Cable Boxed

To hear the naysayers tell it, cable operators are in the throes of an extended mid-life crisis and under siege like no other time in their brief existence. Telecommunications companies are making a brisk, brutal assault on their tv and broadband strongholds. Satellite tv providers continue to pick off subscribers. Listen long enough, and you'd think that enormously profitable communications behemoths like Comcast Corp. should start prepping the white flag for a swift ascent up the flagpole.

A quick glimpse at the numbers, however, suggests that the situation may not be quite so dire. While the industry hasn't grown audience share appreciably in recent years, cable companies continue to net around $55 billion in annual revenue from around 68 million subscribers  hardly the numbers of an industry in the early stages of a meltdown.

"An identity crisis? Cable companies know exactly who they are and where they're going," snaps Bernadette Vernon, director, strategic marketing for Motorola Connected Home Solutions. Adds Channing Dawson, senior vice president of emerging media at Scripps Networks: "I wouldn't write the obituary just yet."

Even as cable remains in the crosshairs of any number of aspirants to its household dominance, its boosters believe that a proactive embrace of fledgling technologies, as well as a newfound flexibility, have served it well. They believe, in fact, that the industry's most profitable days could still lie ahead if operators play their cards right.

Telecom Advances The threat from telecom players didn't exactly materialize overnight. Cable companies are offering phone services, so it shouldn't have surprised anyone when phone companies set their sights on cable. Like cable providers, telecom companies already own the wires in consumers' houses. They also have deep pockets and grand ambitions. "Ultimately the telcos will buy Hollywood studios," predicts Mitch Oscar, executive vice president at Carat Digital.

It won't be cheap or easy, of course. Comcast produces much of its own programming and Time Warner can turn to its corporate siblings for a range of content. Telecom companies will have to pay a hefty cover charge to enter the content club. "You're not going to be able to serve an audience that's used to 500 channels if you only have 200. That's simple math," Dawson says.

Despite the looming threat, industry watchers concede that there's no way to predict how much telecom providers will cut into cable's business. "When the telephone companies come, will we trust them for our tv?" Oscar asks. "How about power companies? They have the wires, too. In the end, the ones who will really benefit from all this might be the content providers  they'll be able to sell the same programming to more people."

All this isn't to say that cable has forgotten about satellite's imposing presence. Indeed, at least from a technology perspective, cable has followed satellite's lead over the last few years. When cable providers saw satellite companies offering on-demand options, they upped their own video-on-demand (vod) capabilities. When satellite operators began to have success with digital video recorders (dvrs), cable quickly responded by offering its own dvr capabilities.

Satellite tv providers Directv and EchoStar have the majority of the 6.5 million dvrs in u.s. homes, according to Forrester Research. Tivo, which has subscribers via Directv, reported more than 3 million subscribers as of the quarter ending January 31. Time Warner Cable had nearly 900,000 dvr customers at year-end 2004. As of mid-March, tivo struck a deal to provide dvr service to Comcast subscribers.

"They took advantage of technology in the past. It would be foolhardy for [cable providers] not to realize that they could be overtaken by technology in the future," says Bill Carroll, Katz Television Group's vice president, director of programming. "It might have been reasonable for broadcasters to say that cable was just a passing fancy, given their dominant position at the time. I think the companies in the cable business are too smart to go down that path."

Some, like Ball State University Associate Professor of Telecom-munications Dom Caristi, argue that the label "cable company" is outdated, given the incursion of such multifaceted entities into any number of businesses. "The companies are so horizontally and vertically integrated that it's hard to tell who is 'cable,' who is 'satellite' and who is 'broadcast,'" he explains. "Take a look at the Disney empire. They own a broadcast network but also multiple cable networks, 10 television stations and production studios that produce shows for over-the-air and cable operations. They are even a part-investor in tivo," Caristi notes.

Cable Advantages Cable's primary advantage  as it attempts to fend off competitors  is the size of its pipes, which allow for brisk transmission of just about anything consumers might demand. "The hard wire of cable will continue to be a dominant means of delivery to the household because of its broad bandwidth," Caristi states flatly.

To be sure, there are concerns. Cable companies have been criticized for their inability to expand their customer base; they can only upsell services like digital cable, dvrs, and broadband for so long, the argument goes. Additionally, cable companies have to do a much better job of educating customers about who they are, what they offer, and why consumers need it. "'I'm going to sell you multichannel services?' What exactly does that mean?" Motorola's Vernon asks.

Cable's accountability re-mains suspect. Cable networks on pricey digital tiers only make it into a small percentage of households. "A 0.1 rating on many of these channels &that equates to, like, seven homes," quips Mark Stewart, executive vice president and chief strategy officer at Universal McCann. "It may not be prudent to make projections from that number and base media decisions on it."

Finally, cable companies haven't yet learned to collaborate effectively with the ad community and other sparring partners. "They've always been about subscriptions, so they never really cared about advertising all that much. Now, all of a sudden they want the love," Oscar remarks, describing cable operators as "cowboys who don't understand marketing."

Scripps Networks' Dawson agrees: "We've never known cable operators to be good marketers, but now they're at least trying to reinvent themselves. Why? There's competition."

Cable, Where to From Here? As for the future, cable will likely struggle with the same question as other distribution vehicles: Where does it fit in with whatever comes next? Pundits believe the decisions will ultimately be made by consumers, who don't care where their television comes from  cable, telecoms, satellite, or some combination of the three  so long as the service works, is convenient, and doesn't cost too much.

"Viewers watch tv. They don't watch 'broadcast' or 'cable' or worry about who's getting it to them," says Katz's Carroll. Universal McCann's Stewart agrees: "As long as a technology is useful and easy, consumers will engage with it."

The way cable networks are launched will also change. "We've probably seen the last of $350 million investments in linear launches," predicts Ken Papagan, executive vice president, business development and strategic planning, for media measurement firm Rentrak Corp. Instead, channels will probably arrive on vod before attempting to plunge into the lower registers of consumers' cable tiers.

Finally, Stewart and others raise the possibility that today's competitors could become tomorrow's allies. The one major piece missing from the offerings of several cable behemoths is wireless phone service. Speculation has already surfaced about a potential Time Warner-Verizon alliance.

No one believes cable will be significantly less of a player in 20 years than it is today. Pundits do, however, qualify their predictions by acknowledging that an as-yet-unrealized technology could nudge cable out of the picture. "The spiral of technology has so accelerated that any attempt to assess what television will look like 10 years from now is fraught with the problem of not having enough information," says Professor Robert Thompson, director of Syracuse University's Center for the Study of Popular Television.

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