When it comes to digital, smaller cable operators are
thinking big as the new year barrels in, vowing to creatively attract attention from the
financial community that will help them to launch new services.
For 1998, small operators said they want to conquer the
long-existing catch-22 that has historically damped innovation: They need to broaden their
service mix with digital video and data to remain competitive and garner new cash, but
those moves require capital, which is hard to get.
'There's a perception in the industry that
smaller operators are under siege, and that they won't survive, but it's just
the contrary. They'll survive and flourish, because who knows their customers better,
and who knows how to be innovative, creative and inventive better than small
operators?' said Matt Polka, president of the Small Cable Business Association,
during a Western Show panel discussion in Anaheim, Calif., last month.
Thinking big, however, isn't always enough. The cold
reality is that smaller operators do not have operational efficiencies like large MSOs
and, therefore, that they must rely on innovation, creativity and savvy.
'We've spent an extraordinary amount of time
positioning ourselves for the future, and I don't wake up thinking that we're a
'little guy,'' said Ron Martin, executive vice president and chief
operating officer of MSO Buford Television Inc., which has about 151,000 subscribers.
Martin said Buford is tackling system upgrades with digital
compression, 'because we have customers hearing about 200 channels, and we're
sitting here with 36 channels.'
He added that customers 'want premium multiplexes,
mini-pays, enhanced PPV [pay-per-view], special-interest networks like golf and food
channels and digital music. If we don't have solutions, we could lose 2 percent to 5
percent of our subscriber base.'
Martin suggested two ways to retain those customers:
Tele-Communications Inc.'s Headend in the Sky feed, and a digital overlay to the
'If we had a combination of the two, we'd have
everything that our competitor has, from a content position,' Martin said, adding,
'We simply want to upgrade our systems to 450 megahertz, where we drop in digital
turnaround [gear] at the headend and reserve 50 to 55 channels for analog and 10 for
Buford's HITS tests started in March to 1,000
customers. Martin said he's hoping for a 20 percent penetration rate for digital
video services over an 18-month period.
To get there, however, all roads lead through programming
networks, and those roads are not without bumps, he added.
'We will have to pay a penalty for digital
programming,' Martin said. 'Some programmers see digital as a change, and not as
an opportunity. It's a new business, and programmers are slow at the top to make
Programming issues are not the only hurdle facing small
operators. The most pressing issue for them is finding the capital to upgrade smaller
systems. However, help appears to be on the way.
'There is a real dividing point in accessing capital
from banks or equity capital -- if you're not a certain size, it's not
there,' said Rob Buckfelter, chief financial officer for 142,000-subscriber Prestige
Cable. Buckfelter added that MSOs with systems under 25,000 subscribers have a
particularly tough time getting access to capital, but he said things are looking up.
'Capital providers feel better today about our
industry -- there's less uncertainty than a few years ago, and the digital solutions
are real,' he said. Plus, he added, cash flow 'has always been stable in the
industry, and today, capital is very available at excellent rates.'
Cable modems, digital video and fiber upgrades are all
under consideration at Prestige. They require considerable capital expenditures, but
Buckfelter says they're worth it.
'Adding fiber strands in bundles is literally $460 per
mile, and there are opportunities to do fiber links for schools, hospitals, etcetera --
it's an excellent value,' Buckfelter said. 'Within a few months of making
the capital expenditures, I have all of my money back and a 10-year lease on the
To buttress cable's local advantage over satellite
competitors, Prestige is experimenting with a product 'where you can insert pictures
into PCs [personal computers], do seasonal greetings, advertising and local-weather radar
that you can download over the Web.'
Buckfelter's only caution was that the industry
'must focus on consistency,' because new businesses take lots of capital.
Buckfelter also suggested that smaller operators trying to
attract attention to their capital needs should provide lenders with capital-market
services. 'Banks are very fee/income-based. You have to show them how you'll use
other types of services, besides traditional lending. They have a strong appetite for
that,' he said.