Conference 7.286::digital

2579.0. ""Digital" isn't what "Digital Equipment" does" by SDSVAX::SWEENEY (You are what you retrieve) Wed Jul 14 1993 14:31

    To see why many consumers will not be able to connect "digital" with
    the products and services of "Digital Equipment Corporation", read on
    and see how the corporate world is defining "digital".
    
    
Vague New World:
Digital Media Business
Takes Form as a Battle
Of Complex Alliances
---
Partnerships Across Industries
Coalesce in Chaotic Race
To Establish a Market
---
A Pattern Akin to `Keiretsu'
----
By Stephen Kreider Yoder and G. Pascal Zachary
Staff Reporters of The Wall Street Journal


To Martin Davis, chairman of Paramount Communications Inc., it seems as if a
floodgate opened some time in the past month. Everyone wants to talk about
making a deal with his movie-and-publishing company.

The story is the same at Apple Computer Inc., which recently held
simultaneous and very private talks with American Telephone & Telegraph Co.
and Time Warner Inc. about possible joint investments.

James Clark, chairman of Silicon Graphics Inc., says that since his computer
company signed a pact with Time Warner, he has been bombarded with calls
from other cable operators. And at McCaw Cellular Communications Inc., the
nation's largest cellular-telephone concern, Chief Executive Craig McCaw
says, "I'm in alliance shock." He adds, "Even a month ago, the rage for
alliances hadn't hit us too hard."

Shock is a common feeling these days among leaders of five of the world's
biggest industries: computing, communications, consumer electronics,
entertainment and publishing. Under a common technological lash -- the
increasing ability to cheaply convey huge chunks of video, sound, graphics
and text in digital form -- they are transforming and converging, albeit at
different speeds. The newsletter Digital Media recently compiled a list of
just those alliances formed to foster interactive television; it went on for
six pages of small print.

On the surface, the pell-mell rush for allies looks like chaos, but there is
a clear pattern underneath it all. These companies, betting on the emergence
of a vast digital industry, are jockeying for position in what they expect
to be its three distinct segments:

-- The content of digital transmissions, such as databanks, consumer
services, music, books and movies;

-- The delivery of information over telephone lines, cable TV, satellites or
other wireless networks;

-- The manipulation of information with operating software, personal
computers, hand-held communicators, TV controllers and the like, to let
consumers filter and customize the flood of data to fit their needs.

The right combinations of content, delivery and manipulation, company
strategists believe, will create the hot products and services of the
digital age. While much attention is focused on interactive TV -- movies on
demand, home shopping -- and on multimedia machines such as CD-ROM players,
media executives hope the digital world will be much vaster. Their ultimate
aim is to allow consumers to obtain anything electronic, at any time, in the
office, at home or on the road, through an abundance of devices and
networks, wired and wireless.

The deal makers concede that they don't know which products and services
could turn into big markets. "People know what the skeleton looks like, but
they don't know what the muscles look like," says Frank Biondi, chief
executive of cable operator Viacom Inc. Intel Corp. Chief Executive Andrew
Grove says that when speculating about what will be a hit, "I don't know
what the hell I'm talking about, really. . . . We'll know the truth when we
get there."

But many executives say they are compelled to go ahead with alliances
precisely because future markets look so foggy. In an uncertain industrial
atmosphere, they say, alliances can help to establish technical standards
and spread costs and risks.

This inexorable drive toward alliances may even amount to a new chapter in
the development of capitalism. Since the decline of the great industrial
trusts 60 to 80 years ago, corporate leaders have tended to believe that
their company's success lay in their own hands; the most powerful
corporations have built their empires through acquisitions and internal
expansion. Today, though, they are looking to shared goals and common
ownership -- at least as long as their digital bets need hedging.

In this vague new world, corporate strategists see that their companies'
success depends increasingly on the quality of their allies. Inevitably,
this will spawn "oligopolies," says Lewis Platt, chief executive officer of
Hewlett-Packard Co. Adds Mr. McCaw: "You sort of see the point where the
world will team up into two, three, maybe four global alliances over the
next five years."

Two potentially powerful alliances are being formed around Time Warner and
around Tele-Communications Inc., which are the nation's largest cable
operators and own interests in numerous entertainment and publishing
properties as well. U S West Inc., a regional phone company, plans to invest
$2.5 billion in Time Warner, with a hunk of the funds earmarked to speed
interactive TV services and the laying of fiber-optic cable. Silicon
Graphics has agreed to provide microprocessors and graphics software for a
Time Warner test of interactive TV. Time Warner also has accepted equity
investments from Itochu Corp. and Toshiba Corp., which will work with yet
another Time Warner partner, ScientificAtlanta Inc., to build cable-TV boxes
with computing abilities.

TCI, meanwhile, has close ties to cable programmers through its interest in
Liberty Media, a TCI spinoff that owns parts of programmers like Home
Shopping Network and the Discovery Channel.

TCI and Time Warner remain rivals, but the enthusiasm for partnerships is
such that their networks of allies are beginning to overlap. Both have
investments in Turner Broadcasting System Inc.; Microsoft Corp., the world's
biggest software company, is considering ways to join up with both. In
April, the U.S. unit of Japan's video-game maker Sega Enterprises Ltd. said
it would team with Time Warner and TCI to offer games through cable systems.

Microsoft has its own alliances with Intel, the world's largest chip
company, and Compaq Computer Corp., the third-biggest personal-computer
company, to develop such things as digital "smart" telephones, personal data
communicators and digital converters for interactive TV. AT&T is providing
another powerful axis for cross-industry deals, currently managing 23
separate arrangements with other companies just in interactive TV. Apple,
AT&T, Motorola Inc. and the three biggest consumer-electronics companies --
Sony Corp., Matsushita Electric Industrial Co. and Philips Electronics NV --
own equal parts of General Magic Inc., which has the vaulting ambition of
developing a common communications language for the digital world while
developing software for individual partners' wireless personal communicators
and other devices.

These big players are "octopuses all with their hands in each other's
pockets," John Malone, TCI's chief executive, said at a recent multimedia
conference. "Where one industry starts and the other stops will be hard to
decide."

Time Warner, for instance, has big plans for piping interactive or enhanced
programming through its cable system, but needs help building a better
delivery system, a powerful computer network and the operating software that
will allow consumers to surf effortlessly through 500 digital channels.
Enter U S West, Microsoft, Silicon Graphics and a horde of other helpmates.

"There are really no technology barriers at this point," says John Sculley,
Apple's chairman. "It's all about alliances and investment, not about
technology." He recently resigned his post as chief executive to concentrate
more intently on alliance-building.

The emerging alliances in the digitalinformation industry are likely to
become a looser, more American version of the powerful keiretsu -- the
groups of corporations, held together through cross-shareholding, that
dominate Japanese industry. Already, companies like Time Warner are staking
their futures on such financial clans: "We decided to build the company not
by the traditional macho American strategy of acquiring someone and
controlling them," says Gerald Levin, Time Warner's chief executive. Rather,
he says, the company's strategy is to form partnerships through equity deals
that are tantamount to "blood exchanges."

In contrast to their Japanese forerunners, digital keiretsu have a protean
character caused by the shifting and sometimes conflicting loyalties of
their members. Some are loosely tied, not bound by equity investments. In
other cases, old-fashioned mergers are just the ticket: Electronic retailers
Home Shopping Network and QVC Network Inc. said this week that they will
merge in a $1.4 billion stock swap, a transaction that will put control of a
budding cable behemoth in the hands of three powerful partners: TCI's Mr.
Malone; QVC Chairman Barry Diller; and cable operator Comcast Communications
Inc.

Many alliances will vanish over time, says Intel's Mr. Grove, because their
objectives aren't always clear. "I've had my share of strategic alliances
that were crisp and clear, and even then the overwhelming majority become
dysfunctional," he says.

As in Japan, the question is: When does a digital keiretsu become a cabal?
Many companies fear being left out in the cold. What if, say, U S West gets
preference in developing delivery systems for Time Warner because of its
Time Warner investment, or Microsoft gets a lock on developing operating
software for interactive TV? Should network operators show a bias toward the
content or computers that they themselves own, it could spark conflict that
would sap resources and harm consumers, warns Michael P. Schulhof, chief
executive officer of Sony of America, who is concerned about the
"monopolistic tendencies" of some cable and telephone companies.

Last week, Rep. Edward Markey of Massachusetts, chairman of the House
subcommittee on telecommunications and finance, sent a letter to federal
regulators warning that a cable alliance between TCI, Time Warner and
Microsoft could "close the market to competitive entrance."

Some of the large players, though say they don't want to enter every domain.
AT&T, whose tentacles extend across computing and wired and wireless
telephone, says it won't try to deliver cable TV into homes, even though it
may have the capacity to do so. Robert Allen, AT&T's chairman, even rules
out the purchase of a cable company. "I'd rather be a supplier of switching
technology to the whole industry rather than trying to figure out which
cable company I'm going to offend," he says.

While the relaxation of antitrust rules has helped spawn alliances,
regulatory barriers for cable and telecommunications companies still exist
and could hamper the convergence of industries. Government policy will
"shape the pace of the ongoing transformation" of information industries,
says Alfred Sikes, former chairman of the Federal Communications Commission,
a crucial U.S. regulatory body, and chief of Hearst Corp.'s new media unit.
    
Though the rise of digital keiretsu may sound ominous, it could be good news
for the U.S. economy. Just as the computer revolution created demand for new
products and services, the digitization of information could propel a new
wave of development. For instance, Motorola plans to spend $3.4 billion
building a digital phone and data network. It will require scores of
advanced satellites, providing significant new business for Lockheed Corp.
and Raytheon Corp., both hit hard by the shrinkage of the defense industry.

Home-grown keiretsu also are likely to further hone America's growing edge
in global advanced-technology markets, because the U.S. is "the most
innovative country in this area and its companies have the best chance to
export their expertise abroad," says Michael Dornemann, a German national
who heads the music business of the German media conglomerate Bertelsmann
AG.

Time Warner's deal with U S West is a good example of how the keiretsu
strategy works. The Baby Bell gets a 25.5% interest in Time Warner's
entertainment unit, providing it with a chance to participate in potentially
hefty, unregulated profits. Though critics say Time Warner is giving away
too big a share of its most valuable assets and mortgaging future cash flow,
the company gets a much-needed $2.5 billion to expand its fiber-optic cable
network and ease its heavy debt load. Both companies will provide technology
for an experimental interactive TV service in Florida early next year.

Between them, the two companies span the programming and delivery sectors,
with interests in cable TV, movie and music production, magazine publishing
and regional telephone service. The alliance underscores the perceived
importance of marrying programming with a route into the home. But both
companies recognize that, despite their immense scope, they need to assemble
even more pieces, particularly the parts needed to manage digital networks
and manipulate interactive programs.

Time Warner, hungry for more software expertise, is talking about deals with
archrivals Apple and Microsoft, on the assumption that one or the other is
likely to triumph, so why not bet on both. U S West, meanwhile, envisions
closer ties to makers of movies, software, chips and computers. "By
participating in all levels of the digital business, you know where to make
money," says Chief Executive Richard McCormick.

TCI, which has behaved like a digital keiretsu for many years, has entered
into an agreement with Time Warner to develop standards for the software and
hardware needed to support interactive TV. In that role, it is also talking
with Microsoft. TCI is the nation's largest cable-TV operator and owns
chunks of Turner Broadcasting. TCI has alliances with AT&T and U S West as
well as its cable rivals.

TCI's chief executive, Mr. Malone, has long recognized that a delivery
system isn't worth much without something to put through it. Mr. Malone
describes his business as electronic distribution. "In cable," he said at
the recent multimedia conference, "what's important is to have enough
service so people subscribe. . . . I'm interested in having a lot of
products on the shelf." He explains that if he doesn't invest in some
programs or services, they might not exist, detracting from the appeal of
the information highway he is spending lots of money to create.

At the same meeting, Apple's Mr. Sculley said the coming industrial order
will follow "the model which John Malone has pioneered. . . . Not
necessarily owning layers, but participating in different parts of the value
chain."

Paramount, for instance, is positioning itself to exploit as many parts of
that chain as possible -- and to make itself attractive to other
alliance-seekers -- by converting its movies, textbooks and other "software"
into digital format and by buying the digital rights to any new material it
acquires. The company has signed deals to put its movies on compact disks
and to distribute them over a satellite system planned by General Motors
Corp.'s Hughes Aircraft Co. unit. And it is supplying samples of its digital
wares to phone companies and a multitude of other firms groping for ways to
enter the digital world. "We are there with our product wherever there is a
new technology," says Mr. Davis, Paramount's chief executive.

Assembling the different pieces is so complex and expensive, and the
potential markets are so huge, that extensive alliances are needed even
within one digital arena. For example, Kaleida Labs, a joint venture of
Apple and IBM, has an alliance with Motorola and ScientificAtlanta to
develop the digital converters and networks needed to manipulate video,
voice and data over interactive TV. The two behemoths of the
personal-computer industry, Microsoft and Intel, have their own alliance
with General Instrument Corp. to do much the same thing.

Intel and Microsoft, which would rather ally than buy, are trying to extend
their hegemony over PCs to cable TV, office equipment, telephone exchanges
and personal communicators. In pursuit of these goals, Microsoft, with $2
billion in cash, even seems willing for the first time ever to cement
alliances with investments.

"We could get into a situation," says Microsoft Chairman William Gates III,
"where someone is doing something super capital intensive, and they said
bring software expertise but also help finance it."

One potentially stressful requirement of American-style keiretsu is the need
for competitors to cooperate in one digital arena while banging heads in
another. TCI, for example, wants to use the extra capacity on its cable
system to offer telephone and data services in competition with the Bell
operating companies. Time Warner wants to do the same thing. Yet both Time
Warner and TCI are allied with telephone companies in other digital
projects.

U S West, in turn, has allied with Time Warner in the U.S., but with TCI in
England. "You very much have to accept that you are going to compete against
a company in some places and cooperate in others," says Chuck Lilly, the U S
West executive in charge of the company's cable, cellular and publishing
units.

Within the new groups, the most profitable companies often feel uneasy
because they know that their fellow members, in their heart of hearts, lust
after their businesses. Some manufacturers and delivery companies, although
not all, would like to expand into programming, which can be sold over and
over again and is therefore potentially the most profitable arena.

"The word greed can be substituted for convergence," says John Evans, chief
of the electronic media unit of News Corp., a publishing and movie-making
giant. "It's the hardware companies thinking: `I'm losing my profits. Where
can I find someone else's?'"

One of the most interesting studies in uneasy cooperation among archrivals
is the General Magic consortium. Two of its investors, Motorola and AT&T,
are foes in wireless networks and devices, while three others, Sony,
Matsushita and Phillips, fight it out in consumer electronics. All six
owners, including Apple, plan to sell handheld personal communicators that
provide message exchanging, databases, electronic shopping and other
services to consumers.

Preventing the natural suspicions of rivals from breaking General Magic into
pieces is tough. Engineers at the venture work on future products that will
come from all of the six major backers, so secrecy is crucial. When the
backers visit General Magic's premises in Mountain View, Calif., they cannot
enter a locked design wing, where future products from all the alliance
members lie in plain view on workbenches. Even with these safeguards,
jealousies abound.

"Every day we get reproaches from one alliance member or another, suggesting
that we perhaps are paying too much attention to a rival's product," says
Joanna Hoffman, a General Magic vice president.

But General Magic and the Kaleida alliance between Apple and IBM are
considered vitally necessary because their main job is to create common
languages allowing digital devices to talk to each other. General Magic
hopes its communications software, Telescript, will be the lingua franca of
networks, allowing any device to talk to any network or any other device.
Kaleida hopes its communications software, ScriptX, will be a standard
allowing any CD-ROM device to play any kind of CD. Without such standards,
the markets for networks and devices will be fragmented, driving up their
costs and retarding their growth.

Even worse things can happen if a digital alliance doesn't have the right
mix of partners. An ambitious venture launched in May by IBM and the
videostore chain, Blockbuster Entertainment, has come to be seen as a
textbook case of how not to form a digital keiretsu.

The two companies said they would launch a computer network that would store
and down-load music CDs on demand, at Blockbuster's stores. The motives of
IBM and Blockbuster were sensible: Automate the expensive problem of
stocking CDs, to avoid the problem of customers walking away empty-handed
because they can't find the disk they want. IBM was interested because the
solution requires high-end computers -- its speciality -- that can deliver a
copy of any one of thousands of CDs in a few minutes. Blockbuster, whose
huge video-rental business is potentially threatened by planned cable and
telephone ventures that dispatch movies directly to the home on demand, is
eager to diversify into music retailing.

To both companies, the proposed computer-based system seemed like a winner.
But they failed to get the approval of the most influential music producers.
This select group, which includes Sony and Time Warner, balked at
cooperating, complaining that their CDs would too easily be pirated and that
producers would lose control over packaging. The project is considered
stillborn.

Even membership in a seemingly powerful group is no guarantee of success,
because no one knows at this early stage which standards and which products
and services will prevail. It is "almost impossible to pick the `right'
alliance today," says Hewlett-Packard's chief, Mr. Platt. Some companies
seem to be trying to join whatever keiretsu is forming just out of fear that
they won't back the right horse. "Uncertainty is forcing companies to hedge
their bets," says Mr. Schulhof of Sony of America.

It is an uncertainty that will have to be tolerated for a long time, because
even the first wave of digital products, such as interactive TV and personal
communicators, aren't expected to sell well for at least another three to
five years, if then.

"You think victory is over the horizon," says Microsoft's Mr. Gates. "But
I'm sure that we and others will be striving toward it for the rest of the
decade."

    
    re. .0
    
    383 lines of text, 31 occurences of "digital", not a single tie to
    Digital Equipment Corp. Staire decisis (sp), the case speaks for 
    itself.
    
    	fred deady

    re: .0 .1
    ...yes, and it reads like a veritable "who's who" in computers,
    media, and communications.  Oh, well...
    
    

    Many have been saying that the brand name 'Digital' was lost in a
    'Sea of Digital Watches' years ago.
    
    Unlike many companies who could find themselves in the same position
    we have a strong alternative which is used both widely internaly and
    externaly and thats ........DEC
    
    In my opnion the last 'debate' over the branding name made the wrong
    decision, and missed the moment.
    
    -Dom

    QED

    
    
    Since I work closely with the telecommunications and cable TV business
    units, I can tell you that we are most definitely more involved than
    .0 would lead you to believe.
    
    The SAD fact, as Pat demonstrates is that we seem to be doing a great
    job keeping this a secret!
    
    /ljj
    

So why aren't we involved in any of these new "digital" alliances?
There are (or at least were) people here trying to get us involved.

It isn't necessarily a bad thing to have a somewhat generic company
name.  For example before the merger, you could use the word "Time"
and no one would be sure you meant a specific company.  Of course, 
the name of their primary product, "Time Magazine", isn't at all 
generic.  And what is our primary product?  "Digital computers" --
who identifies that phrase with us, there's hardly any other kind
of computer except digital ones!

Not that I'm complaining about "Digital" as our brand name.  If there
really are obscure legal reasons why we can't use DEC, then there
is not now a lot of choice.  But it's an uphill battle.  Maybe we
should change our name to "Alpha Computers".  Maybe if the semiconductor
operation is spun off, it should take a name with "Alpha" in it...

	Ah, well,
	Larry

>>  Not that I'm complaining about "Digital" as our brand name.  If there
>>  really are obscure legal reasons why we can't use DEC, then there
>>  is not now a lot of choice.  But it's an uphill battle.  Maybe we
>>  should change our name to "Alpha Computers".  Maybe if the semiconductor
>>  operation is spun off, it should take a name with "Alpha" in it...

I thought it was the other way around ... "DEC" belongs to us, "Alpha" belongs
to another company.  The decision to use "Digital" instead of "DEC" appears to
be strictly a marketing one.

There is a note somewhere that says that for obscure legal reasons,
eye-bee-em and tee-eye can be used, and so could dee-ee-cee, but since
DEC is pronounced deck instead of dee-ee-cee, it can't be used.  No,
I don't understand, and I'm sure I don't want to.  

About Alpha -- we cannot use Alpha by itself as a trademark, since
Alpha belongs to other people in some countries and is not trademarkable
at all in others.  However, we CAN use Alpha as a part of our trademark:
e.g., we've trademarked both "AXP" and "Alpha AXP".  So I presume that it 
would be fine to call a company "Alpha Computers" or "Alpha Silicon", 
for a couple of examples.

	Enjoy,
	Larry

    Well, Digital (that is to say, us) *IS* getting at least some press
    regarding our alliances in the "digital TV" era.  In an article in
    Video magazine, "Digital Equipment Corp." is listed as one of
    "eight key architects" of a new direct-broadcast satellite TV
    service called DirecTV.  Others involved are Hughes Communications,
    Thomson Consumer Electronics (RCA/GE consumer), Sony and several
    other lesser-known firms.  However, our involvement is that we
    "operate and manage the DirecTV national billing center."
    
    					Steve

    The "national billing center"... and that unique contribution will make
    us much beloved by the digital generation if it gets Digital's logo on
    the stationery.