Cable Eyes Convergence

Television Digest with Consumer Electronics, Dec 20, 1999

With nearly every top cable executive in L.A. last week for consecutive broadband conferences, traditional cable service topics were scarce in session lineups as operators seek to tap into revenue promised by advanced broadband services. CTAM's pre-Western Cable Show conference didn't have single session dealing with anything but advanced broadband. In fact, CTAM plans to split from Western Show next year, holding separate advanced broadband conference in Oct. in Silicon Valley.

AT&T's access agreement with MindSpring surfaced repeatedly at CTAM event. RealNetworks CEO Rob Glaser said AT&T deal, which he expects to be followed by other MSOs, will accelerate already rapid rollout of broadband services. Among other observations were that cable operators inserting ads to replace broadcast ads could be bigger legal fight than must-carry, and DTV multicasting is "years away."

Access agreements could give MSOs edge over DSL, Glaser said. Cable modem growth will be spurred by access deals, he predicted, adding that it's key that MSOs "get the dollars of America Online and others behind cable and not competitors." AT&T Broadband Dir.-Advanced Products John Gilles said "AT&T anticipates having commercial agreements with multiple Internet service providers when our exclusive agreements with Excite@Home end in 2002." He said business model provides that AT&T manage access for several ISPs over last mile while "adding value to the customer over the last few feet." Echoing call by Sanford C. Bernstein & Co. analyst Tom Wolzien for local content, Smith said "AT&T has focused on local content relationships. We see ourselves as a local company."

Mandated access "threatens the heart of cable economics," Wolzien said, because ISPs could provide pay-per-view movies and Internet telephony that would eat into cable revenue. He called AT&T-MindSpring agreement "a very loose letter of 'it would be nice to do a deal,'" but said cable has to make more such agreements to avoid govt. mandates. He predicted DSL and cable modems would split high-speed market but cable would have edge in providing Internet access through set-top to those without PCs, market he said America Online is desperate to reach.

Glaser said RealNetworks is fulfilling interactive vision laid out by TCI at 1993 Western Show that later "stalled out." He said his company's growth demonstrates that PCs and Internet have technology to build on as well as economic model, and he said 36 of 45 major cable and broadcast networks now are Webcasting. Noting that cable reduced broadcast share to about 50 from 86, he said streaming video would have same effect. Streaming provides "small audience per channel, but in aggregate it [streaming video] will represent a huge slice of the audience, one with narrow specialized interests," he said. Streaming video revenue already was $277 million in 1998, he said, vs. broadcast's $117 billion: "We've just started the process of driving this system forward."

Satellites are playing growing role in streaming video, Glaser said. RealVideo has begun to "shoot [data streams] off the bird" to several Internet hubs, reducing network travel. He said model is "very well known to cable since HBO... and cable is well- positioned with its headend architecture on the receiving side." He said RealNetworks struck deals with Loral and Astra to provide similar service in Europe. Glaser said he also began partnering recently with Liberate, Web TV and Equator on set-top boxes.

Satellite and digital TV are "interesting" models for broadband distribution, Glaser said, as both industries plan to cache popular Internet content. "We've looked at those models," he said, "but if cable moves aggressively it can offer a superset solution" of cached content (which downloads quicker) and straight high-speed Internet connection.

"DTV multicasting is years away," ABC Vp-Enhanced TV Jonathan Leess admitted. Discussing enhanced TV over Internet offered during ABC's Mon. Night Football and ESPN's Sun. Night Football, Leess said that for now games will remain on TV and data on computer. Set-tops should bring service together in near future, he said, sooner than ABC could do it with DTV. ABC is pushing for tuner cards in PCs, and he predicted "as set-top boxes and PC tuner cards grow, those using the PC and TV simultaneously will drop" to 14 million in 2008 from about 20 million now. Average length of visit at ABC's enhanced TV site during telecast is 40 min., which for Internet "is huge, it's just huge," he said. Challenge has been selling ads, when advertisers say ABC is selling "same eyeballs." He said 30 sec. ad on Mon. Night Football costs $300,000, but 30 sec. spot on Web site during game is $1,000: "Even if every ad slot sold, that wouldn't pay [for service]."

Cable subscribership growth "will go negative over the next couple of years," Wolzien said, "but that's not necessarily a bad thing." While DBS will erode some video subscribers, he said advanced services could boost earnings significantly over next 5 years: "Cable has to not just match satellite but exploit its core businesses and offer more product." He said there will be stiff competition in advanced services such as high-speed Internet and IP telephony: "Everybody thinks they're going to get a couple of extra points out of this. It will be interesting to see how much for each player."