After TCI, the United States’ biggest cable TV operator, shook up the cable world two days ago by embracing digital technology, other cablecasters are left scratching their heads over how to follow suit and at what cost.
On Wednesday, Denver-based Tele-Communications Inc. announced it was spending more than $ 200 million to put digital cable boxes made by General Instruments Inc. and AT&T into the homes of 1 million of its nearly 10 million subscribers.
By going digital, the number of channels available to viewers will explode tenfold, in some systems to 500 or more. The move opens the way for a host of services, beginning with pay-per-view, which will potentially reap enormous revenues for the MSO.
That’s the hope. The transition to digital will be costly, say many smaller cablecasters, and they are concerned that consumers may not be seduced by special programming.
Pointing to some rough figures on digital conversion for his system, Fred Nichols, head of TCA Cable TV Inc., said it could cost $ 60 million for his 453, 000 subscribers to change. “It’s tough to get money out of those customers.”
Indeed, cable companies can’t just depend on rate hikes because of the recently passed reregulation legislation. So they are looking to services, such as PPV in the short run, to provide an immediate return.
While the cable industry has predicted for decades that PPV was in reach, it’s finally grasped its Holy Grail. Digital compression will permit 50 channels of PPV by 1994, said Jeffrey Reiss, chairman of Request TV, a leading PPV provider. And that may double again based on demand. That means customers will be able to call up any movie, any time, with the same ease as with homevideo, without leaving the home. Not surprising, TCI and News Corp. own more than half of Request TV.
There’s an undeniable allure to going digital. It offers encryption, meaning security, better quality pictures and two-way transaction services that can be a tremendous windfall.
Further out, MSOs are eying potential delivery of telephone services over their cable lines. Already, TCI is working with AT&T and U.S. West, and Time Warner, the nation’s No. 2 cable company, has just inked a deal with long-distance carrier MCI.
Some question why TCI made this move now. The fear of competition from companies such as Hughes Communications’ DirecTv direct broadcast service, which goes on line in 1994, may have been a spark.
“This is a chess game John Malone is playing,” said one pay-per-view executive. “To win the game, you have to be first with digital technology and have more bells and whistles than DBS.”
Some worry that the digital wave will wash over them, leaving them behind. Others are simply unprepared to respond to questions about cost, programming or customer demand.
All this will take time. “You’ll migrate to digital boxes,” said Mike Coblitz , head of strategic planning at Comcast Corp. “We don’t know how long it will be.”
The likely first users are those already buying top-tier services from their local cable company. While most operators know who these customers are, many aren’t willing to invest in new boxes, so divining how many viewers will be receptive will take some work.
When they do, though, said Tom Elliott, senior VP of engineering at TCI, they’ll likely reach for their wallets. Focus groups shown interactive services were willing, he said, to pay double their monthly cable spending. “That’s going from an average of $ 30 to $ 60,” he said with a grin. “That had some worried.”