A matter of time

Cable leaders preach patience amid interactive TV's slow rollout

Contradicting the normally buoyant, forward-looking attitude of cable's end-of-the-year Western Show bash in Los Angeles, industry leaders last week urged patience as next generation services and technologies evolve.

Attitudes seemed subdued and apprehensive as the Federal Trade Commission mulled the merger of Time Warner Cable and America Online, and interactive TV (ITV) rollouts seemingly stalled.

It was very different from the Western Show eight years ago when John Malone, chairman of Liberty Media, and then chairman of Tele-Communications Inc., created wild market and public expectations by announcing that cable would have 500 channels.

"You can have 500 channels if you want them," Malone said with a smile last week. "The 500th channel right now isn't looking too attractive."

That's because the industry and public expectations changed. Digital TV has taken its place in a "sneaky" way, offering multiple millions of households better audio and video as well as the fundamentals of ITV.

"It sneaks up on you," he said. "The same thing [will happen] with interactivity."

Barry Diller, chairman and CEO of USA Networks, also urged patience as anxiety festers about cable's next generation "gee whiz" technology. "We're at the early period of this radical revolution," he said.

That plea for patience has been heard before, Diller said. It's the result of trying to quell overly ambitious expectations by noting the evolutionary nature of change. "It really will be a habit change," he said. But a quiet one, he said. "There's no killer application. Those are antique words from another era," Diller scoffed.

Dan Somers, president and CEO of AT&T Broadband, the nation's largest multiple systems operator (MSO), noted his company's market woes as evidence that people are impatient for tangible evidence of new services, not just accounts that the seedlings for such services have been planted. "It's not going to be one day all of a sudden it's there," he said. "You have to have patience. We're developing an infrastructure that people are going to use for years and years."

The market, Malone said, "doesn't understand deferred gratification. Any kind of disappointment or delay, you get enormously punished for."

Cable faces a double-edged sword, he said. On the one side, there is demand for greater services such as interactivity. On the other, there is an expectation that these services must be profitable. "When you push in the accelerator, you push down results," Malone said. "You really depress your earnings."

Somers is proceeding with both feet" on that accelerator as AT&T Broadband upgrades its networks to offer converged services, Malone said.

The process is going well, Somers said, noting AT&T "lived up to 95% of what it said when it bought" TCI and MediaOne and started to consolidate those cultures into the nation's largest MSO.

Culture shifts such as the one being experienced by AT&T are part of consolidation, Malone said. "In mergers, somebody's got to eat somebody. The merger of equals is bullshit," he said. "Somebody has to accept there's a dominant culture." That will be the case as AOL swallows - or tries to swallow - Time Warner, Malone said. "It's an AOL entrepreneurial culture that's going to eat the Time Inc. culture," he predicted.

Surprisingly, the mood about the federal government approving that merger was relatively upbeat. "They'll get approval," Somers suggested, adding that AOL will find more difficulty combining the pieces needed to drive the industry to its next stage.

"The movie is not over," he said. "We're in the prologue or first chapter."

But that chapter can be influenced by the government, Malone said, adding that the government "is usually backward-looking" and might stop forward-looking business decisions from proceeding.

Robert Sachs, president and CEO of the National Cable Television Association, said his group would vehemently oppose the FTC agreements that stifle free market economics of cable's high-speed networks. The NCTA filed those comments with the FCC last week, he added.

Last week, the FTC delayed consideration of the AOL/Time Warner deal amid reports that regulators want competing ISPs to have equal access to Time Warner's content and cable network. The cable giant already reached a network access agreement with EarthLink.

Industry leaders said such regulation could stifle innovation and allow competitors such as direct broadcast satellite (DBS) and DSL providers to overwhelm cable's fledgling lead in the broadband industry.

DBS "is a very competitive business. We are competing for every customer," said Michael Willner, president and CEO of Insight Communications, the nation's eighth-largest MSO.

With cable's networks, Willner said he believes its digital strength and its burgeoning interactive applications will win the day - eventually. "A lot of these things come in baby steps," he said.