CABLE EXECUTIVES GUNG-HO ON DIGITAL, DATA, VoD BUT NOT STREAMING
CHICAGO -- Despite nation’s economic slowdown and depressed media ad spending, cable operators painted bright picture of industry’s future Mon., boasting about success of their digital video and high-speed data services. Speaking at opening session of NCTA’s annual convention here, heads of 3 of 4 biggest MSOs said they would continue to roll out digital, data and even newer services such as video-on-demand (VoD) and home networking briskly over next couple of years because of unquenched consumer demand. They also said slowing economy had had little impact on their core video products so far. “It [the economy] really hasn’t held us back,” Charter Communications Pres. Jerry Kent said.
Cable officials said they still were quite bullish on prospects for VoD despite reluctance of Hollywood movie studios to make much content available or provide favorable release windows. They said VoD would help drive digital cable penetration up several percentage points. Comcast executives, who are testing VoD in 4 or 5 markets, repeated their intention to offer service to 2 million cable subscribers by end of 2002. Kent said Charter, which now offers limited VoD service in 4 cable markets, would boost that number aggressively to create competitive edge over DBS because “satellite cannot provide true video-on-demand service.” AT&T Chmn. Michael Armstrong, whose company also is tinkering with VoD in selected markets, said MSO would start large pilot in L.A. market later this year and then would “be scaling” in 2002.
However, movie release windows remain big obstacle. Viacom CEO Mel Karmazin said his company, which owns Paramount, favored “creating and expanding, not collapsing, windows” to spur development of VoD as new revenue source for Hollywood. But, calling it “sensitive” subject, he said Viacom needed to protect revenue generated by its current distribution outlets. “The margins for movies are not as good as in other businesses,” he said. “We don’t want to damage our long-term business.”
Although bullish about most new services, cable executives expressed great concern about impact of one proposed service -- free video streaming of TV programming over Internet -- on their operations. Kent, whose company is fighting Disney’s ESPN over latter’s plans to stream sports programming over Internet, said free streaming could hurt cable’s business model. Apparently sharing that concern, Comcast Pres. Brian Roberts in panel discussion questioned Karmzin closely about his company’s streaming plans.
Noting that his company received 30% of its revenue from cable operators, Karmazin sought to reassure both Roberts and Kent that Viacom-CBS didn’t intend to follow Disney’s streaming lead, at least not yet. “We spend so much money for our content,” Karmazin said. “The thought of just streaming it without a business model makes no sense.” He said Viacom didn’t stream audio from any of its radio stations over Internet.
Roberts said Comcast planned to boost its digital cable customer total to 2 million by year-end, nearly 20% of total subscriber base. On data side, he said Comcast was seeking to reach 800,000 subscribers by year-end, almost 10% of its customer base. He predicted that MSO would make data-ready broadband pipes available to 95% of its universe by close of year. “I think this is the time to try and stretch our lead [over DSL], not sit on it,” he said.
Armstrong said AT&T, with 3.1 million digital cable subscribers, more than 1.2 million data customers and 700,000 cable telephony users, would continue to expand reach of all 3 services aggressively. With most of cable plant now rebuilt for broadband capacity, he said industry had reached “inflection point” for new services: “We're racing toward a renaissance for this industry.”
Kent said Charter, with industry’s highest digital cable penetration rate, is adding 18,000-20,000 new digital and 6,000- 8,000 new data customers each week. He said Charter, with 50% of its plant now rebuilt, is seeing “much higher” subscriber growth in its digital markets than its analog systems. “Frankly, before digital we had an inferior product,” he said. “I'm amazed at how well we did.”
High digital video churn, though, is mounting problem for cable operators. In recent report by Forrester Research, top 8 MSOs put their digital disconnect rate at 5% or more per month, more than 3 times rate for DBS rivals. Forrester analyst Josh Bernoff urged cable operators Mon. to roll out VoD and such other new services as personal video recorders (PVRs) quickly to cut high churn rate and lure subscribers back from satellite TV. “This is cable’s time to win those subscribers back,” he said, predicting that cable’s success would cause DBS industry to “top out” at 22 million subscriber level in next few years. -- Alan Breznick
NCTA Notebook…
New Sen. Majority Leader Daschle (D-S.D.) showed little inclination to open up Telecom Act to revision in speech at NCTA convention Mon. Expressing great satisfaction with cable industry’s rollout of broadband pipes to schools, libraries and sections of his largely rural state, Daschle said Congress spent years “crafting” Act to spur telecom competition and lower prices for consumers. In “this fast-changing world, that foundation must remain stable,” he said to applause. Daschle also called Telecom Act “great example of bipartisanship” and model for getting business done in Senate closely divided along party lines. “Polarized positions are an indulgence we certainly cannot afford,” he said, and “it won’t be easy but certainly possible” for him to lead Senate in bipartisan way. Daschle also said Senate Democrats were “setting the ambitious goal of delivering broadband access to every American by the end of the decade,” and he encouraged cable operators to work with political leaders to accomplish that goal. -- AB
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House Speaker Hastert (R-Ill.) made brief, low-key appearance at NCTA convention, welcoming cable industry to Chicago, cutting long red ribbon opening exhibit floor and then quickly darting down floor to nearest VIP exit elevator. Questioned about rising cable rates en route, he said House Republican caucus faced choice of either reregulating cable operators or spurring more competition to industry. “I'm a competition guy,” he said. But, fending off questions about Tauzin-Dingell bill that would deregulate Bell provision of data services across in-region, interLATA boundaries, he declined to say how House might accomplish that.
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AT&T Chmn. Michael Armstrong and AT&T Broadband Pres. Daniel Somers both sought to dismiss strong speculation that they would be leaving their current posts soon. In separate sessions at NCTA convention Mon. and Sun., respectively, each executive said he planned to stay put and defended parent company’s plans to spin off broadband unit as independent firm this summer. Armstrong, rumored to be interested in taking Somers’s place once spinoff occurred, said AT&T board had said nothing about subject to him and “I haven’t asked for anything.” He said he would be fully occupied carrying out planned restructuring of company into 4 separate units over next 20 months. Armstrong also denied reports that AT&T Broadband might be up for sale.
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Any new federal legislation to spur telecom competition will be disruptive to market, panel of state regulators agreed at NCTA convention Mon. Eugene Sullivan, comr. of Mass. Dept. of Telecom & Energy, said companies didn’t need further legislation but did need period of legislative and regulatory certainty. Broadband investment in Mass. wouldn’t have been what it is today in “legislative environment that they are talking about right now,” he said. Ill. Commerce Commission Comr. Ed Hurley said states should be left alone and could fix any problems. Most regulators said it was too early to evaluate success of Sec. 271 of Telecom Act that provided incentives for Bell companies to open their local markets. Although it’s too soon to know the effectiveness of that provision, fact that after 5 years of Act only 5 states have completed Sec. 271 process is “troublesome,” S.C. PSC Comr. Mignon Clyburn said. Ore. PUC Comr. Joan Smith said one of major “speed bumps” in Sec. 271 process was “unrealistic expectations.” She said problems were that incumbents’ networks as they existed weren’t built for multiple vendors and networks weren’t meant to port numbers. Customers didn’t want numbers changed with change of providers, she said. Smith said she agreed with AT&T Chmn. Michael Armstrong that measures such as Tauzin-Dingell bill would take away incentives for companies to follow any checklist for data carriage across LATA boundaries. Sullivan said Sec. 271 approval was working well in Mass. and N.Y. from consumer perspective because it helped save millions of dollars for them. It’s arduous process, he said, but regulators had lot of leverage with companies -- “if you ask them to paint their truck green and white they will do it.” -- DK
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ESPN is starting ESPN Broadband in fall, PC-based service that will offer sports, sports news and video streaming highlights on demand. Making announcement at NCTA convention, ESPN Pres. George Bodenheimer said service would be locally cached and co- produced by ESPN and local cable operators. Bodenheimer said his company was sensitive to concerns of operators on video streaming plans. He was responding to assurance sought by Comcast Pres. Steve Burke that cable programmers wouldn’t use streaming video to circumvent cable operators’ service to customers. It wouldn’t be problem if what was being shown was highlights that enhanced cable program, he said, but if it were 24-hour equivalent of ESPN program it would be problem. Earlier, moderator CTAM Pres. Char Beales referred to issue of streaming video causing heartburn for both operators and programmers. On one side programmers were vying to get on every platform, she said, and on other side operators were insisting that programs that they were paying for weren’t given away on another distribution medium.
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Cable programmers could leverage their Web sites to drive viewership and build brand value, speakers said at NCTA session on role and value of Internet properties. Scripps Networks Vp- Interactive Services Pres. Ron Feinbaum said that after dot-com bust, his company looked at Web sites as brand extension. It also tried to create revenue streams in blended approach, he said. BET Interactive COO Scott Mills said adding interactivity to programs made them more compelling. Discovery Vp-New Media Clint Stinchcomb said company was very good at driving viewership from Web to TV. Weather.com, which is operated as independent subsidiary of Weather Channel, created separate company to run Web site in order to maximize business, Pres. Debora Wilson said, because “we can’t be distracted by conflicting requirements of 2 different companies.”