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Hardware Key to Cable’s Future

Jun 16, 2003  •  Post A Comment

Those who compare the transition from analog to high-definition with the transition from black-and-white to color television are “dead wrong,” according to Mark Cuban, president and chairman, HDNet.
Unlike black-and-white program libraries, which retained value in the color era, the current libraries of taped programming will “not work well, if at all, in a high-definition environment,” said Mr. Cuban, who was on the senior programmers’ panel at the National Cable and Telecommunications Association’s 52nd annual National Show, held last week in Chicago.
Mr. Cuban’s technology-centered comments were representative of the most prevalent dialog at the show, which has evolved into a forum for discussion about how tech can help cable operators, programmers and vendors take their industry to the next level. In the past, the National Show was a bazaar of deal-making. But that was in the era before consolidation. Now the big players in cable make their deals throughout the year.
Attendance Down
Faced with that consolidation, economic downdrafts and competition from direct broadcast satellite, the National Show, like so many trade shows, has seen its attendance and exhibition slide in recent years. In the show’s last panel, the senior executives of seven major multiple system operators vowed that the cable industry’s $75 billion investment in infrastructure upgrades since 1996 would pay off with declining subscriber defections and increasing subscriber satisfaction with pricey offerings such as high-definition television and video-on-demand.
Overall attendance at this year’s gathering-16,700, according to the NCTA-was down from last year’s 17,500 in New Orleans. Exhibitor numbers for the National Show were down slightly, too, to 195 from last year’s 206, according to the NCTA. However, many of the sessions that were held were well attended. The heavyweight opening panel, featuring Microsoft’s Bill Gates, Viacom’s Mel Karmazin, AOL Time Warner’s Dick Parsons and Comcast’s Brian Roberts, drew a standing-room-only crowd in the Grand Ballroom of McCormick Place convention center.
Cable is counting heavily on HDTV and the expectation that high-definition TV set prices will drop sharply, below the $1,000 price point before Christmas, according to Mr. Roberts, Comcast’s president and CEO.
Despite cable’s recent record-setting upfront, its generally improved ratings and the recent plethora of high-visibility original cable programming, from MTV’s “The Osbournes” to USA Network’s “Monk,” and despite the determinedly upbeat tone of the convention, there are clouds on cable’s horizon. Among cable’s most nagging worries are:
* The Bandwidth Hog. The incompatibility of present-day programming libraries and HD is one reason that networks are investing tens of millions of dollars annually in HD cameras and facilities and why the race is on to create new programming for HD.
Discovery Communications Chairman-CEO John Hendricks, who joined Mr. Cuban on the programmer’s panel, said the added expense is coming down. Four or five years ago, he said, HD added approximately $50,000 to the cost of producing one hour of programming; today, that HD premium is at about $25,000 to $30,000 for an hour of HD.
Joining Mr. Cuban and Mr. Hendricks on the panel were Matthew Blank, Showtime Networks’ chairman and CEO, and George Bodenheimer, president, ESPN and ABC Sports.
Mr. Blank, who pronounced himself a big fan of the HD application, nonetheless said what everyone in the cable industry already knows: High definition is a “bit of a bandwidth hog,” and he speculated that video-on-demand and high-speed data might be better applications for the available bandwidth in some instances.
* The Death Star. “The Death Star” is what wags have dubbed the worldwide direct broadcast satellite operation owned by Rupert Murdoch’s News Corp, which, incidentally, also has distributed the various “Star Wars” blockbusters. The new North American crown jewel of that DBS empire is expected to be DirecTV.
As for the possibility that Rupert Murdoch’s expected acquisition of DirecTV will threaten the cable industry’s future, ESPN’s Mr. Bodenheimer at first said it was “too soon to tell.”
Challenged by CNBC’s David Faber, a panel moderator who suggested that Mr. Bodenheimer was unconcerned by Mr. Murdoch’s threat, Mr. Bodenheimer shot back: “I didn’t say it doesn’t concern me, I said it was too soon to tell,” to which Mr. Blank quickly responded: “This is not the headline everyone wants in the trades tomorrow.”
“There’s no Death Star out there from my perspective,” Mr. Parsons said, calling Mr. Murdoch’s satellite venture “not a serious threat to the viability or primacy of cable.”
And at yet another panel, James Robbins, president and CEO of Cox Communications, dismissed the DBS competition as a “one-trick pony” with a platform that was inferior to cable’s. And Tom Rutledge, president, cable and communications, Cablevision Systems Corp, also downplayed DBS, saying, “It should cost less because it’s worth less.”
* Regulation. When Michael Powell, the deregulation-minded chairman of the Federal Communications Commission, addressed the convention, he said cable has to reach agreement with the broadcast industry, the content providers and the consumer electronics industry on a broad array of matters and standards. Among them: spectrum allocation and dual analog-digital must-carry during the digital transition.
If cable and the other parts of the telecommunications industry don’t find agreement on the way ahead toward the digital future, Mr. Powell said, regulators and legislators will do it for them. “We’ve got to stop the food-fighting [over HDTV and other issues],” he said. “We won’t wait forever” for the industries to come together.
As for the increased costs to consumers that may result from the digital transition, Mr. Powell noted, “People are still looking for the value proposition” to justify the expense of broadband. He recounted a cautionary conversation with his father, Secretary of State Colin Powell, to illustrate consumers’ price-value skepticism:
“I don’t have a darn … IT department in my house!” he quoted the exasperated-sounding Secretary Powell as saying. “I’ve got a $400 communications bill. … I only need to talk to your sister one way, and I’ve got 15 ways to do it!”
* Pricing. Rising programming acquisition costs and their relationship to rising per-subscriber network carriage costs have been a topic of debate at several recent National Shows, and this year was no exception.
As always, one of the hottest of the hot-button issues was the rising sports rights fees that the MSOs say are passed on to them by the networks that have, in some cases, overpaid to carry big-league sports. “The government should know that this time around it’s not our fault,” said Rocco Commisso, chairman and CEO, Mediacom Communications Corp., about recent political grumblings over rising cable bills.
Stephen Burke, president, Comcast Cable Communications, called the variety of price structures for network carriage an “arbitrary situation” and proposed that future carriage deals should be tied to the Consumer Price Index.
In a briefing for reporters at the show, Walt Disney Co. President and chief operating officer Bob Iger downplayed the disputes that cable programmers and operators continue to have over pricing.
“We’ve had a long, healthy relationship with cable operators,” Mr. Iger said at the ABC Cable Networks booth on the show floor. “It’s a good business for us, a good business for them…. There’s always been tension based on price. It’s a fact of life in this business.”
Though Mr. Iger acknowledged that “there’s more tension on ESPN lately,” he would not comment on the negotiations between the MSOs and ESPN, which has come under fire for trying to hike its rates with MSOs by 20 percent. However, he did say in the end it’s up to the cable operators to decide on what they carry and that Disney is trying to keep the dialog with MSOs open when it comes to the “complicated
negotiations.”