Cable operators desperately want to increase their share of
the estimated $50 million in annual video revenues from the nation's lodging
industry, but they continue to face tough competition from companies that offer
pay-per-view movies and satellite-delivered channels.
Other obstacles include lingering hostility from hotel and
motel operators, which feel that MSOs took advantage of a one-time monopoly, and that they
still charge too much.
Nonetheless, as operators gather for Home Box Office's
second Commercial Cable Conference in Reno, Nev., today (April 20), executives are
optimistic that a renewed focus on the lodging business -- stressing better service, more
channels and new products such as digital music and high-speed Internet access -- will
help to turn the tide.
Cable operators were heartened by HBO's marketing
support and by research released at the network's first Commercial Cable Conference
in Jacksonville, Fla., last month, showing that an increasing number of hotel and motel
customers want as many TV channels in their room on the road as they have at home.
"Guests are clearly saying that they want more
choice," said Nancy Breslow, director of sales and marketing for HBO's lodging
and commercial-sales group, "and basic and premium channels were their top viewing
choices. That's definitely a selling point for cable."
In addition, lodging-industry observers said, a building
boom and cutthroat competition have forced hotel executives to increasingly look at a slew
of new, interactive, "guest-room services." These include video-checkout
systems, local travel information, video games, hotel and airline reservations, shopping
services and Internet access as critical sources of revenue and profits.
"There's going to be a whole new round of
construction in hotels," said Ed Watkins, editor of Lodging Hospitality, a
trade publication covering the hotel industry, "and guest-room services will be a
major focus. That creates an opportunity for vendors and a possible wedge for cable to get
back in and mitigate its losses."
But it won't be easy.
In addition to fighting the battles presented by the
current marketplace, cable operators must contend with baggage from the bad old days, when
they were the only game in town and they didn't exactly win the lasting affection of
"Frankly, they came across as used-car dealers,"
said an executive at one of the country's largest hotel chains. "[Cable
operators] had a reputation as being shady and not upfront. They knew that they had us
over a barrel, and their attitude was, 'Either take it or leave it.'"
"It seemed like you spent a lifetime negotiating deals
with them," said another executive from a large hotel chain, "and it always felt
like you were getting hammered."
Today, cable operators have to fight for business with
national companies like On Command and LodgeNet, which can offer hotel and motel operators
a limited number of satellite-delivered channels for a low price and an enticing
percentage of revenues from video-on-demand movies, as well as the convenience of
"one-stop shopping" across the country from a central office.
Cable operators, on the other hand, are hamstrung by their
license-fee agreements with cable networks and by an inability to offer hotels a limited
number of "a la carte" channels.
Cable's monthly per-room fee is simply "too high
to be competitive," said Mike Patel, president of Diplomat Hotel Chain and chairman
of the Asian-American Hotel Owner's Association. "You get charged per room, but
you don't rent all of the rooms all of the time."
"The lodging business is strictly
bottom-line-oriented," added an industry executive. "TV is a necessary evil.
Guests expect it, so you have to have it. But you don't want to pay any more than you
have to. With cable, you have to pay more. It's an expense. With VOD, you can
subsidize your basic channels with your piece of the action from the movies, and maybe
keep some for yourself. And you only have to make one phone call."
And in smaller lodging properties, where the economies of
scale don't make it feasible for VOD companies to install their equipment, owners
continue to resent cable's prices.
"We know what it costs cable operators for HBO,"
said an executive from a large national chain, "and when we see what they turn around
and charge us, it really sours us."
Patel added that cable operators were also at a
disadvantage because of their inability to customize channels for individual properties
and because of the lack of uniformity of available channels among different systems.
"Not every [cable system] has The Weather
Channel," he pointed out, "but if you own a property near an airport, you need
it in there. Business travelers want CNNfn, but other guests don't care. One size
doesn't fit all."
Yet despite these not-inconsiderable hurdles, cable
operators believe that they can improve their market share.
Stephen Webster, manager of commercial-market development
for Tele-Communications Inc., acknowledged that cable systems "can't compete
with [On Command and LodgeNet] on price," and that they faced a "product
gap" by not currently being able to offer VOD.
He argued, however, that cable's "local
presence" was an inherent advantage for providing service and cultivating
relationships with lodging owners, especially for smaller properties.
Richard Carey, commercial-development manager for Time
Warner Cable's Mid-South division, said his company was stressing cable's
ability to deliver fast local service to area hotel and motel owners if they have a
"We installed a dedicated hot line for the hotel
industry in our region last fall," Carey said. "If there's a problem, a
strobe light flashes, and we dispatch a technician right away. I can tell you that
we've made a lot of friends."
Other operators and industry observers also argued that
cable's prospects will improve as systems are upgraded to provide reliable,
digital-quality service and a greater number of channels that guests want, as guests
themselves become accustomed to more networks and digital quality in their own homes.
Hotel executives cited cable's reliability, compared
with satellite's occasional fade-outs, as particularly attractive.
"Snowy pictures from dishes," Patel said, have
generated a number of unwelcome "complaints" from guests.
"You want wide selection and good quality," Patel
added, "when you have stiff competition for guest services."
Indeed, cable is banking on its new, 750-megahertz, two-way
systems, which deliver high-speed Internet access, to give it a leg up on the competition
for the interactive guest services that the lodging industry hopes will be a new source of
revenues -- and profits -- in the future.
What's more, cable operators are also hoping to break
into the VOD business in hotels and motels by collaborating with companies such as
SeaChange International Inc., which works with cable companies to set up digitized
video-server systems and integrated software to provide movies and other interactive guest
services to hotels and motels.
To date, SeaChange has contracts with Time Warner Cable in
New York City and Hawaii to service hotels in Manhattan and the Waikiki Beach area of
Honolulu, respectively. And, said Phil Knudson, vice president, Western region for
SeaChange, the company hopes to sign deals with operators in 15 other markets this year.
In addition to selling basic channels, HBO, movies and
interactive services, Knudson said, SeaChange also offers cable operators another revenue
source from the sale of advertising targeted exclusively toward hotel customers.
Cable operators liked the idea, but they said that right
now, the proposition makes sense primarily for a dense cluster of hotels or motels because
of the high capital costs.
"[SeaChange] is a potential alternative to compete
against VOD," said Jim Lynch, national director of sales for Jones Intercable
Inc.'s commercial division, "and we're pleased to see a company stepping up
to the plate to try to support the cable industry."
But, Lynch added, Jones does not currently have "a big
enough cluster" to consider the capital investment that would get "a return on
investment in a realistic period of time."
Webster had similar mixed feelings, calling the kind of
digitized networking that SeaChange provides "the future of the business," but
noting that the investment requires more "long-term financing than MSOs are used
Nonetheless, lodging-industry observers saw
SeaChange's entry into the market as another indication of just how competitive the
video and guest-services business has become.
"It's all about control of frequency to the
hotel," said one veteran executive, "and you've got more rooms, more
products and more competitors chasing more dollars."