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Broadband: Cable's Not-So-Secret Weapon

9/15/2002 8:00 PM Eastern

I spent 20 years in and around the cable television industry, starting as a franchise proposal writer at Teleprompter and ending up with the team that launched satellite television and Internet ventures for the National Football League. I left the NFL in 1998 to run an online education company, partnering with Columbia University.

What brought me back to cable was the belief that broadband holds the key to the content businesses of the future — whether the content is education, sports or news. And that cable may very well have the best grasp on the broadband key. So I thought it was a good time to get re-acquainted with my former world.

The cable industry I knew was technophobic and disdainful of its customers. Back in 1980-something, when I wrote the cable industry's first customer guide on how to hook up your VCR to cable, my own colleagues wanted to kill me. "It'll cannibalize HBO!" "We don't want them to steal our movies!"

Let's just say that innovation was not in cable's DNA. And in the place of the giants who had built the industry was an unimpressive march of suits that were clearly not ready to breathe the pixilated air of the Digital Age.

But earlier this year, there I was, sort of like Rip Van Winkle, back in the familiar territory of the New Orleans Convention Center, home to so many National Shows of the past. From the panel discussions to the convention booths, from the range of issues to the quality of the analysis, it was plain to see that this was not the same old cable industry.

Competition is a wonderful thing. Thanks to the Internet, thanks to the video game industry, thanks to the demands of Wall Street, and above all, thanks to satellite television, cable is a hungrier, more progressive, downright technosavvy industry.

Competition mixed with fear is even better for the growth of the innovation gene.

Somebody has beaten cable to the door of 23 percent of the households it used to monopolize. Who would have thought that the little dish could do it? While the cable industry is undoubtedly grateful that the Charlie Ergen Show (will he? won't he?) has slowed the pace of satellite dish penetration, we know that this is just a temporary break in the action.

Broadband is the cable industry's not-so-secret weapon. With digital receivers, cable can match satellite's range of channels and serve up a reasonably good programming guide. But you can't get NFL Sunday Ticket
on digital cable — at least not yet. (Hmm, will digital cable play the role that CBS did in keeping up the NFL broadcast license fees last time around?)

Other than its local presence, and the elusive promise of high-definition TV, high-speed Internet connectivity is one of the few competitive advantages that cable has right now.

The industry has made considerable progress in clearing away some of the technical challenges that have held it back, largely through the impressive performance of Cable Television Laboratories Inc. as a shared research and development resource for the industry.

Cable modems have dropped in price from $400 in 1999 to less than $60 today. They are easier to install — maybe even easier than it was to install the 1982 VCR to the cable box. And they are mostly portable from residence to residence, thanks to DOCSIS [Data Over Cable Service Interface Specification].

And then, there's the money. In addition to keeping cable competitive, broadband lifts cable profits. Broadband homes yield higher revenue per subscriber and are less likely to "churn," i.e. disconnect their cable service. Better financial performance is critical to help cable operators justify the $60 billion investment that the industry made to upgrade to digital capability — hence broadband is also key to improving Wall Street's enthusiasm for cable stocks. Current studies by the Yankee Group project 41 million households for high-speed connection by 2007.

So what's the problem? With a big market to conquer, with only hapless competitors like digital subscriber line via the telcos, satellite dishes designed for point-to-multipoint distribution, and WIFI or cellular broadband still in the geeky phase, why can't cable just glide to victory in the broadband wars?

Depending on whose numbers you like, cable passes about 80 percent or 75 million households with broadband capability, yet only about 15 percent or 11 million homes have connected thus far. Cable operators remind themselves — and their investors — that this adoption rate beats TVs, VCRs and cellular phones. All true, but cable operators realize that they have to answer the "so what" factor to push broadband usage to mainstream levels.

With broadband averaging $50 per month, cable has to lower the price or provide services that go beyond the must-have SOHO (small office/home office) market.

Given the cost differential between dial-up Internet service and broadband, cable operators acknowledge that they still face a difficult programming challenge, the same challenge that accompanies any major platform shift in communication and entertainment: Home Box Office drove cable penetration in the early days; movies (and porn) built the home video rental market; NFL games sold satellite dishes; and e-mail powered the Internet. What will be the "killer application" for broadband?

There are no clear answers yet. And cable's vision of home media centers offering high-speed Internet access, HDTV, and video-on-demand is still just that — a vision. While industry analysis confidently predict that these concepts will eventually become reality, the timing is difficult to predict.

At least everybody that was in New Orleans seemed to get that, from here on in, it's all about the marketing and programming challenges. And to bring the glittering prize home, I thought I caught glimpses of some giants-in-training walking the halls of the convention center in New Orleans.

One was Brian Roberts, clearly emerging not only as leader of Comcast but also as the industry's reigning statesman. However, with Comcast busy swallowing AT&T Broadband, and with AOL Time Warner trying to hold itself together, I put my money on Cablevision Systems Corp. and Charter Communications Inc., as the cable operators most likely to succeed.

Me, I offer Shakespeare, biology and macroeconomics to a global learning community. But I'm counting on cable as my primary distribution vehicle to the home, and that's what I learned in New Orleans. New cable, new services — the industry has the resources and the motivation to make it work.

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