Advertising Key to Low-Cost Internet Set-Top Box

Hoping to capitalize on the explosive growth of broadband Internet in South Korea, a number of companies launched television-based Internet set-top boxes at the Comdex Korea trade show here this week, but one stood out for its unusual business model.

Customers of HomeTV Internet can rent a set top box from the company but -- and this is what differentiates the offering from its competitors -- users can earn credits towards the cost of the service by watching advertisements and even turn the credits into cash.

The market for set-top box devices is potentially large, said Jang Wook Lee, president of HomeTV Internet. He said the company has already installed 10,000 set top boxes and has 150,000 people on a waiting list.

With around half of South Korea's 44 million people living in clusters of apartment blocks, broadband Internet connections over cable and ADSL (Asymmetric Digital Subscriber Line) have caught on fast because of the ease with which large numbers of people can be wired to high speed networks.

The latest government figures show 1.8 million homes were connected to broadband networks at the end of July -- a figure that puts the nation on par with the much larger U.S. market. [See "Korea Sees Rapid Growth in Broadband Adoption," August 1.]HomeTV Internet's set-top boxes are not tied to any particular broadband system. They include a television tuner unit that simply pulls signals, either off the air or from a cable TV connection, and combines it with an electronic program guide (EPG) and other systems provided through the broadband network by servers at the company.

In addition to the EPG, the company can offer viewers additional information to back up programming, such as statistics and news for sports teams, and a host of other interactive services from video on demand to MP3 music files, video chat through an optional camera and even an Internet telephony service.

Users can pay for the service by watching advertisements. A subscriber with the top-end iSet Plus box needs to watch 15 advertisements a day to pay for the service. These advertisements are not broadcast to everyone, like conventional television, but require the user to click on banner ads or select them from a list -- a system that offers advertisers a more targeted audience.

Should users watch more than 15 commercials per day, their accounts are still credited with the additional money, generally 100 won (around 10 US cents) per advertisement, which can be transferred onto a smart card. The card is compatible with the Mondex electronic money systems, of which several are on trial in Seoul, and used as electronic cash to purchase products in the real world thus encouraging users to watch the commercials.

The ad-driven business model even extends to the video-on-demand service. Users have the choice of paying to watch a movie, like a conventional pay-per-view system, or watching it for free. The latter displays the movie in a box around one half the size of the screen while commercials run in a smaller box and banner ads cycle around the lower area of the screen.

The number of advertisements that need to be watched each day to pay for the service depends on the set-top box model being used.

Users can choose from one of three set-top boxes. The top-of-the-range iSet Plus is based on an Intel Corp. Pentium II processor running at 433MHz running the Windows 98 operating system with Internet Explorer. With 64M bytes of main memory in addition to a 15G byte hard drive and a DVD-Video drive, the box also includes an emulator for Sony Computer Entertainment Inc.'s PlayStation game software allowing the box to double as a games console.

The company's iSet Mercury, the mid-range model, comes equipped with a Pentium II processor and runs an embedded version of Linux with Netscape Navigator 4.3.

The system also features 64M bytes of main memory. At the low end, the iSet Venus is based on a StrongARM microprocessor, runs Windows CE and Internet Explorer, and has 32M bytes of main memory.

All three devices are designed for use on cable Internet, ADSL or Ethernet networks and feature remote controls and wireless keyboards.

Lee said he sees the company making the majority of its money not from the advertising service but from additional services such as home shopping and other electronic commerce offerings.

With deployment already underway in its home market, HomeTV Internet is now looking overseas. The company has already signed a deal in Hong Kong with Chinadotcom Corp. and in China with Star TV's Phoenix Channel. Lee said the company is also in discussions with companies in Japan, Taiwan, Thailand and the U.S. about exporting the hardware and business model to those markets, but declined to be drawn on the identity of the parties.

By the end of this year, Lee hopes to have cleared the current backlog of customers and have 300,000 people using his system -- an ambitious target given his prediction that the entire Korean market will have 500,000 Internet set-top box users at year's end.

HomeTV Internet, in Seoul, can be contacted at +82-2-6336-4000, or via the Web at http://www.home.co.kr/.

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