Keeping ITV Hot in a Cool Economy

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I don't know about you, but I'm getting ready to hunker down for the "New Economy," which is starting to look more like the "New Soft Economy."

I was hoping my stock portfolio could finance expensive Ivy League tuition for the kids, but now the local community college doesn't look so bad.

I was dreaming about a new Lexus; now I'm thinking Taurus. I'm going to cram the freezer full of mad cow-free beef and pull out the unused Y2K candles in case of rolling blackouts.

Despite my paranoia (and weak gallows humor), I'm not too worried about how the cable industry will fare.

In tight times, we Americans will sacrifice a lot of things, but cable isn't one of them. No siree. We'll stop feeding the dog before we give up cable.

Charter Communications Inc. executive vice president and COO David Barford calls the cable industry "recession resistant." That's not quite as solid as "recession proof," but we'll take it.

But there are questions about how emerging interactive-TV services will fare in a climate of lower stocks, soft advertising revenues and potentially slower cash flow growth.

Walter Ciciora, one of cable's pre-eminent technologists, says the economic slowdown threatens to delay ITV rollouts.

Ciciora, a former Time Warner Cable executive who is now a consultant, doesn't mean to sound like Chicken Little. Rather, he says the industry needs to respond appropriately to new economic realities so that ITV can still flourish.

Ciciora — who led an ITV master course at the recent Cable & Telecommunications Association for Marketing Digital & Pay-Per-View Conference — said the motivation for rolling out ITV remains the same: retention and revenue.

"Digital TV is the great enabler," Ciciora said. But cable needs to emphasize "less risky" ITV applications such as electronic program guides, advertising enhancements and video-on-demand, or at least near-video-on-demand.

Cable can maximize the impact of those services by packaging them with personal video recording capability and Internet access, he suggested.

Now more than ever, digital rollouts will require precise marketing. Ciciora used the example of TiVo Inc.'s personal video recorder to illustrate how an excellent product can experience slow sales because it's difficult to make consumers understand its benefits.

"Perhaps the most important message is: We have to be realistic, because these are difficult times," Ciciora said.

Whether the industry is facing tight times or not, Ciciora's suggestions make sense.

Cable finally realizes that ITV must be a natural and seamless part of the TV viewing experience — so EPGs, VOD and simple TV enhancements hold the greatest promise.

VOD could be the perfect antidote for pennywise consumers who may be less inclined to spend money for a night out. It offers consumers nightly entertainment for just $3.99, rather than the cost of a dinner out, a theater movie and a sitter (not that I wish restaurants, theaters or babysitters any ill will).

Niraj Gupta, a managing director at Salomon Smith Barney Inc., believes "content-on-demand," as he calls it, will be key to helping cable and other media stocks outperform the market.

During a market analysis at last week's The Big Picture conference (co-sponsored by Salomon and Cahners Television Group), Gupta said that although growth is slow, "ITV will get here." Of the other digital products, Gupta said cable modems are "extremely recession resistant."

ITV advertising also could prove to be a beacon in dark times.

Even before the advertising market softened, programming networks and advertisers started to take a hard look at ITV as a vehicle for targeted commercials that can provide a better return on investment. The question isn't so much whether to do ITV advertising. It's how to do it.

So far, the stock market is having more of an effect on ITV's prospects than any potential downturn in consumer spending. The stocks of major ITV technology suppliers have fallen more than 90 percent from year-ago levels.

The decline in the market has increased speculation that the ITV business will undergo consolidation, which some analysts believe would facilitate rollouts.

Some operators have urged ITV companies — whether through mergers, acquisitions or partnerships — to facilitate greater interoperability and easier deployment of multiple technologies and services.

The industry currently appears less concerned about consumer spending than the possibility that major MSOs will pull in their reins by devoting less capital to broadband technologies and digital services.

"I don't see any pullback from our side," said Charter's Barford, whose company has more than 1 million digital subscribers and is bullish on VOD. "The MSOs I've talked to maybe have issues they're working through other than the economy."

The New Soft Economy holds a silver lining for ITV, if the industry takes advantage of it. It may force the industry to give the sector something it's needed for some time: proper focus.

When not grimacing about the stock market, Craig Leddy offers ITV strategic support as a principal of Interactive TV Works, Inc. If you've got a digital dilemma, contact him at LeddyColumn@aol.com.

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