Buckle up and put on your crash helmet: 2004 could be one helluva year for the cable industry.
Barely one week into the new year, and fresh off a visit to the Consumer Electronics Show, it's apparent that the cable industry will have its hands full in 2004, engaging in competition against industry giants on four battlefronts: video, data, voice and the computer/TV arena.
In some of these sectors, cable will be the aggressor, and will no doubt be successful in taking away market share. In other arenas, cable will be on the defensive, trying to protect its base from outsiders.
Cable's core business is under assault from DBS, and the CES visit only reinforced the idea that not only will cable have to deal with Rupert Murdoch, but also Chuck Dolan's Voom service.
Cablevision Systems Corp.'s Voom DBS platform will have 90 channels by year-end, and will shift the video battle from more channels or better picture quality to its higher equivalent: Who has the most HDTV channels?
Cable's three-part strategy against DBS is video-on-demand, the digital video recorder and HDTV, and it will likely need all three to keep the basic-cable subscriber status quo and drive revenue growth to its bottom line.
Selling all three services at the same time will be no small feat for cable's rank and file.
Cable operators continue to largely win the broadband data battle, but have been forced to respond to the regional Bell operating companies' lower DSL pricing by creating tiers of their own. The inevitable result will be lower revenue per subscriber, although some of that drop could still be masked by perhaps one more year of strong cable-modem gains.
At some point, though, modem growth will slow.
The answer to that dilemma, of course, is to launch telephony on top of the modem platform. The sleek voice-over-Internet protocol service, costing anywhere from $150 to $300 per home, incrementally, could pay for itself in less than a year.
The problem is that the RBOCs aren't quite asleep at the switch. Two weeks ago, Verizon Communications Inc. announced major initiatives to build and launch VoIP service itself. The Baby Bell can also take advantage of cheaper technology and doesn't seem to fear cannibalizing the circuit-switch plant it already has.
It's good Time Warner Cable president Glenn Britt told analysts the MSO had plenty of room to lower its VoIP prices and still make a decent profit. In the next year or two, cable might have to, if the RBOCs respond with a VoIP mousetrap of their own.
The window for VoIP may not be as big as people first believed.
And just in case you thought the PC industry had forgotten about taking over the TV screen, well that's what you missed by not attending CES.
First, Microsoft Corp. chief software architect Bill Gates unveiled a Media Center Extender product, which is slated to be available in mid-2004. Basically, the sub-$200 box will allow consumers to call up the Media Center PC screen on their TV set, and link them to all their PC content, including music, pictures and stored video.
Homeowners with Media Center PCs can plug the cable that comes into their home into their PC and watch TV.
No word on how many Media Center PCs Microsoft might have sold. But the end game with the Extender product is that the first screen on your TV isn't the last channel you watched or the guide — it's the Media Center screen. You'd have to go to the "My TV" icon and click on it to get to linear television. Talk about a shot across the bow.
Intel plans to make chipsets for next generation set-tops and HDTV sets and was showcasing "Entertainment on Demand" in its CES booth.
Except the set-tops were IPTV based for telcos, and "Entertainment on Demand" was a Movielink application through a broadband connection. Can you say "end run?"
Intel, also, was showcasing an "Entertainment PC," much like Microsoft's vision.
There's no doubt that consumers still have to reboot their PCs more often than they have to reboot their TVs. And there is no great rush by Hollywood to embrace the Intel/Microsoft vision, although actor Morgan Freeman was at CES telling the audience his production studio will release a movie on the Internet in 2005 — on the same day it's released in theaters — much to the delight of his speaker host, Intel president Paul Otellini.
Still, you've got to admit that the PC industry — which has embraced music, pictures, streaming video and hard disk storage — has moved a lot closer to the functionality of the TV set than the TV or set-top industry has moved towards the PC.
Even Mark Cuban basically described the TV set at CES as a nice PC monitor with some chipsets behind it. And he's now in the TV industry, as an HDTV mogul.
Cable might not have bought much of what Microsoft developed over the past 10 years, but I'm here to tell you that Redmond's vision of who should own the first screen hasn't changed.
There is a lot more to the digital revolution than linear video, and Microsoft, Intel Corp. and their ilk know it. And to some extent, they're taking their queues from new consumer behavior.
If cable wants a voice in tomorrow's digital home, it's got to pay attention to things that may seem off in the distance today. If not, the rules may get written long before cable has a say in the matter.