Asian pioneers in the digital dream market

ASIA has typically been several years behind the West in adopting advanced information technology. But two cities in the region are leading the way in one of the digital age's most promising -- and unrealised -- consumer applications. Telecommunications companies in Singapore and Hong Kong are rolling out the world's first large-scale video-on-demand (VOD) services. Citizens will be able to plump themselves on the couch, press a few buttons and order television programs, movies, video games and other content via high-speed telephone lines, delivered whenever they want to view them.

It's a bold gamble on what has so far been a pipedream. Hongkong Telecom spent more than $125 million on its oft-delayed interactive TV (iTV) system and expects to invest four times that amount over the next few years. Customers should begin to receive iTV next month. Meanwhile, Singapore Telecom has already won 1,000 subscribers for its Magix service, launched nationwide in November. Both companies expect to do big business. SingTel projects local personal computer users will hook up to Magix at a rate of up to 5,000 a month. Hongkong Telecom is planning on a customer base of 200,000 households by the end of 1998.

They may be disappointed. Before the Internet boom, interactive TV and video-on-demand were considered very bright ideas. Telecom companies, especially, wanted to put their existing telephone networks to wider use by pumping entertainment into homes, thus siphoning customers from broadcasters, cable operators and video rental stores. But after spending millions of dollars on extensive market tests and technical trials, Western telecom operators concluded that the time was not right for VOD -- or for the package of interactive services, such as home shopping, that went along with it. While ordering movies at home was certainly convenient, customers weren't willing to pay enough to offset the massive expenditures to upgrade phone systems for delivery of high-quality digital signals. Entirely new technologies, in software and hardware, had to be devised in order to reliably serve hundreds of thousands of potential customers -- all of whom may want to order the same Hollywood blockbuster at the same time on Saturday night.

Currently, Hong Kong and Singapore may be the only two cities on the planet where VOD is economically and politically feasible. Keen to implement new information technologies, regulators sidestepped much of the turf warfare among media and telecommunications giants that has mired VOD progress in the US. Both Singapore and Hong Kong are served by big "pipes," digital telecommunications systems incorporating extensive high-capacity fiber-optic cable. Progress has also been made in complex VOD hardware and software. "The cost of the technology is easily 20 precent of what it was just five years ago," says David Yuen, regional digital commerce director for U.S. database giant Oracle Corp., which provided the software for Magix.

The two cities' biggest advantage, however, is not technical, but practical. Reaching individual homes with network plumbing reconfigured for broadband data delivery is cheaper there than almost any place else -- the relatively wealthy populations of Hong Kong and Singapore are concentrated in easily wired high-rise apartment buildings. "We are in luck in Hong Kong because of the geographic and demographic environment," says William Lo, managing director of Hongkong Telecom IMS.

Higher disposable income is probably key to the ventures' survival -- neither service is cheap. A Magix subscription runs to $16 a month plus $1.88 per hour of use. Hong Kong's iTV costs about $20 a month, and there are pay-per-view movie charges that rise to $3.80 each. Content offerings are similar, but Hong Kong residents may have the better film line-up -- iTV has distribution agreements with major studios, including Disney, Warner Bros. and Golden Harvest. Its 700-title library, which is to grow over time, will include lucrative adult movies.

Both companies conducted several years of customer research to develop their products. Lo says Hongkong Telecom interviewed more than 20,000 families. Yet the operators came to radically different conclusions on a critical issue: the in-home platform for delivering the service. Subscribers to iTV interact with their TVs. Magix is meant for PC users. The Singapore company is touting the service as a high-speed gateway to the Internet. Using a special modem and a powerful PC, Magix users can download websites 150 times faster than they can with a standard 33.6k modem. But will people watch movies on their computers? Market research firm International Data Corp. (IDC) found in surveys in several Asian cities that consumers clearly preferred to receive VOD via television. Adrian Yeow, SingTel multimedia product executive, disagrees. His company's research indicated that the PC is the best vehicle for delivering a wide range of interactive services, including Internet access.

Yet to be revealed is the answer to a more basic question: Given the range of entertainment options available to Singaporeans and Hong Kongers, do they really want another? "The number one barrier isn't price, it's lack of perceived need," says Singapore-based IDC analyst Dane Anderson. "People don't think they need this." Now it's up to Magix and iTV to show them they do.

With reporting by Andrea Hamilton/Singapore and Alexandra A. Seno/ Hong Kong