Jun 16, 2003  •  Post A Comment

The most striking point to come from the cable industry’s annual gathering last week is the considerable time, investment and effort still required before the industry can realize any significant payback from its $70 billion digital platform.
It is a stunning truth that laced many of the panel discussions and interviews during the National Cable & Telecommunications Association’s annual conference in Chicago, where leading cable executives openly fretted over the need to secure and protect copyrighted materials and to control the access to and manipulation of content and services. This is the downside of a digital age that was supposed to be the cable industry’s automatic lift ticket to better times.
And those times eventually will come.
But what is becoming increasingly clear is that the windfall of revenues and profits originally expected in just a few years’ time will be longer in coming.
For instance, many of the cable operators’ CEOs, such as Comcast Corp.’s Brian Roberts and AOL Time Warner’s Richard Parsons, talked about a five-year time line for converting their hybrid platforms to 100 percent digital. The move will free up precious bandwidth that would be used for additional channels and services and would come in handy for meeting any mandated changes in retransmission of broadcasters’ core and digital signals.
But accelerating that timetable could mean pouring hundreds of millions in additional funds into new set-top boxes, digital converters and software to make every subscriber household 100 percent digital. The process, which would benefit from the attrition and replacement of equipment over time, would cost more if the timetable were accelerated.
While key vendors at the show demonstrated that the price of this hardware and software will continue to decline, the digital conversion process represents a concentrated expenditure of funds that could take the edge off of cable operators’ long-awaited delivery of free cash flow.
But that’s just one piece of cable’s massive quandary.
Clearly, cable operators and content providers are looking to leading software suppliers and other allies to help them devise the functionality and features to make their content and services more secure and distinctive.
So it was no surprise to find Microsoft founding Chairman Bill Gates back in the spotlight at NCTA after a five-year absence, armed with a suite of Microsoft TV Foundation software designed as a first pass at providing some solutions. In stark contrast to his previous appearances, Mr. Gates was embraced publicly by cable leaders as a resident sage.
Blame it one the industry’s maturation.
Gates in the box
As one of the largest individual investors in cable, Mr. Gates and Microsoft have been viewed as much with skepticism and as potential competitors as they have as cable allies. But patience and changed circumstances have gotten Mr. Gates what he wanted all along-a foothold in the cable set-top box, the gateway into 100 million U.S. TV households.
“We’re willing to concede that we need Microsoft’s help,” a leading cable operator privately commented to me. “But I don’t think anyone is willing to just give them the store.”
That said, the initial agreements announced are only the beginning, Mr. Gates said. Comcast will trial Microsoft TV Foundation’s plug-in software, which is designed to bring PC-like power to create new revenue streams from advertising, gaming and personal video. The software includes an interactive program guide, interactive features and various new features to liven up existing content and turn on-demand services into more of a value proposition for wary subscribers. In all, this new software platform will aid cable operators in making digital cable into a more personalized TV, which is where Mr. Roberts says he’s convinced digital cable is headed.
AOL Time Warner will use Microsoft software to address some of the security issues confronting its content and services. And Walt Disney’s ESPN is the first major content provider to work on creating a new strain of interactive content to redefine the digital space.
But at nearly every opportunity during his brief appearance at NCTA, Mr. Gates warned that cable’s digital revolution cannot be effected without embracing the Internet protocol platform that will allow cable operators to deliver and coordinate a unified, cost-effective bundle of voice, data and video services with all the state-of-the-art advantages.
For years, cable operators and content executives have talked about interactivity and digitization without a clear understanding of how that works on the most fundamental level, how long it will take to execute and what it will cost. They are starting to find out.
And that is the big leap cable operators and content producers must make, and soon. If not, they could become their own worst enemies.
In fact, the cable industry offered more evidence last week it is a lot like an adolescent, giddy with the coming of age but having a long way to go before it can make the most of its gifts. Cable players must stop deluding themselves. It isn’t so much what they have as what they stand to lose if they don’t proactively address and solve the serious issues and problems that threaten their financial prosperity.