with the operator--we absolutely have to be open to 3rd parties. The last thing a customer--whether he is a cable guy or whatever--wants me to do is to try and do it all. He wants me to focus on my bit, and then aggregate the system himself.

[itvt]: You recently announced a trial of your multi-TV PVR technology with Comcast. Could you tell us a little about the trial.

Collette: Sure. It is actually a fairly extensive trial. What we are doing is not only demonstrating our DVR and DTV services, but showing that our TV networking system can do lots of other stuff. So, for example, we are going to try out our home jukebox application--which, I should point out, runs under very, very robust security, much more intense security than the Internet, and which, as a result, should be really successful attracting content.

[itvt]: Does your system allow end-users to skip commercials?

Collette: We offer rewind and fast forward, but we don't have a 30-second skip button. It would be easy to add, but we don't have it. Our system is more TV industry-friendly than most other platforms.

[itvt]: What are the major selling points for your technology?

Collette: I can tell you what I think our value proposition is for cable operators, or for satellite operators too, for that matter--we are not tied to one or the other. It is fairly clear that PVR technology is quite successful at attracting and--more importantly--at keeping subscribers. We think what we offer is a much better experience than single-TV PVR. It is not just PVR on your TV, it is PVR all over your house. So you can actually move video sessions around to get the same experience wherever you go: the one video library, the one set of season passes. You don't have to remember which server you stored something on or where you set up your season pass. I actually have 2 DVR's in my house today, and it is a pain in the ass. So, if I am watching a football game upstairs and I want to go downstairs and fall asleep when I'm watching it, I can't do that with my single-TV DVR. With our system, you just send the show down there and go pick it up. So it is clearly a lot better than a single-TV DVR, and as a result it gives the company that deploys it a source of real competitive advantage. Moreover, our system actually brings broadband and TV together on a single platform in the home. So now you can sit in front of your TV and stream select MP3 files to your home stereo, even though they are actually on your PC. Plus, if you have ever tried to do wireless home networking, you know it is difficult: we offer a whole-home broadband backbone, that supports speeds of up to 27 Mbps around the house. So in every room you have great broadband access on your cable modem.

[itvt]: When you send a show from your TV upstairs to your TV downstairs, how long does that take?

Collette: It's instantaneous and frame-accurate. We literally just send the session to the other client, so that the hard drive can stream up to 100 Megabits of video, right? So we are sending about 4 Megabits per second. So what we do is, we just start a new session from the frame where you hit pause on the client in the room that you send it to. Actually, you can watch it in the first room as well. You can have multiple sessions off the same video file at different points.

[itvt]: How much exactly is this trial costing Comcast per home? Roughly how much do you think they will charge their subscribers for it if they decide to roll it out commercially?

Collette: I can't speculate about how Comcast will bring it to market, but I can tell you that, in general, Ucentric's economics are as follows: the only hardware that has to be added to your basic DVR is a networking chip, which will cost from $15 currently to about $5 in the near future. So you have a $15 increase in the bill of materials for the DVR that is functioning as a server, and the client devices will cost, if sold in retail, around $150, and, if supplied by the MSO's, under $100 to start--but their price will head down rapidly. So we would expect the bill of materials for the client to be under $70 per subscriber.

[itvt]: And how much do you plan to charge your customers for your software?

Collette: That's confidential.

[itvt]: I know SONICblue was at one point considering rolling out portable devices that would take clips off your DVR. Is that kind of technology of interest to Ucentric at all?

Collette: SONICblue was oriented towards delivering to the consumer a certain flexibility with media, and that's what got them into a lot of trouble with Hollywood. I think they had a certain interest in redlining the application and, in many respects, disrupting the media content with their product. There is a point when we will allow that, but it is going to be a point when DRM and copy-protection can be fully extended to portable devices.

[itvt]: Could you explain your philosophy of the TV and set-top box as a home networking platform.

Collette: We really believe that the PC-centric view of home networking is somewhat anemic: it doesn't include networking video around the house, and we don't think it is very likely to do so going forward, because we don't think the TV franchisee is going to want to flow through the PC. On the other hand, home networking based on TV appliances and set-top boxes can do everything the PC can do, but it can also do video. So what we are asking is that when you think about home networking, you separate PC-centric data- and audio-networking from video-centric, full-home networking, and then decide which one you think is going to prevail. We are running at 27 up to 100 Mbps around the house, whereas the PC's out there are trying to do 802.11b wireless.

[itvt]: Though one advantage of PC-based systems is that they allow people to personalize their media.

Collette: That is a great use for the PC, and we think that is where the PC fits in the home media economy: processing your media, creating slide shows, adding audio to your video recordings--all that stuff is a great use for the PC. But the PC as the broadband media gateway for TV, no…ain't going to happen.

[itvt]: Do you have any inkling as to whether Microsoft might move into this space?

Collette: I'm sure they want to. Windows CE has not done real well, but I think MSTV is going to make a dent. I don't think they are going to dominate the space, however, for political and technical reasons. I just think they are going to make a dent.

[itvt]: What do you think will be the impact of interactive TV on DVR technology?

Collette: I think, in general, ITV could create a real headache for the cable operators. I think Rupert Murdoch's acquisition of DirecTV should give the cable industry a lot to think about when it comes to ITV. News Corp. knows how to use enhanced TV for competitive advantage. The Fox organization has tremendous leverage in sports in the US, and DirecTV has got "Sunday Ticket" and other advantages. As for ITV and enhanced TV on a DVR platform, if you are going to record a show and the show is enhanced, you'll want to record the enhancements. The problem is, most of today's ITV is live, so when you go back to watch it, the show application might be there but the data is not. It is a question of the person who is running the franchises: do they want to record the application and do they want to keep the back-end system that is supplying that application up all the time? Are they going to supply old data, new data? There is an issue there. What about the multi-camera applications--do you record all 8 channels? There are a lot of tricky technological questions to answer, but most of the questions here are questions of policy. The answers are not easy or obvious.

[itvt]: What, in your opinion, is the next big challenge for the PVR industry?

Collette: The biggest question right now is how to make the transition from free IP media to the identification and implementation of a good poly-codec DRM solution that is implementable in the home but also out at the service provider level--so that we can really support secure IP media services. That, and just sorting out the details of content protection, will be the main challenges going forward.

[itvt]: One last question: which ITV systems do you have at home?

Collette: I actually have 2 DirecTV/TiVo's in my house today. I am going to be implementing the Ucentric system in June or July: the same system we'll be trialing with Comcast.

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