Save now, impress Wall Street and possibly lose the customers of tomorrow. Or invest now, take your lumps and capture the customers of tomorrow. That’s an oversimplification but, for cable operators, it’s a conundrum that can’t be avoided. Their competitors will be rolling out new services and repackaging and updating existing ones, and customers will be on the lookout for the latest, best and cheapest offerings. "Innovation is always risky," says OpenTV chairman Jim Chiddix. "But not innovating is also risky. In this competitive environment, operators don’t have the luxury of time to make safe decisions. Cable is in three businesses today, and it’s a drop-down, drag-out fight in all categories. They can’t wait for the future and then instantly react and expect to succeed." Chiddix knows firsthand the risks and rewards of innovation. He was an integral member of the team that designed Time Warner Cable’s Full Service Network in Orlando, Fla., in the early 1990s, and says the experiment bore out some vital assumptions, including the fact that given the opportunity, people would play interactive games on their TV sets, pay for on-demand programming and buy products using their remote controls. It still stings a bit when he hears people refer to the experiment as Time Warner’s failed service network. It was an expensive endeavor, but one he believes helped put cable on the path of becoming a bundled service provider. "Is there a next home run? No. The home run is the fact that we have so many things customers can pick and choose from," says Insight president and CEO Michael Willner. "I don’t know what Wonder Bread is around the corner for us. But I can pretty much guarantee it’s going to be something we haven’t even thought of yet." Operators say their infrastructure will enable them to deliver just about any service that will be developed in the next decade. Integrated VOD/DVR boxes, interactive advertising, faster broadband and home networking could become the next staples for forward-looking subscribers; some developing services, like high-definition television, are already a growing reality. And some of the services and products that have yet to reach the drawing-board stage will be driven by societal issues and changes in lifestyle, says CableLabs CEO Dick Green. An aging baby boomer generation, increased travel difficulties in the wake of continued terror threats and the perennial reduction in the cost of new technology will play pivotal roles in which services are offered to consumers and which services prove to be big hits. "Imagine a doctor being able to monitor a patient’s heart without the patient having to go to the office," Green says. "Not only is that a smart use of broadband, it could reduce medical costs and improve the lifestyle of the patient." Customers at the Controls So what will customers want five years from now? More control over their lives and the products they receive, according to everyone interviewed for this article. More control over what they watch and when they watch it. More control over the speed and quality of their broadband offerings. More control over how they talk on the phone and over who provides their phone service. "The customers of the future will be more demanding than the customers of the past," Green says. "They will want more control over the time, place and subject matter. Cable is well positioned to give them that control with video on demand, digital video recorders and two-way platforms. This industry is also led by visionary executives who see the advantage of embracing technology. You don’t see that in many other industries." Full digital networks will give operators the bandwidth they need to deliver new services. It won’t be easy—or cheap—but it will be necessary. "What we’re going to see over the next couple of years is an increase in convergence in the level of broadband consumer offerings," says Ucentric CEO Michael Collette. "Things like integrated VOD/DVR boxes are a perfect example. I think we’ll combine those products to provide consumers with a better overall experience." Collette says PC manufacturers will put pressure on the cable industry to offer more broadband products and fatter set-tops so more PC-centric products can migrate to the TV. "Today the video experience anchors the bundled experience. But over time, I think consumers will be equally focused on all three product lines," he says. Cable operators probably won’t be selling anything five years from now that’s radically different from what’s being offered today, Chiddix admits. "It’s more of an evolutionary process at this point," he says. Still, cable operators need to be at the front of the pack when it comes to offering new and/or improved products. "These are big businesses, and they can afford to do it," Chiddix says. "You can’t ignore the spending concerns of Wall Street. But you can’t turn over your business to quarterly results either. You’ve got to take risks or you might as well hang it up." Long Road From Buzz to Adoption Predicting the next hot product is a game of chance, and it’s anyone’s guess as to what consumers will really cry for five years from now, Willner says. For instance, color television sets first became commercially available in 1954, but they didn’t resonate with consumers until 1967, when they outsold black-and-white units for the first time, according to the Associated Press. Prognosticating hasn’t gotten any easier since then. Relatively recently, few industry experts predicted digital video recorders and HDTV would have much appeal for contemporary consumers. Today, the demand for both products is exceeding expectations. Similarly, the wild success of high-speed data was not foreseen in the mid- to late-90s, says Lynne Elander, GM, marketing, for Microsoft TV and who, until last year, served as VP, video product development, for Cox. Five years ago the buzz over interactive TV was almost deafening. Analysts and industry experts were tripping over each other to announce that it was the next big revenue boon. Interactive companies sprung up like daisies. Charter and Insight in the U.S. and News Corp.’s BSkyB satellite service in the U.K. went out on a limb and launched extensive interactive services. But the sector underwhelmed the bulk of the U.S. cable industry. "We were a little early with our interactive offerings," Willner admits. "We didn’t have the product we needed to really make it go, and other operators didn’t embrace the local interactive programming idea early on. But they are beginning to see the potential now. The truth is that digital churn is down 60% in homes with interactivity versus digital homes without interactivity." The keeping-up-with-the-Joneses effect will put pressure on operators to include interactive TV in the product mix, Collette says. News Corp. plans to enhance interactive applications on its DirecTV service, and EchoStar’s Dish Network announced earlier this month that it, too, is expanding its interactive options. "Competitive pressure will drive interactive TV in the U.S.," says Collette, who before his latest gig served as OpenTV’s SVP, marketing/business development. "I believe we’ll see a fair amount of Web-like concepts on the TV." Microsoft TV’s Elander says there will be a closer connection between the PC and TV. It’s not exactly a new concept, but more Web-like content (i.e., caller ID on the TV screen when someone phones, and the ability to use a TV remote control to receive additional information on a particular product seen in an ad) will be delivered to the TV soon. Elander also sees the day when all-electronic devices in the home work together seamlessly. "We’re going to start seeing the functionality of home electronics devices become connected with each other, which will make those devices more valuable to consumers," Elander says. "The TV won’t become a PC, but it will become an intelligent device that’s part of a whole networked experience." Home networking will probably serve as a way of pushing more services into customers’ homes rather than as a profit center, Willner says. As technology becomes easier to use, many consumers will opt to hook up their own home networks, he adds. Paul Delzio, senior director of broadband sales for RealNetworks, also says home networking will get simplified and grow with time. For instance, RealNetworks’ Rhapsody music service is delivered via a broadband hookup to a consumer’s home; an electronic guide of all the music available on the service can be displayed on the TV screen; and with the push of a button on the remote, a desired song can be downloaded from the Internet and played on the consumer’s stereo. "I have done that in my own home already," Delzio says. "And I am no technological whiz. All this stuff is getting easier and easier, which will, in turn, increase consumer usage." RealNetworks also has video streaming deals with the major sports leagues and several programmers, including Starz Encore Group. Staking Out the Middle Ground There has been some concern that cable’s middleman role might become obsolete if TV sets come equipped with broadband hookups. That could negate the need for set-top boxes and consumers could bypass cable altogether, some pundits predict. Forbes columnist Penelope Patsuris raised the question last month, noting that while consumers probably won’t be ditching their cable service for Earthlink any time soon, nearly 70% of active Internet users log on around 8 p.m.—prime time—according to A.C. Nielsen, and that major Internet portals including Yahoo, MSN and AOL have cut expansive programming deals to deliver streaming video to consumers. "The trend does make us wonder just how long it will be before most folks skip using any kind of pay-TV set-top box altogether and just plug their broadband straight into their shiny new flat-panel TVs," Patsuris wrote in an April 8 column. Operators don’t admit to being phased by the threat. It’s just one more reason to provide multiple product lines, they say. "Customers will increasingly look to one provider for all their communications needs," says David Pugliese, VP, market development/marketing, for Cox. No one product or service available today or on the horizon has the potential to be a home run, he says. Rather, the combination of services and cable operators’ flexibility in offering those services will be what will keep them at the head of the pack. But that means operators must continue rolling out new products on a regular basis, and that can create confusion for customers. One of the reasons ITV never took off was operators had so much on their plates that they couldn’t give it the attention it needed to gain consumer acceptance, Collette says. "Operators need to speed up their products to market," he says. On paper, the battle is cable’s to lose, he adds. "But in practice they could lose if they’re not on top of it. Cable has the ability to unify broadband and broadcast services. It has all points of control whereas the other competitors don’t." Targeting Commercial Clients One of the most promising new streams of revenue for operators could come from servicing commercial businesses. Aside from a few exceptions—notably Cox, Cablevision and Time Warner Cable—most cable operators are not chasing business clients. Cable has traditionally been a residential service, and it’s left billions on the table for the phone companies to fight over. Kagan World Media estimates the cable industry could easily generate $9.7 billion annually from commercial clients by 2008. Today, Kagan says, cable operators pass 38% of the commercial businesses with their plant but serve fewer than 1% of those businesses. Cox generated more than $350 million in revenue from its commercial accounts last year, says Bill Stemper, VP, Cox Business Services. "We’re at 10% of what we can reach today [without extending plant], and we’re growing at 20% a year," Stemper says. In its franchise areas alone, Cox calculates there’s $10 billion in potential commercial revenue; the company’s plant currently passes potential clients that could represent $2.5 billion in revenue. The MSO already serves a cross-section of small, medium and large businesses with mostly voice and data services. But advances in broadband speeds and the deployment of VoIP will enable the company to expand its offerings significantly while gaining customers at the same time, says Coby Sillers, VP, commercial field operations for Cox Business Services. For instance, Cox’s broadband network has long been a conduit for doctors and insurance agencies transferring patient files. New applications requiring faster and fatter broadband transmissions are also cropping up on a regular basis. "We can transfer image-rich content today that couldn’t be moved around before," Sillers says. "It’s one thing to move a data file with patient information between agencies. It’s another to transfer CAT scans and MRIs. We can, and are, doing that now." The opportunities for cable operators in the commercial arena are astounding, says David Turnbull, VP, marketing, for Rocksteady Networks, a software firm that enables broadband providers to segment bandwidth and prioritize voice services for commercial clients. "In the next two years, the commercial broadband market will be a $100 billion business," Turnbull says. "Most of that business today is handled by telephone companies via T-1 lines. It’s 10% of their business, but it accounts for 20% of their profits." Telephone companies are charging on average $800 per T-1 line, he says. Cable operators are already delivering a superior product, and they could deliver a cheaper service and still get better profit margins. "There’s no reason not to assume cable operators could get 25% of that $100 billion in three years," Turnbull says. "In the 25 years since I have been working in the tech sector, I have never seen an opportunity this large for making billions of dollars. The impediments are so low and the opportunity is so high." Willner says the commercial business looks attractive but notes Insight has so much on its plate right now that it probably won’t dive into it for at least another year or two. "We talk a lot about the possibilities of entering that business," he says. "We’re certainly not exploiting it yet, but we will eventually. We’re still transitioning into a multiple product provider. Core video continues to be the biggest part of our business. But with the addition of phone and data services, the potential for commercial applications rises significantly. The challenge is the cost. And you can’t just build it and expect them to come." Sillers agrees that it takes some planning and execution to successfully launch a commercial applications business. But he says there’s plenty of money to be made without spending much upfront. And the payback is quicker than other lines of business because margins are so attractive. Turnbull figures—and the Cox executives agree—it doesn’t make sense not to plunge into the commercial application business given the upside potential. "Cable operators can customize the amount of bandwidth their clients use and charge them appropriately," Turnbull says. "They could charge $300 to $400 for business usage." While the idea of serving commercial businesses appears to be gaining some popularity among MSOs (enough so that CTAM is planning its first seminar on commercial business opportunities, and the NCTA is sponsoring a panel at the National Show this week on the topic), opinion is mixed on whether the commercial business is worth pursuing. In some cases, opportunities are passed up because it takes too long to recoup costs. Case in point: Comcast has publicly stated it’s interested in delving deeper in the commercial business, but in my little town of Castle Rock, Colo., I couldn’t convince the MSO to wire my husband’s bike shop for video and high-speed data. They don’t offer local phone service, or I’d have asked for that as well. Sorry, they said, not worth the trouble. We’re looking into satellite dishes now, and perhaps Qwest will fulfill my dream of a high-speed connection. Goodness knows how many other small businesses receive the same negative answers from their cable operators. The Once and Future Killer App For now, expect most cable operators to concentrate on their residential customers. Residential video service has always been the industry’s bread and butter, and will remain so for years to come, even though the percentage of video revenue compared to other lines of business continues to dwindle. "When you think about it," says Massillon Cable president Bob Gessner, "the cable industry has had one killer application: basic cable." Premium services and pay-per-view, while successful, never really reached killer app status because there was never enough penetration or usage, and profit margins are slim. High-speed data appears to be on its way to becoming the industry’s second real home run, Gessner says. And phone service has potential. "But I worry [phone] service will become a commodity due to the large number of competitors and, therefore, not generate much of a profit margin," he says. Video will continue to be the core business for cable operators because it tends to be the first service in a customer’s home, Cox’s Pugliese says. Once there, operators can upsell other services. Still, Cox counts some 300,000 customers who take voice and/or data but not its video. It’s a small slice of the 6.3 million video customers the MSO serves, but it a growing trend nonetheless, Pugliese says. "We recognize there are just some customers who don’t want to subscribe to our video service for one reason or another but want our other product offerings," he says. "It’s a small number, but it’s growing at a healthy rate." Video may be a core part of the business, but that doesn’t mean it’s totally static. Operators continue to tweak and improve their video offerings with more high-definition programming and on-demand fare. Collette believes a marriage of VOD and DVRs is inevitable and will spur both revenue streams in the future. "VOD today uses standard set-tops that limit its performance," Collette says. "But a combined VOD/DVR box will make it a better experience for consumers, and usage will climb as a result." The expansion of interactive applications, VOD and DVRs present operators with a new opportunity in the ad sales department as well. Interactive ads are a genre that has been talked about for some time, but the business is on the cusp of becoming a reality, says Jay Schiller, SVP, market development, for nCube. "Regardless of how consumers get their entertainment, advertising will be part of the mix," Schiller says. Interactive advertising is a "zero billion dollar business today, but in the next five to 10 years, it has tremendous potential to be a major revenue generator," he says. Advertisers can better target their audiences using interactive applications, and operators can charge appropriately for that service, Schiller says. All it takes is some database coordination, which already exists in most systems, he says. "In five years, it’s not hard to imagine 30% to 50% of all TV viewing being on demand," Schiller says. The Bandwidth Question Cable’s $85 billion network platform upgrade will certainly come in handy, no matter what products and services consumers want in the future. All it takes is bandwidth. Operators realize that to deliver new services, they’re going to need to go all-digital. That will give operators as much bandwidth as they will ever need to deliver new products and services. However, some operators are concerned about the process, even if it is inevitable. "Even low-cost digital converters, say $40, represent an enormous investment because you can’t count customers or houses," Gessner says. "You have to count TV sets. The cable industry probably is connected to over 250,000,000 devices. The hardware [at $40] will cost $10 billion, and that doesn’t include the cost of installation and customer training. Certainly, all of those converters have the potential of generating revenue when they become digital converters, but many of them won’t. Are we really prepared to install four digital converters in every home so we can generate VOD revenue from one?" Dicey as the prospect may be, bandwidth recovery will be essential if operators want to continue being the one-stop shop for consumers. HD signals, faster modem speeds, commercial applications and VOD all take up space on the broadband pipe, and operators are going to need every bit of it to stay competitive. It may be ugly and expensive, but the process is unavoidable. The benefits of an all-digital network will outweigh the costs, says Willner. "The challenge is timing and transition," he says. "Crossing the river over to all-digital will be difficult, but there’s fertile land on the other side." The long, expensive trek toward that lush landscape is necessary if cable operators want to be winners in the telecom race, Chiddix says. "Cable operators need to be pushing products that differentiate themselves from the competition," he says. "They can’t afford to walk away from any business that potentially generates revenue."

The Daily


NTIA Diving Deeper into AI Model Questions

NTIA opened a request for comment on the risks, benefits and potential policy related to advanced AI models with widely available model weights. The open-weight models NTIA wants to hear about allow for

Read the Full Issue
The Skinny is delivered on Tuesday and focuses on the cable profession. You'll stay in the know on the headlines, topics and special issues you value most. Sign Up


Feb 27
2024 Top Ops Awards Nominations Open February 27th.
Apr 25
2024 Cablefax 100 Awards Magazine Release: April 25, 2024
Jun 13
2024 American Broadband Congress Conference Registration is Open!
Jun 26
2024 FAXIES Awards Nominations Are Open!
Full Calendar


Seeking an INDUSTRY JOB?

Hiring? In conjunction with our sister brand, Cynopsis, we are offering hiring managers a deep pool of media-savvy, skilled candidates at a range of experience levels and sectors, The result will be an even more robust industry job board, to help both employers and job seekers.

Contact Rob Hudgins, [email protected], for more information.