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NCTA 98 Summary
The National Cable Television Association (NCTA) held their annual conference from May 3-6 in Atlanta. The Cable Communications Agency was represented by Rick Maultra.
Of Digital and High Definition TV
Discussions regarding a digital world in the cable industry was a prominent theme at this conference. Negotiations will be under way to implement the digital retransmission of the broadcast stations in the top ten markets. The 96 Telecommunications Act requires the deployment of digital in the top ten markets initially. Federal Communications Commissioner (FCC) Susan Ness said that the need for regulation in the digital realm is directly related to the cooperation among the cable industry in discussing and setting the various standards in which to conduct its business. If the industry can’t agree amongst themselves, then the FCC will step in, Ness added.
NBC (National Broadcasting Company) thinks that the transition to digital won’t be as quick as some might want or think. Asset of digital from some programmers’ perspective is the aspect of video on demand (VOD). To actually own a particular show or to watch one that is at a time convenient for the consumer should create excitement from the revenue side. The VOD library would be nearly infinite.
NCTA President Decker Anstrom called digital TV a "doubled edged sword". It allows more programmers to get in but on the other hand it fragments audience share more and this brings down cable TV ratings, he said. Telecommunications Inc. (TCI) President Leo Hindery said that digital will splinter programming and networks and added that the broadcast networks will be less likely to invest in new programming, such as situation comedies, as a result. NCTA bragged loud and often about continuing to erode broadcast televisions ratings with higher ratings of their own cable networks.
Along with the discussion of digital came comments regarding high definition television or HDTV. Dr. Richard Green, President & CEO of CableLabs said any significant penetration of HDTV was five years away. The interest in HDTV will be in the area of film and sports. The current price on a HDTV set is $7,000, which many believe is too high for any measureable penetration. HDTV sets need to be high volume and low cost so as to deploy. Attractive programming needs to be shot in HDTV......the idea of filming/taping talking heads won’t cut it. Madison Square Garden (MSG) Productions plan to start HDTV airing soon. The panel of experts see a limitless channel spectrum in the future as average citizens will be able to launch their own channel of programming much like a web site. Experts see the first wave of deployment being distribution of digital set top boxes for cable which will provide more services and considerably clean up picture quality. The second wave pertaining to HDTV will be well-to-do consumers buying HDTV. 10% of consumer base will buy HDTV until developments can force the price down.
The highly touted event of the conference was the session that featured Microsoft CEO Bill Gates. While he demonstrated a lot of Microsoft components that were to be a part of the future, the cable industry seemed to downplay his presentation insomuch that a lot of what Microsoft had to offer (cable television software) would not appeal to the average cable subscriber. Noting that Gates had just purchased an original Winslow Homer painting for $20 million dollars, industry executives said that the cable industry should be mindful to appeal to the Homer Simpsons of the world rather than some of what Gates had in mind.
The World According to Bill Gates
According to Bill Gates, personal computers will drop below $400 and the quality will be better. This will make it a lot easier and affordable to connect cable TV to the computer for interactivity, he says. That’s why Gates invested a billion dollars into Comcast. He notes that the quickness of Comcast’s upgrades and technological partnering (ie. Microsoft) will make interactivity, and the expediency in which to use it, explode. The acceptance and usage will come about quicker than the implementation of TV, cable TV, electricity and PC use. Gates had stats to back up this assessment. He was excited about flat screen technology. Microsoft is developing cable modem software. He mentioned three....Open Cable, DOCSIS & PacketCable. Gates said that with Web TV that 65% do not own a PC using it. Those that use Web TV stay on line 2.5x longer. Microsoft will be connecting Web TV to cable TV. This will implement a remote control type use of not only the cable TV portion but the Internet usage, as well. Web TV Plus involves watching TV and using the Internet simultaneously.
Microsoft is developing software called WEB CSR which virtually eliminates the need for a customer service representative (CSR). When requesting a service call for your cable TV through your cable modem, the response will show a picture on your TV of the technician coming out to your house. This has good security applications. WEB CSR looks good for ordering new services, pay-per-view and showing immediate status on accounts. The interactivity with the set top boxes (and the software that Microsoft is supplying) will be a cable marketer’s dream as the cable company will know all of the preferences of the consumer, said Gates. FCC commissioners showed some concern over this later in the conference as it pertains to security issues of the consumer.
The alliance is clear between Microsoft and Comcast: Comcast is on a fast pace for upgrading and going digital. The set top boxes will be deployed and Microsoft will be the supplier of the software to make a lot of Comcast’s new services and interactivity possible.
Washington Insiders Dialogue and Observations
U.S. Representative Edward Markey’s legal counsel noted that cable television rate increases are in the double digit range and inflation is at virtually zero. The impetus behind Markey’s recently intoduced congressional bill is to postpone the sun setting of rate regulation scheduled for March of 1999 for expanded basic service. Markey believes that ending cable rate regulation should be predicated on real competition, not a ‘certain’ date. Counsels to elected Capitol Hill officials spoke of Ameritech and its cable overbuilds when asked by the Cable Agency as to examining more closely cable plant extension as a competitive alternative. Markey’s legal counsel likened Ameritech’s overbuilds as "cable socialism" adding that Ameritech wants "it all" in terms of franchise agreements. Another counsel, this one representing the Senate Judiciary Committee, noted that Ameritech can make a go of it in its cable overbuilds because of the overall services that it provides consumers (phone service subsidizing cable platform). That was an interesting comment considering that is exactly what the cable industry seems to be doing as well in offering local phone service and Internet access via cable modems.
The question about plant extension in an overbuild fashion from incumbent to incumbent was not answered at this session but it was raised later in the conference before the FCC’s Cable Services Bureau and new Bureau Chief John Logan. Their response was vague and seemed intent on referring to an independent study that was performed by the Strategis Group. The FCC and cable industry executives indicated that the study performed indicated that cable overbuilds were not profitable. The Cable Agency went on to look for the authors of the study on the exhibitor floor and question them about the study performed. After further discussion with the author of the study it was clear that the study examined Ameritech, Twenty First Century Cable and municipalities that have performed overbuilds......all from scratch. What was missing and what the Cable Agency would like to know is the prospect of profitability of doing an overbuild that would merely involve plant extension (perhaps while doing a rebuild). A ball park figure provided by the Strategis Group to perform such a study was placed at $30,000. The Cable Agency is talking to a number of sources as to whom might commission such a study and have already spoke to NATOA’s (National Association of Telecommunications Officers & Advisors) Executive Director about it in getting ideas for funding sources.
Cable Pricing
As he does year after year at the NCTA Conference, NCTA President Decker Anstrom told the cable industry to be careful about their pricing and what they charge consumers (they’ve never heeded his call). For the record, here is his rhetoric: " Let us not push the envelope on pricing less we push the policy makers into regulation". Conversely, Time Warner’s second in command, Ted Turner, told the Atlanta Constitution on Sunday May 3 that the cable industry must continue to push cable prices higher and higher. Anstrom also admonished the cable industry to keep programming contracts proprietary adding that "the consumer doesn’t care about the economics of the cable industry".
FCC Observations & Issues
FCC Commissioner Gloria Tristani is encouraged that more cable operators are getting involved with local exchange carriage (LEC) in residential. She believes that the cable industry is in the best position to provide residential LEC. Still, the competition in LEC is primarily in business accounts.
The Cable Services Bureau talked of being concerned about the 5th Amendment (the taking of land without the proper compensation) where it pertains to inside wiring issues. The discussion of the 5th Amendment struck the Cable Agency funny in that the industry/FCC does not seem to see the issue of the 5th Amendment when it comes to the taking of the public’s land and receiving of fair compensation for use of the public right of way. On the inside wiring issue, the FCC specifically spoke of compensation to the incumbent in terms of "fair market value".
The FCC Commissioners philosophies, as described by each of their respective legal counsels, could be characterized as follows: Gloria Tristani and Susan Ness are more pro-consumer oriented and concerned by the actions of the cable industry. Ms. Tristani’s legal counsel said she was concerned about consumer choice. Tristani views her e-mail regularly and solicits comments from cable subscribers. Harold-Furchgott-Roth and Michael Powell are anti-regulation and want sunset date of March 1999 for the end of expanded tier cable regulation to come about. Chairman William Kennard seems to have a foot on each side from a philosophical stand and seems to be seriously looking at postponing the sunset date for expanded tier cable regulation.
NATOA (National Association of Telecommunications Officers & Advisors) President Tom Weisner asked Rick Maultra at the conference to head up a committee that would deal with legislative issues and the FCC. The Cable Agency will report to the Cable Franchise Board as more becomes known about this matter.
NPRM (Notice for Proposed Rule Making) due out soon from the FCC on Must Carry issues as they pertain to digital conversion.
Cable Competition
Cox Cable and Time Warner are overlapping their cable systems in Bakersfield, California according to Cox VP David Anderson. He went on to say that this overlapping causes the operators to absorb each other.
Cable Turning to Access Fees
Upgraded cable systems will become the new low cost providers of banking, electronic retailing, computer software distribution and other interactive services for a fee and at virtually no cost to the system. The new revenue stream is the gatekeeper fee cable operators with critical mass, like Time Warner and Comcast, will charge strategic players who want to launch interactive services and content. In many instances, cable operators also will share in back-end revenues generated from these new services.
As the City receives franchise fees and conducts periodic audits, it should be mindful of these revenue streams that make cable operators revenue. Launch fees, the price a cable network will pay a local cable operator for carriage on its system, is another type of revenue stream subject to franchise fees. As an example, Discovery Communications’ Animal Planet, Home & Garden Television and CBS Eye On People, were offering up-front launch fees in the neighborhood of $5-$8 per subscriber. In 1996, Rupert Murdoch’s Fox News Channel offered cable operators and even direct broadcast satellite provider Direct TV about $10 per subscriber to roll out the 24 hour news channel. Launch fees would be another cable television revenue stream subject to franchise fees. Comcast of Indianapolis have both Animal Plant and Home And Garden TV.
DBS Unlikely to Offer Local Signals Into Local Markets This Year
Congressional staffers said that legislation is unlikely to pass that would allow direct broadcast satellite (DBS) to offer local channels into local markets this year. Doing so would assist competition by making the multi-channel platforms of cable and DBS more similar.
J.D. Powers Study Indicates Customer Service is a Problem for Cable
Despite the emphasis that the cable industry has put on its customer service such as with "on time guarantees", a new study conducted by J.D. Powers & Associates indicates that consumers are twice as satisfied with the service they receive from DBS over cable TV. 15,000 households were interviewed and the study found that customers care most about pricing and programming. Of all the DBS providers, customers were most happy with Prime Star.
submitted May 18, 1998
Rick Maultra
Director/Cable Communications Agency
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