News

Early Digital Returns: So Far, So Good

5/03/1998 8:00 PM Eastern

Heading into the National Show, cable operators have some
good stories to tell about new services.

Whether it's InterMedia Partners crowing about its
expected 1 percent digital-video penetration after two or three months of soft marketing,
or U S West Media Group (UMG) cautiously predicting that its telephone business could hit
target penetrations "several years" ahead of schedule, early reports continue to
be bullish.

That tracks with the apparent strong demand for
Tele-Communications Inc.'s digital-cable service, which stood at 150,000 deployed
boxes in mid-March, and which has grown by more than 3,000 customers per day since then.
TCI has told analysts that the install rate is more like 5,000 per day now. And customers
in local systems reported waiting-list times of one month or more to get the service.

Operators are trying not to hype the results, fearful of
falling into the trap of overpromising and failing to deliver. Few are releasing hard
numbers yet. Rather than claiming that the early success will prompt accelerated
deployments, most have tended to say that the results strengthen their current business
plans.

TCI's aggressive rollout has helped to turn some
skeptical operators into digital converts. The CEOs of Insight Communications and TCA
Cable TV Inc., for example, have said that they think more of the business after seeing
TCI's success in markets where they have joint ventures, such as Richmond, Ind.,
where TCI claims better than 10 percent penetration.

Or, better yet, in their own homes: That's where TCA
CEO Fred Nichols got hooked on the digital navigator. But, like several other operators,
Nichols said he plans to move slowly on digital until the more advanced boxes -- with
features like cable modems -- come along.

Charter Communications Inc. chief financial officer Kent
Kalkwarf is also a TCI digital customer, in St. Louis. "And it's a great service
-- I love it as a consumer," he said. In his system, the digital addition bumped the
channel selection up to 70 from 40, also adding an interactive guide.

"We're going to do the same thing in some of our
smaller systems," he said. "We will have digital, and we'll put it in as
much as people will buy."

InterMedia -- which expected to close its
425,000-subscriber joint venture with TCI in Kentucky last week -- launched a couple of
versions of digital TV in three markets about a month ago. Mostly on the strength of news
stories, the Nashville, Tenn., system had some 1,000 people on a waiting list before the
launch.

"This would definitely be the classic case of selling
it to those who really want it," said Donna Young, InterMedia's marketing
executive director.

About one month after the March 23 introduction, InterMedia
had connected more than 1,200 Nashville homes (out of an interconnected market of around
250,000), and one home in five ordered a second box, company officials said. In Nashville
and Greenville/Spartanburg, S.C., where the systems have two-way plant at 750 megahertz,
InterMedia draws programming from 10 Headend in the Sky transponders, in addition to Home
Box Office and Showtime feeds. That's what InterMedia plans for most systems.

In McKenzie, Tenn., it offers the HITS
"three-pack," which adds 17 cable channels, eight pay-per-view channels, 10
music channels and the navigator.

Since so many of the early adopters are clearly
"truck-chasers," Young said, it's impossible to draw conclusions from the
initial data. But they did nothing to dissuade InterMedia's already "very
aggressive" digital-deployment plans, she added.

Insight CEO Michael Willner said the up-close view of
TCI's digital introduction in Indiana, where the companies are finalizing a joint
venture, opened his eyes for both rebuilt and older systems

"We have signed on to digital as a meaningful addition
to our business right now, rather than two to three years down the road," he said.

This year, Insight will introduce digital in Georgia and
Virginia systems that aren't scheduled for rebuilds for the next year or two, as well
as in the company's centerpiece system in Rockford, Ill., Willner said.

Cox Communications Inc. has also impressed analysts with
early results. The company hasn't disclosed subscriber counts or projections, but one
Wall Street analyst said Cox hopes to get 100,000 digital customers (out of its 3.3
million-subscriber base) by year-end.

Cox did report at the CTAM Digital and Pay-Per-View
Conference in April that after about six months in its oldest digital market of the five
launched so far -- Aliso Viejo, Calif. -- penetration is around 7 percent. That's
very encouraging, Cox director of product development Lynne Elander said.

But, she added, "nobody's writing any business
plans based on these early results."

Cox has tested digital tiers of $5.95 or $10.95 per month
in some places, and $7.95 or $12.95 in others. Consistently, three-quarters of subscribers
have taken the higher-priced option, she said.

Comcast Corp. also sells digital service in Orange County,
Calif., with plans to expand to Southeast Michigan and Philadelphia next, leading to six
to 10 markets by year-end, treasurer John Alchin said. It has fewer than 1,000 subscribers
so far, and it's hard to draw any conclusions.

"The product is certainly performing extremely
well," he said, "but the issue for us is that we don't want to launch the
first-generation, [General Instrument Corp.] DCT-1000 boxes."

Comcast wants to wait until it can get its hands on more GI
DCT-1200 terminals, with more near-video-on-demand capabilities, before pushing the
service harder, Alchin said.

UMG, meanwhile, is a bigger believer in advanced-analog
services than in digital, based on box costs. But MediaOne's parent company said last
week that demand for its telephone-over-cable service, especially in Atlanta, has been
stronger than expected.

MediaOne had thought that penetration levels of 10 percent
to 12 percent would be possible over four to five years, vice president and chief
financial officer Richard Post said.

"It's early in the game," Post said, noting
that the service is only being marketed to about 6,000 homes in Atlanta. But, he added,
"what we're seeing [so far] is beyond what we thought that we could do."

Want to read more stories like this?
Get our Free Newsletter Here!