Internet To Outpace Media

Television Digest with Consumer Electronics, Jan 3, 2000

Internet revenue will grow at 30% annual rate for foreseeable future, far exceeding increases for other media, investment banking firm Schroders (www.schroders.com) said in report. Report forecast cable and DBS would grow at double-digit rates through 2003, but audience erosion would slow broadcast TV gains, while radio would increase in "high single- digit" range. Internet figure excludes rapid expansion of e- commerce.

Forecast said broadcast TV would reach $48.3 billion revenue by 2003 from $39.2 billion in 1998 and estimated $39.4 billion in 1999. Cable/DBS would surge to $70.8 billion from $41.1 billion in 1998 and $46.7 billion in 1999 and radio to $24 billion from $15.1 billion and $17 billion. U.S. Internet revenue was projected to jump to $25.7 billion by 2003 from $8.6 billion in 1998 and estimated $12.3 billion in 1999, Schroders said.

Internet revenue would grow fastest in Japan, averaging 46.5% annually, vs. 29.5% in Europe and 24.9% in more mature U.S. market, Schroders said. Investment bank said ad revenue would climb 47.9% annually despite concerns about effectiveness of Internet banner ads, vs. 22.4% gain in Internet access fees. Ad growth would be boosted by "explosive" growth in number of people using medium, report said.

Despite slow growth in broadcast TV revenue, Schroders predicted leveling-off of impact of cable and DBS on broadcast. It said broadcast ratings shouldn't "drop that much" because cable was becoming mature medium and cited factor of "diminishing returns to adding channels." It also noted that advertising upfront markets were strong this fall, indicating TV's continuing strength as mass medium, and fact that some advertisers appeared to be simply buying more ad time in effort to reach larger cumulative audience. Good news is Schroders' prediction of double-digit ad revenue in 2000 because of political campaigns and Olympics. Report does note gradual shift in power from affiliates to networks, which are using their control of programming to reduce compensation they pay to affiliated stations.

Cable systems aren't likely to raise rates rapidly, despite new regulatory freedom, Schroders said: "There is now true competition in the form of DBS, which has already attracted a portion of cable's high-end subscribers." It also cited new competition from DBS local-into-local service, potential of political backlash if rates rise too much, and that cable is likely to keep basic rates low in order to encourage more revenue from ancillary services such as telephony and cable modems. Cable has early lead in broadband data, Schroders said, with 1.2 million cable modem subscribers vs. 250,000 DSL lines.

Cable subscribership has continued to increase despite success of DBS, Schroders said, and "the continued improvement in cable services and programming will lead to further expansion in the cable universe." It said cable penetration would reach 71.4 million households by 2003, up 6 million from 1998, and spending per household would increase even faster because of gains in premium, pay-per-view and ancillary revenue. Cable ad revenue has been growing at double-digital rate, and Schroders said that was likely to continue.

DBS subscribership is likely to more than double by 2003, report predicted, reaching 15.5 million households. It forecast DBS subscriber revenue would reach $6.5 billion from $2.7 billion in 1998.

City of Burlington, Vt., urged state's Public Service Board (PSB) to condition Adelphia's franchise renewal on company's providing open access to competing ISPs. City's filing said Adelphia also should make excess capacity on its system available to other entities, including Burlington. Adelphia could exercise monopoly control over broadband services in state, city said, since there's no competitor "either presently or in the foreseeable future." Adelphia's refusal to lease excess capacity to Burlington while offering it to some entities is violation of "nondiscrimination law," city said, but declined to say whether services are telecom or cable: "The distinction is not relevant... because in either case the essential broadband capacity offered by Adelphia is subject to the Board's jurisdiction."

FCC is seeking another round of comments on proposal by SkyBridge and Fixed Wireless Communications Coalition (FWCC) for ways to share 10.7-11.7 GHz band. Parties, in filings Dec. 8 and Dec. 22, proposed different regulatory schemes for sharing, including definitional criteria for earth stations and criteria for identifying "growth zones," instead of exclusional zones originally proposed in rulemaking (ET 98-206). Plan calls for no restrictions on satellite earth stations, but obligations on satellite operators to protect growth zones. Comments are due Jan. 12.

FCC Cable Bureau set 1.04% inflation adjustment factor for use in Form 1240 filings on cable rates. Figure, for 3rd quarter 1999, is based on Gross National Product Price Index.

In what's called significant departure, AT&T accepted self- executing open access agreement as part of cable franchise renewal in Pittsburgh. Councilman Dan Cohen, who negotiated agreement, said it didn't mandate open access but required AT&T to provide access to competing ISPs if AT&T signed open access agreement with any other municipality, FCC required open access, or any court required it. OpenNet Coalition called city vote "major victory for Internet users."