Cable op owners on the run

Industry facing transitional period

The cable television industry has survived public mockery, Wall Street indifference and encroachments from technologies like satellite television.

And those were times of certainty.

As The Cable Show, NCTA’s annual operator convention, opens in Las Vegas this week, the industry faces perhaps the greatest transition in its history.

Instead of jokes about bad customer service and the increase in competition from DirecTV, it must tackle subtler challenges: Operator ownership is changing faster than the channel, while programming and tech services like VOD are being feverishly added despite limited proof of revenue potential.

The Cable Show features sessions with Time Warner COOJeff Bewkes on “All in for 2010” and “Cable 2.0” with Comcast honcho Steve Burke.

But generally the more an industry talks about the future, the more unlikely that industry knows where its future lies.

“We’re seeing a lot of tension (in cable) recently, and that’s because of the saturated video market,” says longtime cable analyst Bruce Leichtman. In other words, the television content on which cable operators once staked their business just isn’t the growth area it used to be; instead companies are now as likely to be looking to phone services as their saving grace.

In some ways, these are heady times for cablers.

The triple play (the bundling of online, phone and television services) continues to bring in revenue and retain subscribers. Time Warner Cable topper Glenn Britt in a conference call last week called it one of cable’s most important weapons; indeed, Time Warner now has 2.1 million digital phone subscribers and seven million broadband users.

Meanwhile, Wall Street has embraced cable stocks, sending many of them up by as much as 30% over the last year.

And the number of nets adding original programming and signing big Hollywood talent continues to grow; just last week, A&E signed up Ridley and Tony Scott to exec produce a miniseries, while Steven Spielberg is developing projects on several pay nets.

Series like “Entourage,” “South Park,” “Project Runway,” “Monk” and “The Closer” challenge many network shows for pop-cultural, if not yet ratings, supremacy.

That makes cable a must-have for many consumers and will likely keep subs happy and paying. (Time Warner Cable surprised analysts last week when it said it had added more than 300,000 video subscribers in the last quarter.)

But the new programming could also, in the typically mixed blessing manner of cable, give networks more leverage in negotiating affiliate fees with operators when their carriage deals are up for renewal.

The industry also faces competition from several fronts.

Aggressive moves into television from telcos like Verizon, which has begun to advertise its television service, could ding the cable business.

Satellite, unable to offer the triple play because of technical limitations, has made exclusive programming a priority. It’s an issue that became uncomfortably real for cable operators recently in the fight over DirecTV’s potential exclusive deal with Major League Baseball’s Extra Innings package.

Ownership, too, has become a game of media monopoly.

The deal last week to take Cablevision private, while ostensibly looking like a purchase, was to many experts the first step by the Dolans in preparing the company for a sale.

And Time Warner’s future in cable continues to be murky; though the division increased revenue by 61% (last quarter it accounted for about as much revenue as Warner Bros. and Time Inc. combined) there continue to be reports of board pressure to divest the unit.

“What we’re all doing is waiting for the next wave of consolidation,” says one cable exec.

Comcast is the one operator close to capping out the number of subscribers Washington will allow, but even it might find a way to trade away some subscribers if it were able to get its hands on, say, Cablevision’s 3 million upscale homes.

The changing environment explains why the companies have been experimenting so furiously.

Some of the moves are not so dramatic; when asked about the next area of growth, several cable execs pointed not to tech innovations but to the expansion of triple-play services across small- and mid-size business.

But other cabler ops are bolder. Comcast, for instance has been developing its on-demand services with offerings that range from library television series to studio movies concurrent with the DVD window. (Topper Brian Roberts says the cable box can be the Google of television — the place consumers go first to find anything they want.)

Such technology is why Time Warner has been testing programs like Start Over, hoping to give customers more time-shifting capabilities to compete with the on-demand aspect of the Internet.

And, oh yes, there is that small matter of the Internet. Web-based video offers the access and, increasingly, the content of cable — without the high monthly cost.

One cable exec says a migration from cable to the computer is unlikely, since the computer is the place for quick information while the television is more suited to lean-back viewing.

That may be true, but for the delivery equation to move away from cable, it may take little more than Apple TV or another device that lets the computer transfer content to a TV set.

And then, of course, it might be time for Cable 3.0.

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