EKING OUT A LIVING

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Newport, R.I.-Like many small independent cable operators, Martin Brophy, president and CEO of Shen-Heights TV Associates Inc., has the business in his blood.

His father founded Shen-Heights TV in Shenandoah, Pa., as a three-channel cable system half a century ago. Brophy and his three brothers took over running the 3,000-subscriber system when the elder Brophy died 20 years ago.

But with the advent of competition from direct-broadcast satellite in current times, Brophy has had to make some tough choices about whether to stay in the cable business for the long haul or cash out.

"Do you really want to be around in 10 years, or tell someone, 'Take the keys and give me the check?'" Brophy asked an audience of his fellow small operators here last week at the 16th annual meeting of the National Cable Television Cooperative Inc.

The answer was clear for Brophy because he could not envision a future that didn't involve his family business. "What am I going to do the rest of my life?" he asked.

So Brophy opted to stay in cable, as have the other small and midsized operators who attended last week's NCTC meeting. The Lenexa, Kan.-based purchasing co-op represents 6,100 cable systems serving nearly 13 million subscribers, equal in size to the third-largest MSO in terms of households.

The co-op, which negotiates master contracts with programmers and hardware vendors for its members, just conducted three days of sessions meant to help small operators compete and survive in today's highly competitive environment. The unified message from panelist after panelist was that merely maintaining the status quo is a death sentence.

"If a company stands still, you can get passed by," Brophy said.

Operators heard panels and case studies on how to go about launching broadband services such as high-speed Internet access and digital video. Several vendors, from HITS2Home to WSNet, described the direct-to-home satellite overlays they offer, which permit even the tiniest cable systems to add dozens of digital networks-without expensive plant upgrades or pricey headend gear-to compete on a level playing field with DBS.

MSO Galaxy Cablevision even revealed plans to get into the retail business for home computers and home theaters in order to cross over the so-called digital divide in rural areas and to help create demand for products such as high-speed cable modems and digital tiers.

In an era of massive cable consolidation and aggressive DBS competition, some industry pundits think small cable operators are an endangered species on the verge of extinction. But the NCTC, and many of its members, beg to differ.

"The future of the independent cable operator is probably brighter than it ever has been," said Dale Bennett, a veteran of AT & T Broadband who is now chief operating officer of Classic Cable Inc. "The really good thing about smaller markets is that the war is ours to win or lose."

NCTC president Mike Pandzik told his members their unique advantage is that they know their subscribers and small communities intimately, better than any phone company or national DBS provider.

"Take heart, you're uniquely positioned," he added. "Don't give up. There's a rosy future out there, but you can't get it by just sitting by."

Shen-Heights, for example, will launch a digital-video service for its subscribers in October using AT & T Broadband's satellite-delivered digital platform, Headend in the Sky, Brophy said. The cable system has already deployed high-speed access.

At Classic, the priority is to roll out digital-lots of programming services-to all of its markets, using different methods depending on the size of the system, ranging from HITS, HITS2Home or WSNet for its smallest systems.

"We're getting killed [by DBS] in the small, nonupgraded markets," Bennett said, "The first challenge is to get digital-television solutions to all of our customers as soon as possible. And we'll use different technologies for different markets."

HITS2Home-which incorporates a special Motorola Inc. set-top receiver and satellite dish-is targeted to systems with roughly 2,000 or fewer homes. It allows operators to offer subscribers a combination of the system's analog channels, plus up to 140 digital channels, from the HITS pods, via a dish at the subscriber home. So these small systems don't have to invest in the headend equipment required by HITS or use any of their bandwidth.

At least one hang-up with HITS2Home surfaced at the NCTC meeting. So far, three movie studios, including Paramount Pictures, have refused to allow In Demand L.L.C. to offer their films for pay-per-view via HITS2Home. In Demand is negotiating with the studios.

"[The studios] consider this a DBS delivery," Motorola Broadband Communications Sector senior sales manager Shannon Osborne said.

WSNet, which has distributed programming to private cable and wireless companies, is now also positioning itself as a service for cable systems with 1,000 homes or fewer that are so channel-locked that they currently offer very few networks on basic, according to director of national account sales Kevin Rice.

In those instances, cable systems would install dishes at customer homes that are capable of receiving feeds of 100 or more digital channels from two satellites-a HITS bird and a second one that delivers traditional basic networks such as Turner Network Television and Cable News Network.

During one panel session, an operator described his discomfort at the very idea of putting satellite dishes at any of his subscribers' homes. Bennett called that kind of thinking a mistake.

"You should not get hung up on being a cable operator," he said. "You need to defend your customer base, not your technology. Do not get hung up about defending the wire."

Some MSOs, including Galaxy, are aggressively trying to drum up business. Galaxy has a number of systems in Mississippi, which ranks last in terms of having computers and Internet access at home. "That creates quite a barrier to us," director of new product development Larry Eby said.

So Galaxy is working with Dell Computer Corp. to sell its subscribers a "No Computer, No Problem" package that includes a PC, a cable modem and Internet-access service for $59.95 per month, according to Eby.

Galaxy subscribers-some of whom live in small towns that don't even have computer retailers-will have four years to pay off the home computers. They will also own their cable modems at the end of the deal.

Galaxy hopes to work out a similar arrangement with Thomson Consumer Electronics to offer subscribers a 27-inch RCA TV set, a 350-watt surround-sound home-theater system, a digital converter and digital service. Pricing on that proposed offering is being worked out.

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