New York-Cable has been a leader in deploying new services to drive telecommunications, but it has also become a "victim of its own regulatory success," according to one former cable executive.
Speaking at a Kagan Seminars Inc. conference here last week, former NBC Cable president and current Primedia Inc. chairman Tom Rogers touted cable's advantage in delivering interactive content to the TV, but he added that winning the ability to exclusively control the high-speed-data wire to the home has hurt cable because it spawned the digital-subscriber-line industry.
Although Rogers said cable was unconcerned about DSL competition from regional Bell operating companies, it is the smaller, more entrepreneurial competitive local-exchange carriers cable has to worry about.
"I think cable has its back against the wall," Rogers said. That's not necessarily a bad situation, he added, because it has forced the industry to be more competitive. "That is just the catalyst to turn the cable industry's energies to become an incredibly formidable player."
But even though cable has been aggressive in rolling out high-speed-data and digital-cable services, operators should exercise caution when deploying other new interactive products, according to a separate panel of financial analysts.
PaineWebber Inc. managing director and media analyst Christopher Dixon said that while digital and interactive services show great promise, operators will have to choose carefully before committing to specific services.
"Sure there is demand, but demand for what?" Dixon asked. "There is no question that there is an immense amount of promise, but what are people going to show up for?"
Dixon added that electronic mail and stock information appear to be strong services that could translate to interactive TV. America Online Inc. users check their e-mail accounts an average of 21 times per week and their stocks online 15 times per week.
The problem with interactive services, however, is that there are so many of them, ranging from simple electronic-commerce functionality to video-on-demand and tie-ins with high-speed Internet services.
Deutsche Banc Alex. Brown LLC vice president and equity analyst Peter Ausnit said that while many companies are pursuing businesses on the interactive front-for both the TV and the PC-he believes television will come out the winner.
"We believe strongly that the demand for entertainment delivered in a rich environment is virtually without limit," Ausnit said. "The primary platform is going to be the TV-it has a huge infrastructure and the ability to 'connect to a couch.' The question is: When will new services be deployed that will enhance this and drive new revenue?"
Ausnit said cable operators have to be cautious in offering interactive services, making sure deployment costs stay in line. He added that cable operators have to see interactive services as a long-term strategy.
"This is not going to happen overnight," he said. "But now is the time to be focused ahead of the U.S. cable commitment."
Ausnit used an earlier panelist-Insight Communications Co. Inc. CEO Michael Willner-as an example.
Willner had said that since deploying digital cable in its Rockford, Ill.; Columbus, Ohio; and Evansville, Ind., systems, the incremental revenue increase per digital subscriber has averaged $26 per month.
But Willner added that it took two years to upgrade the Rockford system alone, and that Insight is rolling out digital and some interactive services-through its relationship with Source Media Inc.'s "LocalSource" service-on a node-by-node basis.
"Mike Willner spent two years building a network and deploying services he can't yet market," Ausnit said. "We can all agree on the vision of the new services. But until there's enough of the infrastructure-both in terms of deployed digital set-top boxes, one-way and two-way plant communications plant and the like-it's still going to be slow."
Salomon Smith Barney managing director Niraj Gupta added that open cable standards will go a long way toward opening up interactive applications.
As for interactive stocks, the three analysts believe companies that provide key components to interactive services will be the early winners.
Ausnit and Gupta both like Gemstar-TV Guide International Inc., which provides interactive programming guides for Motorola Broadband Communications Sector set-tops. "Programming guides are the only confirmed killer application for digital [cable]," Ausnit said.
Ausnit also likes OpenTV Corp., which provides interactive software for set-top boxes, due to its large international installed base.
RealNetworks Inc. is another Ausnit pick because of its partnering strategy that can translate into e-commerce opportunities.
Gupta and Dixon leaned more toward more established companies, with AOL Time Warner Inc. being the common pick between the two analysts.
Gupta also likes Viacom Inc. and Liberty Media Group, the latter because it gives investors content plays through its stakes in several cable networks and interactive plays through its investments in Liberty Digital Inc. and Liberty Livewire.
Dixon's small-cap picks were 24/7 Media Inc. and Disney Interactive Group, the Internet arm of The Walt Disney Co.