The telephone companies crashed the cable industry’s biggest party — and they brought the entertainment.
At the best-attended annual cable show in the United States, a telephone company executive made a bigger impact on conventiongoers than any keynote speaker in recent memory. The address at the Nov. 30-Dec. 2 Western Cable Show in Anaheim by Ray Smith, chairman and CEO of Bell Atlantic Corp., had a standing-room-only crowd of cablers glassy-eyed with visions of untold billions of dollars flowing into the coffers of the MSOs.
Bell Atlantic is in the process of taking over Tele-Communications Inc., the largest cable operator in the business. The telco is laying out close to $ 30 billion to swallow up TCI and sister company Liberty Media, and barely a week goes by without another announcement of a joint venture between a phone company and a cable operator.
And the two most significant news stories coming out of the cable show were Bell Canada’s decision to pony up $ 400 millionfor a 30% stake in Jones Intercable, the seventh-largest MSO in the U.S., and Time Warner’s leaping on board the joint venture set up by the cable operator giants TCI, Continental, Comcast and Cox to go after some of the local telephone businesses in their areas.
It has to make Ted Turner, chairman of Turner Broadcasting, feel like an orphan when he hears Ray Smith say that TCI, which owns 23% of Turner’s operation, “will be competing with Pac-Tel to provide telephone services in California.”
Conversely, Smith said, “Pac-Tel will be competing with TCI to provide video services” to subscribers in the TCI cable systems throughout California. But Smith has no problem with such rivalry because “the effect of competition is to increase the market, and allow each of the competitors to do very well indeed.” And he says that legitimate competition will keep government regulators from breathing down the necks of colossal merged companies like Bell Atlantic-TCI.
Turner’s fear, of course, is that the potential revenues to be generated from telephone users and from such services as instantly accessible pay-per-view movies will so dwarf what TCI rakes in from its various cable-network holdings that Turner could end up as the unloved stepchild.
Turner may find himself in the position of a dinosaur if he’s unable to adapt to these changes. By the late 1990s, Turner’s four (soon to be six) cable networks will face what Smith calls five “killer applications” that the new technology will almost certainly be delivering to the average household wired to cable:
Pay-per-view movies and other programming “on demand,” that is, available at the touch of a remote-control button when the viewer wants to see it.
Home shopping that would allow the viewer to use his TV set like a catalogue, browsing through the video shopping mall and ordering an item without having to wait for a pitchman to recite a canned spiel.
Videogame interactivity that would permit Sonic the Hedgehog junkies in different cities to square off against each other.
A service that would bring “off-track betting” and “lotteries” into the living room.
Advertising services like direct mail and direct response.
Results from tests of movies-on-demand convince Smith revenues from these services could be so explosive they’d be “embarrassing.”