The Big Picture

Steve Effros has always acted like he carries around his own personal microphone.

When it has come to slugging it out with cable’s DBS rivals, he has been especially tenacious, even as cable continues to lose revenue generating units (RGUs) and customers to DirecTV and EchoStar.

So it was particularly curious to hear Effros act so graciously toward his longtime nemesis at last week’s "DBS: The Five Burning Questions" conference sponsored by The Carmel Group. There’s room for both of us, he was saying; why, I, myself have a dish. Sitting in Los Angeles, it seemed like Rodney King himself had entered the room. Yes, we should all get along.

I felt better when, several hours after his panel, Effros was still holding court in the hallways, expounding his views on the subject to anyone who would listen.

Then it occurred to me: Effros has toned down his act because he can afford to.

In the propaganda ground war against DBS, cable is finally on the offensive. Effros can finally change his tactics from that of a cornered pit bull to a terrier. Still relentless, but less threatened.

With the rollout of digital cable and the advent of video-on-demand, the cable industry has quietly and effectively put DBS on the defensive.

In an analog world, cable loses. Hence, DBS’ continued explosive growth to near the 15-million subscriber mark. While digital cable is growing strongly, its marketplace presence will continue to be sufficiently limited so that DBS

will continue to gain strength in 2001, likely reaching 18 million homes.

Even DBS’ most ardent backers concede the industry is quickly reaching the top of its growth curve.

DBS is running out of cream to skim, while cable is finally catching up in the value proposition to customers.

Cable has effectively turned the debate on its head: Who is best positioned to capture the broadband home of the future?

For the next two years or so, it’s a toss-up. Cable has VOD and, soon, some introductory forms of interactivity.

But remember what was whispered to Dustin Hoffman in The Graduate: "I have one word for you, Benjamin: plastics."

Readers, I have one word for you: storage.

As in personal video recorders. Today, they are basically a turbocharged VCR. Soon, they will be an in-home VOD device sitting on TV sets.

Storage costs will become so inexpensive that it will become a simple matter to send movies down cheap bandwidth to store in a set-top box in the home rather than in an expensive server in a headend.

In 1960, John F. Kennedy got elected talking about "the missile gap." Well, cable has to move faster to bridge the storage gap because DBS is ahead, far ahead, in this space race.

Both TiVo and Microsoft, with its Ultimate TV, will soon have integrated boxes with DBS services. EchoStar’s Dishplayer has been on the market for a couple of years now.

Cable? Poor cable. Every time operators think they know what the set-top box of the future will look like, someone changes the rules.

Hard drive in the box? "We don’t need some stinkin’ hard drive." That was a year or two ago.

Now every PVR company is beating a path to cable’s door because operators are desperately playing catch-up. Of course, in the cable universe, a sense of urgency doesn’t exactly translate to badda-boom, badda-bing! It’s more like baaada-boom … … baaadda-bing. (Simpsons fans will recognize this reference.)

Fortunately for cable operators, the penetration level of PVRs in DBS boxes is likely to remain on the modest side for a while. Cable will have lots of room to catch up.

DBS’ national footprint also gives it a huge edge because DirecTV and EchoStar can roll out new interactive services at once to all their customers while cable operators are engaged in more trials than Perry Mason.

Yet, in the long run, cable will win.

You could see it at the conference here as companies such as Hughes Network Systems displayed pie-in-the-sky technologies designed to put satellite on an equal footing with cable in the broadband arena in the long term.

Cable modems, IP telephony and VOD are tough acts to beat. No one’s quaking over StarBand or DirectPC.

At least it gave Effros a good laugh.

But if cable operators don’t move faster on getting hard drives into the digital set-tops of the not-too-distant future, the joke could still be on them.