The Year Ahead

While there are only two certainties in life (OK, one if you have a terrific accountant), it seems there are few locks in the cable business. That makes it difficult to look 12 months ahead, predicting who and what will be news in 2006. But after compiling this list of people, issues and companies to watch, it would seem to be a good bet that if TV moves as far outside the box as many predict, Oct. 12, 2005, will be the subject of numerous PhD theses about the video iPod’s influence on civilization. Another safe wager is that NCTC chief Jeff Abbas is correct when he predicts “the impending competitive onslaught” that will accompany the transition to an all-digital world will dominate cable headlines next year. Apart from a few regulatory issues, the theme of competition runs through most of this special section. Another common thread is the customer’s desire for affordable content on multiple platforms and on his/her schedule. But when we dig deeper the questions arise. When will hand-to-hand combat for subscribers begin in full force? Some say next year with certainty, others predict 2007-2008. Still others feel the telcos are logy and will prove only modest competition in their product offerings. The real threat will be their lobbying power, these observers argue. On the relative fringes are retrans, plug and play and indecency masquerading as a la carte, although any of these could dominate. At the end of this section we ask veteran cable observers for their lists of dominant issues for ’06. As a change of pace we’ve included the priorities of cable organization heads, like Cable Positive’s Steve Villano, who’s come up with interesting ideas that will help fight the AIDS pandemic. Our dream for 2006 is that cable will be in such good shape that it will fund Villano’s group at a record pace and put the disease out of business. Newsmakers to Watch in ’06 Steve Jobs
CEO, Apple

Steve Jobs upset the apple cart of traditional TV distribution on Oct. 12 when Apple released an iPod with video player capability on its 2.5-inch screen. Now and in ’06, MSOs will be watching anxiously how many and which consumers choose to watch TV “outside the box.” They’ll also carefully monitor Jobs as he cuts deals with programmers, offering a direct-to-consumer cable bypass that changes the economics, distribution and balance of power to programmers next year and beyond. While cable operators hope to tap into the portable device market (Comcast CEO Brian Roberts has been particularly vocal about offering personalization and customization of TV content), the industry’s more immediate concern is with Apple’s programming deals. First there was the video iPod’s launch deal to sell Disney-owned shows like ABC’s Desperate Housewives and Disney Channel’s That’s So Raven for $1.99 per commercial-free episode. This was salt in the wound given Disney had refused to license its most-popular broadcast shows for cable operators’ free VOD lineups. It also established that broadcasters could charge and be paid for their hit series. More salt? Jobs launched the video iPod with more than 2,000 music videos—many among the most popular free VOD titles on Comcast and Time Warner Cable. In effect, Jobs has thrown down a gauntlet for MSOs and offered leverage to programmers. On the heels of the Apple-Disney deal, Comcast acquiesced to pay CBS a license fee to offer 99 cent VOD downloads of its hit series. Then DirecTV and NBC Universal struck a deal to offer 99 cent downloads of select NBCU-owned series. The upshot: In 2006 and beyond, Comcast and other MSOs will have to license and pay broadcasters for hits. Cable’s “free or bust” VOD stance of not paying twice for TV content has been upended. That comes as good news to TV programmers like HDNet founder Mark Cuban. The video iPod “broke the links to the past and opened new revenue streams for selling hot shows while they are hot,” he says. “People want content where and when they want it. It’s found money that will just improve the ability of networks to invest in content.” But there might be a silver lining for cable in all this. Already, TiVo has announced an enhancement of its DVR that will allow subscribers (soon to include Comcast subs) to transfer TV shows recorded at home to their iPods and other portable devices. “There are dozens of iPod-like opportunities for the right operator to put something in consumers’ hands that’s intuitive and simple,” Paul Connolly, VP and GM of emerging business at Scientific-Atlanta, predicted before the video iPod was launched. While 2006 may be too soon for cable operators to win the battle for consumers’ thirst for what they want, when they want it (and with the iPod’s ease of use and competitive pricing), the recent wireless joint venture between Sprint, Comcast, Time Warner Cable, Cox and Advance/Newhouse is an important step in that direction. Glenn Britt
chairman/CEO, Time Warner Cable

Next year will be unlike any Glenn Britt has faced. And in his 33-year career at Time Warner and Time Inc. he has seen a lot. Cable was just taking off when Britt joined Time in 1972 as a freshly minted MBA. Today he presides over the second-largest cable operator, which is about to add 3.5 million subscribers through the acquisition (with Comcast) of Adelphia. There’s no doubt that Time Warner Cable, which will count about 14.5 million cable subscribers when the acquisition closes, is well-positioned. But with the influx of technologies and services competing fiercely with cable for the manna of subscriber dollars, Britt and cable are facing more uncertainty than ever heading into 2006. Investors are concerned about what kind of capital expenditures will be needed after the acquisition closes, and what that will do to margins, which were flat in the third quarter. There’s also concern about what, if any, conditions regulators will slap on the deal. If Britt is correct, integrating the Adelphia subs will be akin to an exercise in Management 101. “You should feel comfortable about our ability to do this,” he told investors in September. “It’s going quite well.” If so, the reputation he’s gained as an innovator and advocate of digital-enabled cable products will burn a little brighter. If he’s wrong, he’ll lose some of that luster. Chase Carey
CEO, DirecTV

We’ve been watching Chase Carey since 2003, when he was put in charge of the biggest U.S. DBS operator. But Carey makes our top newsmakers list for 2006 because he finally looks ready to fulfill the ITV promises he made when his boss Rupert Murdoch paid $6.8 billion for a controlling interest in the DBS operator nearly three years ago. Under Carey’s leadership, DirecTV will be an interactive behemoth next year. It’s already started rolling out interactive PVRs (just in time for the Christmas rush), and expects to take full advantage of them next year. The former college rugby player (and Harvard MBA) showed his hand last month, when he trumpeted a deal with NBC Universal that delivers TV shows to the set-top for 99 cents a pop, as VOD. Add in the fact that DirecTV is planning to launch local HD signals next year, and you’d think cable would be in a heap of trouble. The problem for Carey, however, is that this isn’t 2003. Cable has been fretting about DirecTV’s ITV services for nearly three years. Now that DirecTV’s finally launched them, cable doesn’t seem nearly as concerned. MSOs are matching DirecTV’s PVR ambitions (while DirecTV can’t match cable’s VOD service). DirecTV still is a formidable competitor in the video space. But it can’t do high-speed or telephony. Can a robust video service match cable’s bundle? That’s why we’ll be looking at Carey next year. Kyle McSlarrow
president/CEO, NCTA

Kyle McSlarrow bears watching, if only because his 2006 will be dominated by Janet Jackson’s nipple. It doesn’t matter that cable’s chief Washington, D.C., lobbyist will be engaged in other fierce battles—indecency seems to be the sexy issue that likely will get the most play. The fact that indecency’s stench lingers has to rankle McSlarrow, who has been dogged by smut since his first day on the job. Two of McSlarrow’s biggest bosses, Brian Roberts and Glenn Britt, have urged him to do whatever he can to get indecency off the table. That’s because FCC chairman Kevin Martin has been using it (in the form of voluntary family tiers) to hold up the planned Adelphia acquisition by Roberts’ and Britt’s companies. But none of cable’s plans have taken hold, and indecency likely will grab headlines in ’06. If indecency were the only stinker on McSlarrow’s plate, that would be fine. McSlarrow still has to fend off the telcos, which are trying to circumvent local franchise rules. He needs to battle broadcasters, which are pushing for multicast must-carry. And he has to find some middle ground with the CE industry to deliver two-way plug and play. That doesn’t include walking the tightrope between programmer and operator members. Or making sure that cable survives the DTV transition, figuring out network neutrality and deciding a regulatory framework for VoIP. Oh, did we mention the telecom rewrite? Yep, cable’s got to get indecency off the table. Brian Roberts
chairman/CEO, Comcast

Although he hates it (being called the “Cable King”), he is it…and he’s grown up to inherit it from his father as they both led the latest round of cable consolidation. But, now comes the hard part: balancing Wall Street expectations with the long-term demands of the business. Wall Street wants Roberts to run a free cash flow machine that never stops growing…without making the requisite capital expenditure investments. Tough to do. The key will be the way he manages the company. So far, he’s doing it just about perfectly. He has surrounded himself with senior management upon whom he can rely, including people like Steve Burke, John Alchin and Mark Coblitz, and he has the good sense to listen to his father. Most of all, he isn’t afraid to act. While Roberts can sometimes seem cerebral and cautious, no one who has seen him play squash would think that’s all there is to him. He can strike quickly and stay in the game with a gambling defense. Among the company-specific issues he’ll confront in 2006 will be expanding Comcast’s deal for low-priced replays of broadcasters’ prime-time hits. Roberts needs to go beyond his deal with CBS and “get all prime-time broadcast shows on VOD everywhere,” Forrester Research VP and principal analyst Josh Bernoff believes. He’ll also be pressed to continue moving on digital phone and wireless deployment. Ah, “uneasy lies the head that wears a crown.” Ivan Seidenberg
chairman/CEO, Verizon

For an executive who’s said to shun the spotlight, Ivan Seidenberg made quite a splash when his company decided to build a fiber network that would deliver video as well as broadband speeds of up to 30 Mbps. But Verizon’s $10 billion investment is part of a delicate balancing act, generating revenue from new services even as its core phone business erodes. Another interpretation: This is as much a defensive play as it is an offensive one. Seidenberg knows a bit about offense and defense and reshaped industries. He was chief executive of Nynex when it merged with Bell Atlantic in 1997, and CEO of Bell Atlantic when it swallowed GTE in 2000. He started out 38 years ago as a cable splicer’s assistant. Now, he’s pinning much of Verizon’s future growth on the success of the FiOS network, but investors are skittish. Concerns over what kind of returns Verizon will get from the FiOS investment have contributed to skepticism. In early December Verizon shares traded below 32, down from more than 40 in January. That’s despite the expected cost benefits of the new fiber infrastructure and encouraging news so far from FiOS, which boasts 12.5% penetration in the 35 markets where Verizon’s been marketing it for more than six months. With fierce competition on all sides of its business, and a steep climb before it can offer a quad-play bundle throughout its footprint, investors want to see proof that Seidenberg’s big bet will pay off. Issues to Watch in ’06 Competition Cable will face heavy competition in 2006. Or will it? Fitch says next year will be relatively stable, with fierce competition not forecast until 2007 or 2008. Another member of this camp is Forrester Research VP and principal analyst Josh Bernoff. “The only thing that goes slower than a cable company is a telephone company,” he says. Points North Group’s Stewart Wolpin doesn’t see it that way. “[Telcos] will be a threat to cable next year. Operators are vulnerable, and if consumers see a viable alternative, they will give it serious consideration.” A major question is whether or not telcos will offer enough original services to make cable or DBS customers switch. “Cable has a window of opportunity to prepare before this threat becomes significant by introducing HDTV and ITV and VOD. It’s their game to lose,” Bernoff says. “If cable is caught napping the same way things went with DBS, it has no one to blame but itself.” Digital Fragmentation The biggest sea change of 2005 will start becoming mainstream in 2006 as more and more content proliferates to an increasing range of devices, from the video iPod to Sony’s PlayStation Portable (pictured) to mobile phones. “The mass audience is becoming masses of audiences,” Deloitte analyst Tony Kern says. This will pressure cable operators to step up convergence between their video, broadband, telephone and interactive platforms in the next 12-18 months (a big factor in the recent joint venture between Sprint Nextel and Comcast, Time Warner Cable, Cox and Advance/Newhouse). It also makes it imperative for programmers to build and leverage their brands beyond the linear TV universe. The bottom line for distributors and programmers: Change or risk being left behind. Digital fragmentation will benefit powerhouse cable networks like ESPN or MTV, who’ve become much more than TV brands with already-established loyal audiences and off-TV franchises (from radio, restaurants and stores to their broadband channels, ESPN 360 and MTV’s Overdrive). But this fragmented marketplace will make it tougher for smaller networks with less consumer awareness to break though. Plus it will be harder to capture a mass audience for a single event “with time-shifting and everything else that’s going on,” Kern says. “That requires a fragmentation in content, and you have to be able to slice it and deliver it in a whole lot of…ways.” Plug and Play/CableCARDS Will 2006 be the year that the NCTA and CEA join hands on a two-way plug-and-play agreement, laying out the best way to quickly get interactive two-way TV sets to market? Judging by proposals the two groups submitted recently to the FCC, the answer is no. Still, the result of the negotiations is critical, as a set of standards for two-way transmission will drive adoption of interactive and digital services that are crucial to operators and programmers for future growth. The two sides risk intervention by the FCC if they can’t agree. A positive sign came recently when a quartet of consumer electronics manufacturers signed licensing agreements with CableLabs to use its OCAP standards and specifications in the production of two-way-capable TVs. Yet key differences remain. CEA, for example, deems the NCTA-proposed OCAP-standard specs and licenses noncompetitive and therefore unacceptable. The cable industry, though, first started working toward OCAP as a standard for middleware software in 1999. Retransmission Consent Viacom begins 2006 with CBS splitting off and its CEO, Les Moonves, pushing cable operators to pay for the programming on his broadcast network, come hell or high water. Moonves is making noise now about operator cash, even though retransmission consent agreements with his stations don’t expire until 2007. Moonves’ success will be bolstered should his fellow broadcasters rack up victories on retrans during the next 12 months. Meantime, the consent rift between Cable One systems in Kansas, Louisiana and Missouri and Nexstar Broadcasting approaches its first anniversary, with no indication Nexstar will bring its stations back to Cable One customers soon. Cable operators are steadfast against paying fees for broadcast programming, so look for more signal blackouts if stations want to pick retransmission fights. “[Broadcasters] are not going to win,” says Todd Chanko, analyst at Jupiter Research. With broadcasters continuing to lose share to cable, Moonves “should wake up every morning, kiss the ground and consider that given all the video choices out there, CBS is still a Tiffany network,” Chanko says with a bit of exaggeration. Time-Shifted and VOD Measurement Nielsen, the 800-pound gorilla of television measurement, starts tracking DVR usage next month, with VOD to follow later in 2006. Its entry into the highly competitive time-shifted TV viewing tracking space will crowd existing players: Rentrak, TNS, Atlas on Demand, Everstream and erinMedia. Nielsen’s entry comes as cable operators are being pressured by advertisers to provide more data than the four VOD data points that the top MSOs agreed to supply last spring. Already, Cox and Cablevision are providing more than four to their VOD advertising partners. While advertisers have angst, some MSOs seem unperturbed. “On demand is probably already one of the most accurately measured television advertising deliveries ever and it will just continue to evolve in the future,” says Page Thompson, Comcast’s VP and GM of On Demand. Wall Street Investor concern heading into 2006 can be summed up in a word: competition. Cable stocks—and telco and satellite shares, too—have stalled as investors await the outcome of hand-to-hand battles for customers. So far there have been skirmishes only. But 2006 could feature full-out warfare, and some big investors aren’t taking chances. In the third quarter of ’05, institutional investors such as T. Rowe Price, Wellington Asset Management and Janus Capital sold off portions of their stake in Comcast. Indeed, cable’s facing considerable weapons: DirecTV and EchoStar will have more high-definition offerings than ever, and consumers will have more choices as to where/how they get video. Cable must respond to telcos firing up fat fiber networks capable of higher broadband speeds than most cable offerings. Cable insists it won’t enter price wars, but the two biggest MSOs have introduced low-priced triple-play bundles in an effort to attract and retain customers. Companies to Watch in ’06: MSOs Cable One The 10th largest MSO anticipates starting 2006 the same way it began 2005—fighting retransmission consent. Nexstar Broadcasting pulled its stations from six Cable One systems (100,000 customers) last January. Cable One is holding firm on not paying Nexstar cash to get those stations back. While Cable One lost about 7% of customers in the six systems early on, CEO Thomas Might says Nexstar is a bigger loser, finding its ratings down 30%. “We’re not losing subs any more,” Might says. “We’re gaining them.” The resolution of Cable One’s situation could be a harbinger for other MSOs. Cablevision Aside from the eye-popping Dolan family dramatics, Cablevision has had a banner year. Next year, we’ll be watching to see if it can pull a repeat performance. Cablevision’s $90 triple-play bundle, which raised eyebrows when it was introduced, has now spawned an industry of imitators and garnered accolades from analysts. Things we’ll be watching next year: Will customers who signed up for the one-year special deals stick around after they end? What happens as Verizon introduces FiOS video and goes head-to-head with Cablevision in the broadband arena, with speeds up to 30 mbps? Cebridge Connections In a business where size matters, Cebridge will be a whole lot bigger in 2006. It leaps to No. 8 on the MSO list with the $2.5 billion acquisition by its parent Cequel III of systems serving 940,000 subscribers from Cox. Even better, about 90% of the acquired systems already are upgraded to 750 MHz and 850 MHz, thanks to Cox. That means Cebridge can continue where Cox left off, deploying telephone and other advanced services. But the picture’s not all rosy. Cebridge must first integrate the new systems and the Cox network into its own—not a small task. Comcast There’s little doubt about Comcast’s 2006 priority. Every chance they get CEO Brian Roberts and COO Steve Burke showcase their desire to convert more subscribers to an all-digital environment, exposing them to VOD. By year’s end, Comcast anticipates having more than half its systems capable of all-digital operation. They also point to Comcast launching digital telephony in the majority of its markets by next holiday season. Wireless presumably has a big role to play in Comcast’s near-term plans, thanks to the $200 million partnership with Sprint Nextel. “As consumers get used to universal access of content, it will become something they expect, instead of something they want,” Points North Group’s Stewart Wolpin says. “This could be huge for whoever provides universal access the best.” But Comcast must be mindful of providing affordable service bundles. “They must take VOD, DVRs, HDTV and interactive features and make them as attractive as possible,” Forrester analyst Josh Bernoff notes. Cox A big hint about Cox in 2006 and beyond came during last month’s press conference announcing the partnership between Sprint Nextel and Cox, Time Warner Cable, Comcast and Advance/Newhouse. “I think what’s going on today is a baby step of what might be coming in the future,” soon-to-retire Cox chief Jim Robbins said. “And that’s going to be the fun of this venture: seeing what kind of products we can develop, what kind of integration we can achieve and try and stay ahead of the consumer which is, to me, what the game is really all about.” Translation: Think bundling plus mobility, interactivity and convergence. Time Warner Cable Interactive fantasy football, eBay on TV, Start Over—in the last few months, Time Warner Cable has been on an interactive roll, one that’s not about to let up in 2006. But interactivity is just one of the reasons to keep an eye on Glenn Britt’s outfit. Voice, video and data bundles have helped reverse basic cable subscriber erosion. With wireless in the mix, customer churn could be reduced even further. “I think the most important thing now is the triple play,” Britt says. “If we get somebody who buys phone and data and video, and if we provide good service, they’re not likely to leave us.” Companies to Watch in ’06: Programmers Comcast Programming czar Jeff Shell has a long to-do list for 2006, including shaping OLN into an all-sports net and changing its name; turning out new channels in collaboration with Sony; building PBS Kids Sprout; growing AZN into the main TV destination for Asian-Americans; and…you get the picture. Many believe Comcast’s overarching strategy will be to target niche and ethnic markets, tapping into the tremendous carriage potential of the 23-plus million subs it will have when its acquisition of Adelphia is completed. “Any channel they start will have a huge carriage advantage,” Forrester’s Josh Bernoff says. Bernoff sees Comcast introducing an all-sports effort in 2006, either via OLN or a new channel managed with the NFL. The Walt Disney Co. As the movie and content businesses morph into their next iteration, Disney wants to be a leader, not a follower. No need to sell George Bodenheimer’s ESPN on that. Bristol has long been a platform-agnostic servant of its customer, the sports fan. True to form, ESPN will offer a sports-oriented wireless phone service in ’06, headed by Manish Jha (Disney will have a similar, family-friendly service). And it’s not a coincidence that one of Disney’s first moves under new chief executive Robert Iger was to make the popular ABC shows Lost and Desperate Housewives available to video iPod users. The Indie Programmers GSN, Oxygen We may look back on 2006 as the beginning of the end for big independent linear networks. The two biggest, Hallmark Channel and Court TV, likely will throw in their towels next year when Time Warner gobbles up Court TV and “TBD” (likely a big network group) picks up Hallmark. That will leave GSN’s Rich Cronin and Oxygen’s Gerry Laybourne as the king and queen of the big indies. Along with The Weather Channel and WGN, they are the only ones left with household distribution north of 50 million. Of course, if you look at their parents, it’s hard to consider them small indies (GSN has Sony and Oxygen counts Charter’s Paul Allen and media heavyweight Oprah Winfrey as investors). That’s the problem. The next generation of indies, like Outdoor Channel (26 million), will need deep pockets. Cable operators have been conditioned to accept launch support from networks that don’t have retrans leverage. Even Donald Trump realizes he can’t make it in cable without a big partner, which is why he’s talking to NBC and others about a Trump Shopping Network. We’ll be looking to see whether we’ll still be able to write about Cronin and Laybourne as indie programmers in 2007. MTV Networks Envy MTV Networks. It’s been the most aggressive U.S. media company at embracing and creating the digital media world. It’s launching broadband-based, Web-delivered TV channels for each of its core cable networks. MTVN chairman and CEO Judy McGrath will continue to shepherd groundbreaking deals. Case in point: her recent global, multimedia partnership with Universal Music Group. Of course, it helps that McGrath & Co. can stuff their direct pipeline to its tech-savvy consumers with killer brands like MTV and hot series like Comedy Central’s The Daily Show with Jon Stewart. NBC Universal NBC chief Bob Wright is on a crusade to stop digital piracy, which he sees as the biggest threat to NBCU’s intellectual property. “This is the dark side of our Internet age,” he wrote last month in The Wall Street Journal. “Digital technology…makes all data and information easily replicable and able to be transmitted at the speed of light around the world.” Carrying out Wright’s marching orders will be Deborah Reif, head of NBCU’s digital initiatives; J.B. Perrette, SVP of new media at NBCU; and NBCU Cable chief David Zaslav, who protects the company’s content in affiliation agreements. Scripps Networks Long a leader in the niche cable network and VOD space, Scripps is now bullish on Internet TV. Knoxville will have at least 10 broadband-only TV channels by next year, and is pioneering Web-exclusive series such as Eat This, a series of 13 short programs about food trends that was introduced last month on Food Network’s website. In 2006, look for Shop At Home and Shopzilla to accelerate their e-commerce successes. And having revamped Shop At Home, former Food Network president Judy Girard will put her stamp on anchor property HGTV. Companies to Watch in ’06: Technology Cisco Systems Certainly Cisco was no slouch, but its pending acquisition of Scientific-Atlanta places it smack in the center of the home video equipment market. A key piece of Cisco’s strategy is to be a leader in a converged world of data, voice, video and mobility. Already a big player in broadband routers and VoIP, providing soft switches and networking gear, Cisco sees video as its next big opportunity. In dollars and cents Cisco’s video play could be worth $4 billion to $5 billion, with a growth rate of about 22%, SVP Mike Volpi told investors in November. Google The obvious question: How high will Google’s share price climb, now at around $400 share? UBS Web watcher Ben Schachter foresees Google hitting $450-$500 a share. The not so obvious: How high are Google’s ambitions beyond Web searching when it comes to being a cable player, or cable competitor? Google has launched a variety of features, including instant messaging, which could be adapted for cable, DBS or telco delivery. It’s also exploring interactive TV. “They could partner with cable to do search functionality on TV,” Forrester’s Josh Bernoff says. Not all are sanguine. “Google will become a big competitive cable headache,” Jupiter’s Todd Chanko believes. Microsoft The convergence of TV and the PC will accelerate next fall, thanks to the landmark deal Microsoft and CableLabs signed last month that lets viewers watch conventional TV on PCs running Microsoft’s Windows XP Media Center. For the 2006 holiday season, PC manufacturers will supply digital-cable-ready Media Center-based PCs. The computers will support a CableCARD module, giving viewers access to one-way cable programming. As more content providers launch broadband channels, Microsoft will become an increasingly important player. And it’s covering all its bases: As of early December it’s the sole sponsor of the broadband-only video cooking series hosted by Food Network’s Dave Lieberman. Mobile Video Enablers Cable’s wire into the home is becoming unwired with the Sprint deal—as Brian Roberts commented, “it’s really [about] the creation of a third screen” beyond the TV and PC. But for now MSOs must compete against a plethora of mobile video programming enablers, including MobiTV; Verizon’s downloadable video clips for its VCast service; and personal video players such as Sony’s PSP and Apple’s video iPod. No wonder every Hollywood studio and major media company is giving mobile devices their full attention. Digital media departments from NBCU to Turner resemble mini Radio Shacks, testing content (and potential) across multiple platforms. Sling Media At the start of 2005, few had heard of Sling Media. That’s no longer so as 2006 approaches. The company’s fortunes rest on Slingbox, a device that lets cable or DBS users watch their favorite TV shows anywhere—whether the device is attached to a desktop or laptop computer, or handheld PC. “The medium promoting that access will have an immense leg up on the competition,” Points North Group’s Stewart Wolpin says. While consumers generally are favorable about Slingbox, programmers are concerned about its effect on ratings. Yahoo No longer “just” an Internet portal boasting the world’s most popular free e-mail service, Terry Semel’s Yahoo has become a force on the entertainment front, reaching 73% of all U.S. Web users in any given month. Building on its business of syndicating video content from CNN and streaming TV series online, as Showtime did with Fat Actress, Yahoo plans to launch original programming in 2006 and continue cutting deals with TV networks to stream video and user-generated content. And watch for more broadband deals along the lines of its partnerships with Verizon and SBC in the U.S. Outlook 2006: The Financial Analysts Concern over a highly competitive marketplace has dampened enthusiasm for cable stocks, to put it mildly. We talked to two analysts to see what they’ll be watching next year. Richard Greenfield
Fulcrum Global Partners “It appears that 2006 is going to be the year of some of the most aggressive competition yet,” says Fulcrum Global Partners analyst Richard Greenfield. As telcos launch a fiber-driven video product and DBS operators become more aggressive with high definition, “my focus is really on the competitive element in 2006, with a continuing focus on the unknowns,” such as how broadband wireless evolves. Assessing the competitive element over the next two years is critical to determining the free cash flow cable can generate in the 2008 to 2010 time frame. Greenfield will also be monitoring Comcast and other operators for any steps they might take to go all-digital and “create the ultimate infrastructure.” Greenfield expects high-speed data speeds to keep rising to compete with Verizon’s FiOS broadband. “There is going to be a push to have far greater bandwidth-heavy applications,” he notes. Bundles will continue to play an important role, but Greenfield would prefer operators do away with introductory packages that might include a smaller number of digital channels or a low-tier broadband offering. Cablevision has been quite successful with a package that has the full quality of its data and digital video services, he says. “I’d like to see these companies be more aggressive in how they are marketing and packaging their bundle.” Craig Moffett
Sanford Bernstein As Sanford Bernstein cable and satellite analyst Craig Moffett puts it, “the telcos are coming.” That’s one of five big issues weighing on the market in 2006, he says. He’ll be watching Keller, Texas, Verizon’s first video market, and looking at whether or not SBC can pull off its video foray using fiber-to-the-node and IPTV technology. As for Verizon’s fiber-to-the-home build, he’ll keep an eye on how much pressure investors bring to bear on the company to generate a decent return on its multibillion dollar investment. Investors will also be paying close attention to broadband pricing. This year, the trend has been hyper-aggressive discounting by DSL providers and slow and steady market share gains. “In 2006,” Moffett says, “will prices and shares stabilize, or will those same trends continue?” A third issue is the emergence of alternative broadband networks. Rumors have been floating that DirecTV and EchoStar will announce a deal to offer wireless broadband using WiMax technology, allowing wireless transmission of data over great distances. Should satellite providers be able to offer broadband this way, Moffett will be watching how the competitive dynamic changes. He’ll also keep an eye out for other fledging broadband technologies, such as broadband over power lines. As this market develops analysts will get a sense of whether there will be a viable third pipe into the home for broadband. The fourth issue on Moffett’s list also revolves around competition, this time in the voice arena. He’ll be watching to see whether the voice business will become commoditized as third-party voice over IP vendors such as Skype and Vonage increase market share and force down prices. Direct-to-consumer video, over broadband and portable devices, is the last but not the least of major issues on Wall Street’s radar, Moffett says. The pace of content deals may pick up next year, but questions remain over the best business models. —Mavis Scanlon Issues to Watch in 2006: Insiders
compiled by Shirley Brady We’ve given the last word(s) on the cable industry’s top issues for 2006 to the industry itself, or, more specifically, to some of its more outspoken representatives. Geraldine Laybourne
chairman/CEO, Oxygen Media 1. A la carte.
2. A la carte.
3. A la carte.
4. A la carte.
5. A la carte.
6. A la carte. Matt Polka
president/CEO, American Cable Association 1. Programming and media consolidation: The Big Four networks get bigger and consumers and operators have to take and pay more.
2. Retransmission consent reform.
3. Programming rate parity.
4. Regulatory parity.
5. Competition from the Bells and franchising issues: SBC and Verizon are “new entrants” that need Washington’s help? Please.
6. Telecom reform/broadband issues: Independent cable operators are providing the best in advanced digital and high-speed Internet services. If Washington tips the scales too far, all the broadband good that has been gained is at risk.
7. DTV follow-up: The cost of the transition to digital and the threat of multicast must-carry are still serious issues that are unresolved.
8. Access to local-into-local: Unless cable gets access to local-into-local signals from DBS, there will be a lot of subscribers who lose their DTV signals over the “digital cliff.” Jeff Abbas
president/CEO, National Cable Television Cooperative 1. Competition: We need to brace for the impending competitive onslaught that will accompany the cable industry’s transition to an all-digital telecommunications world.
2. Operations: We need to continue rapid deployment of the new products and services demanded by our customers, and we need to pursue solutions that continue to reduce the capital cost of broader product distribution.
3. Customer service.
4. Programming costs: Anything that consistently inflates faster than the rate of inflation eventually has to explode.
5. Legislative: We need to keep D.C. focused on market-based solutions and a level playing field and a more “sane” position on must-carry and retransmission consent.
6. Technology: Distributors and content providers need to embrace technological advancement rather than thwart it. Char Beales
president/CEO, CTAM 1. Rolling out 3-4-product bundles in increasingly competitive markets.
2. Managing the exploding world of emerging digital media.
3. On demand: promoting usage and differentiating from DVR and download services.
4. Capturing movers before they call the RBOCs.
5. Taking back the “cutting edge technology” perception and telling cable’s story.
6. Customer care. Steve Effros
cable industry consultant/CableFAX columnist 1. Competition: Consumers are starting to learn that they can control what they want to see when they want to see it. Cable has to be in the forefront of that trend.
2. Indecency: More of a political issue than a real one.
3. A la carte: More of a political tool being used to leverage the “indecency” issue.
4. “Network neutrality”: A mystical theory that sounds good, especially to those who want to use our infrastructure to compete with us.
5. Franchise parity: If the telcos are going to build video delivery systems and compete with us, then it has to be on an equal footing, with equivalent rules.
6. Copyright/digital rights management. Lynette Fine
SVP, client services, Allscope Media 1. A la carte: Serious implications for start-up networks and nets with low subscriber numbers.
2. MSO consolidation.
3. Government regulation: Particularly on cable indecency, which could influence programming.
4. Convergence: The evolution of the combined television Internet universe continues.
5. TiVo/DVR: The influence on advertising dollars.
6. Hispanic marketing: Reaching the diverse market efficiently. Benita Fitzgerald Mosley
president/CEO, WICT 1. Training: As technology continues to develop at lightning speed, our industry must remain committed to providing training for our employees at all levels.
2. Innovation: Cable must differentiate itself from its competitors by continuing to roll out new products and services that appeal to its diverse consumer base.
3. Recruitment: We must attract new talent so that the pipeline remains filled with skilled, and diverse, employees.
4. Embracing change: Cable will need to secure a stable place in the wireless world.
5. Mentoring: We must give back to the next generation of workers to ensure that they possess the knowledge and skills to fill our shoes.
6. Diversity: We need to work to make cable’s workforce more closely resemble society as a whole. Steve Villano
president/CEO, Cable Positive With the 25th anniversary of the HIV/AIDS epidemic in 2006, my responses take that issue into consideration: 1. Devote more of the cable industry’s revenue and resources to the fight against HIV/AIDS.
2. Fight harder against the FCC and the federal government to protect the First Amendment, freedom of expression and the right to privacy.
3. Elect lawmakers who support condom distribution, needle exchange programs and fact-based sex education programs in the public schools.
4. Unite in a global partnership to fight AIDS through awareness, education and prevention with the satellite, broadcasting, wireless and telecom industries.
5. Provide the resources necessary to create a subsidiary of Cable Positive called “Cable Positive Productions,” for the exclusive production of HIV/AIDS-related programming, with cable networks being given first option to use the content.
6. Make it a priority to deliver public service messages of HIV/AIDS awareness via text messaging, videophone, iPods and voice over IP; work on providing more airtime for 30- or 15-second spots. Helen Soule
executive director, Cable in the Classroom 1. Choice, control and changing consumer expectations: Consumers of all ages increasingly expect content, including educational content, to be available to them any time and any place.
2. Convergence and the digital transition: From Apple’s iPod to the Sony PSP, we are seeing a proliferation of new devices. This ubiquitous availability of educational content helps remove the traditional time, place and pace barriers to learning.
3. Copyright and intellectual property: The digital age means that our customers (especially those with kids) can more easily copy, share and change our content. We must think creatively to ensure that wherever there is a screen, cable’s educational content is on it.
4. Competition, competition, competition: Consumers today are fickle, with little brand loyalty. The threat from the Bells is real and immediate. The threat from Yahoo, Google and other new and emerging solutions is real. Cable’s national and local education work needs to be emphasized.
5. Congress, the courts and the FCC: Much about the future of our industry will be determined in the next few years in Washington, D.C., and in the states. Many of these issues have important implications for the educational community, especially if they stifle the deployment of broadband connectivity.
6. Collaboration: While akin to being asked to eat your broccoli, unquestionably we are stronger standing together than apart. Cable in the Classroom is here to strengthen the industry’s advocacy, outreach and leadership to education. Patrick Knorr
VP/GM, Sunflower Broadband My key concerns fall under one theme: the changing paradigm for video content delivery. 1. Will cable continue to adhere to the old model of one “everything” video package option for customers?
2. Will programmers continue to favor the same dying model based on the myth that distribution (based on leveraging market power to force carriage) is more important than ratings (based on quality content driving viewers) or will they just milk operators with one hand and go “over the top” with the other?
3. Will frustration with lack of choice drive video customers away from cable to DVDs, streaming video, iPods or even cell phones?
4. Will a conservative Congress and FCC decide that forcing a customer to receive and pay for Spike TV to get Nickelodeon is not acceptable?
5. Will SBC (AT&T) be able to get all the rules made to their specifications, including a la carte, and beat us—not on price or service, but on choice and flexibility?
6. Will Google trump everyone and give customers exactly what they what by not only building their own channel lineups but their own virtual channels, program by program? A Look Back at 2005 January: Nexstar Broadcasting sets off a retransmission consent firecracker, pulling its stations off Cable One and Cox systems…Former Dept. of Energy deputy secretary Kyle McSlarrow is selected as NCTA chief. February: Robert Sachs departs after five years as NCTA’s president and CEO. March: Faced with slow stand-alone sub growth and DirecTV ready to switch its DVR allegiance to News Corp.-backed NDS, TiVo brokers a partnership with Comcast to create a DVR model just for cable subs, with interactive advertising capability…Senate Commerce Chmn. Ted Stevens (R-AK) blasts cable for indecent programming on Kyle McSlarrow’s first day as NCTA head. Stevens calls for cable to be subject to broadcast-type indecency standards. April: Adelphia is sold to Comcast and Time Warner Cable for $17.6 billion. The deal is expected to close early in ’06. May: Cable programmers work themselves into an upfront ad market frenzy, anticipating at least $800 million more in sales than the year before. Despite the fact that at least 50-55% of TV households watch cable on any given night, the upfront goes bust, with programmers getting only a $300 million sales lift. June: The Supreme Court reverses the “Brand X” judgment, declaring that cable operators do not have to share access to their high-speed networks with competitive Web service providers. July: CTAM’s “Only Cable Can” campaign, with TV spots suggesting people like cable as much as they like chocolate, comes up a cropper. NCTA takes over responsibility for running the industrywide mass media promotions that highlight advanced services…Cox chief Jim Robbins announces he’ll step down Dec. 31 after 20 years. Pat Esser will replace him. August: Hurricane Katrina smashes into New Orleans and the Gulf Coast. Cable’s 24/7 news coverage of the aftermath dominates, with CNN’s Anderson Cooper gaining attention for his no-nonsense style. September: Cable operators assess Katrina damage (estimated in the multimillions)…NCTA initiates Cable’s Hope Fund to help hurricane-devastated cable employees and their families rebuild their lives. October: Verizon reaches out and turns competitive cable service on in Keller, Texas, beginning the era of telecom-built fiber/IP overbuilds. Verizon plans to overbuild suburbs elsewhere in the Lone Star state, thanks to passage of a statewide franchising law…Nexstar settles its retrans spat with Cox, although neither side goes public with the deal’s terms…Apple announces plans for an iPod with video capabilities. November: Comcast, Time Warner Cable, Cox and Bright House partner with Sprint Nextel to offer wireless phone services under a $200 million venture. MSOs also get a quad play to sell inside Sprint retail locations nationwide. December: A la carte returns as a front-burner industry issue for 2006. Credit goes to the FCC’s new study suggesting mandatory a la carte would not hike cable prices significantly for consumers, while curbing distribution of “indecent” content. As of this writing, only FCC Chairman Kevin Martin has knowledge of that report. The FCC’s 2004 report—and other independent studies on a la carte—conclude to the contrary. —Simon Applebaum