It's 2000 and America's love affair with television has heated up. No more surfing through a myriad of stations in search of compelling content; it's an era of intimacy where content comes to consumers at the time and date that they want it, based on entertainment and information preferences they've communicated to their Internet- television service providers. Consumers can choose to receive, say, their news in the morning, sports scores and stock market results--relative to personal portfolios--after work and an entertainment roster in the evening that lists the shows or Net games they're most likely to enjoy.

And while this personalized approach to media represents huge opportunities for financial services companies, among others, to develop a mass consumer following and to market and sell product to more people than ever before, the key here is that the Internet- television service provider is responsible for creating the context in which Americans will view the world as it relates to them. These providers, in effect, determine what information and entertainment gets in and what doesn'toa frightfully powerful position, some say, but arguably necessary considering the escalating amount of information and entertainment pouring into TV sets. And if banks find this role of "context provider" daunting, it's even more so with Microsoft chairman Bill Gates defining it. Gates is up to his eyeballs in the infrastructure and content development of this medium.

Microsoft's approach to Internet-television has been like Europe's invasion into the New World. The media industries were going about their business, operating as they have for years. Gates sails in, and the world is changed forever. Today, Microsoft and NBC are broadcasting news together via cable TV and the Internet. The software giant is producing/publishing advisory content on-line, helping cyber- citizens decide how to invest their savings, how to buy their cars, where to travel and what movies to see. Even now, the Microsoft Investor Web site is charging a subscription fee to access historical financial data, analysis tools and proprietary articles. Microsoft's move to acquire WebTV for $425 million in hopes of delivering the Internet to television screens throughout the country represents the first significant settlement in the New World medium and is the beginning of what one day could be an empire of Internet-television content development and distribution services. Advancing this WebTV objective, Microsoft is now developing its own push technology--arguably based on what it's learned from its relationship with Pointcast--so that its content providers can Webcast to individual consumers. Further blurring the lines between Internet and television, Microsoft has developed "Broadcast Architecture for Windows," which will ultimately enable content providers to combine full-motion video with HTML-based Web pages, local scripting and user controls for interactivity, creating what the industry calls "enhanced television." And now to further drive the convergence of television and the Internet as well as address the current Net bandwidth shortage, Microsoft is investing $1 billion in Comcast Cableoa shrewd investment say analysts who contend that the cable television system is optimal for point-to-point delivery of broadband Internet services. Bill's Payments Play

Microsoft is engaged in a full-scale, all-out effort to drive the development of Internet-television's infrastructure and content such that any time a consumer and service provider connect via a Microsoft pipeline, Microsoft gets a piece of the action. Some call it a referral fee; some call it a commission or a toll. Call it anything you want, but know that this is Microsoft's stake in the "payments" business. "Microsoft doesn't want to have the actual bank accounts; they want to control the pipes that connect everything together," says Lee Spirer, principal in Booz, Allen & Hamilton's financial services group. "(Microsoft's) thinking in a more broad way, potentially to become an intermediary. Because (Microsoft) could do (the infrastructure) that much more effectively with scale and cost than each one of the banks independently." Spirer doesn't have high hopes for a bank consortium or association move into this area either, suggesting that politics and a lack of core competency would get in the way. Though Microsoft refused to comment on its overall strategy, according to an internal memo leaked to and excerpted in the Wall Street Journal, such transaction fees are tops on their list of revenue objectives on-line. Invaders or Allies?

That's not to say Microsoft has a monopoly on this fee strategy; they just have the most sophisticated, well resourced, fully funded implementation so far--particularly considering that few of Microsoft's Internet-television rivals actually have products in the market yet. But Microsoft's rivals do have business plans, and most are developing content channels where they hope to connect consumers with merchants so that they too can collect on the referral.

Microsoft/WebTV's leading competitor is NetChannel. NetChannel acquired rival ViewCall soon after the WebTV acquisition was announced and is developing a financial services channel, among others, to "enable the banking industry to reach an audience they've been unable to reach through the PC," says David Atkinson, founder and chairman of the company, which has partnered with Thomson Consumer Electronics to build its set-top boxes. Thomson manufacturers RCA, GE and ProScan brand televisions for the United States, which makes up 25 percent of the television set market; WebTV's relationship with Sony and Phillips Magnavox covers only 16 percent of the market.

One of NetChannel's key content partners is Intuit, which will Webcast its Quicken Financial Network on the service provider's financial services channel. Intuit is also taking a $40 million stake (19 percent) in Internet search site operator Excite, entering a seven- year agreement to develop financial news and personal financial management Web sites. While this may be good news for Intuit's bank and insurance company partners, those that don't appreciate Intuit operating as an "agent" for these institutionsocollecting referral or transaction feesomay not be encouraged by further disintermediation to a potentially mass market audience.

But the fact that NetChannel is not Microsoft may be enough to dissolve many companies' reservations regarding the Internet- television service provider, as NetChannel's Atkinson readily acknowledges. "The best thing that ever happened to NetChannel is that Microsoft decided to acquire WebTV. Consumer electronic manufacturers are scared to death that Microsoft will do to them what Microsoft has done to the PC players of the world. Media partners are also very concerned that if Microsoft gets a lock-hold on the distribution channel in the home, they're going to find their market squeezed. This has created a well beaten path to NetChannel's front door." Among those financial services players talking with NetChannel are CheckFree, through its relationship with Intuit, and possibly Integrion. Says Atkinson, "Integrion is clearly a target and future partner of NetChannel, or it certainly can be." Integrion was unavailable for comment. The Bank-Centric Way

Some other Internet-television players are more grass-roots in origin and hope to build an audience through co-branded ventures with affinity groups, targeting of course the financial services industry. "Banks are a very targeted segment for AIM's marketing effort," says Cherry Hill, NJ-based American Interactive Media's president Michael Salaman. American Interactive Media (AIM) is an Internet-television service that has partnered with semiconductor manufacturer Zilog, a $300 million company which will produce the service's set-top box. Though the company would like to work within a number of industries, Salaman has his sites set on "the top 20 co-branded credit card institutions"ocompanies whose credit card holders are part of an affinity group. "What we're saying is we have a system of hardware, software and service that you can co-brand. And we've put into the service advertising capabilities, secure transactional capabilities, dedicated channels of content that you can use to promote your services," says Salaman. Banks will have to take his word on that for now; the service will launch in August.

For the truly bank-centric--some might say myopic--the On-Line Banking Association (OBA) has come up with its own Internet access television device that banks can brand. When consumers turn on the box, they go right into their banks' Web sites. "There is a great deal of concern by banks that (they) will be losing control of the payment system in this country and that the nonbank technology companies will retain control," says James Shelton, the OBA's managing director. "Under our system, the banks can retain control of this. It's not relying on a technology company to provide the systems and the products to do that." Of course, that also means the system doesn't have the same resources and compelling content that the technology companies are building either. "It's the screen phones all over again," says Josh Bernoff, a Forrester Research analyst.

Although the OBA's product is good intentioned, most sources suggest that banks cannot look at delivery channels into the home and view their services as what's driving consumer adoption. "Banks have to accept the fact that their role in peoples lives has got limits to it," says Bernoff. Rather, banks need to team up with companies whose core competencies are attracting and holding consumer mindshare, using that relationship to deliver additional value to the customer relationshipoeven if that means working with a potential threat like Microsoft. "The question is whether you try and build all the proprietary technology yourself and be the network effectively (or) make sure that you get customers, that you can provide high value-add and that (customers) can actually benefit from you being the provisioner for that customer base in a vertically integrated way," says Booz, Allen's Spirer.

The emergence of "push" technology, for example, is a critical element to the development of relationship-building media for banks and other content providers. Consequently, the Internet-television services providers are rushing to integrate it into their systems.

Using push technology systems, service providers can track every site consumers visit and every transaction madeoregardless of the payment instrument, which is how they figure their referral fees. These providers will have an endless font of information on bank customers and prospective customers, which may be threatening to banks used to being great repositories of customer data. On the other hand, by teaming up with these providers, banks can push information to consumers that they really want when they want it, thus exponentially increasing the likelihood of a product sale through what is essentially a wired direct mail initiative. And sources say American's love of convenience means consumers will compromise their privacy and allow these service providers access to their comings and goings because push technology eliminates the hours of surfing required to pull down the information they're looking for. Get the Show on the Road

And while the convergence of Internet and television is in its infancy, proponents say that adolescence is only three years away. At this pace, banks will have to scramble to put a plan in place to harness this emerging medium. "(Banks) are not in any different position than Microsoft's peopleoor any of their competitorsoin being able to take advantage of these capabilities and try to use their own brand and their own traditional assets to operate and provide value- added services to consumers, says Craig Mundie, Microsoft's platform svp responsible for the proposed acquisition of WebTV. "If (banks) kind of sit around and wring their hands about what might happen, then they just delay their own entry into this." And if banks wait too long, the Microsofts of the world will truly have customers dialed in. --bers

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