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BY MAVIS SCANLON
Around 3 p.m. last Tuesday, the floor of the McCormack Place Convention Center was decidedly quiet. The CEO tours were over, Michael Jackson was gone and apparently many conference-goers had left as well. The stuffed moose that was ensconced in the Outdoor Channel's booth, near the back of the floor, could have started wandering the floor, but few people were around who could have noticed.
Still, some booths were buzzing with activity. One that had an overflow crowd Tuesday afternoon was Cedar Point Communications, which was showcasing new equipment for VoIP telephony. Granted, VoIP telephony was not a focus of the show, and Cedar Point was situated in a smallish booth, but the crowd there on Tuesday afternoon underscored the interest the industry is showing in IP telephony.
?I can't tell you how big it's going to be down the road,? said AOL Time Warner CEO Richard Parsons at the show's opening session, referring to IP telephony. ?But it will be a big source of growth.?
After spending $70 billion upgrading cable plants to deploy new products, cable operators were denounced when heavy capital spending and high debt loads fell out of favor on Wall Street. Operators hunkered down, cut spending levels and focused on their core video business. Now, with satellite and telephone outfits poised to pick off video and cable modem customers at every opportunity, financial analysts are urging operators to accelerate new product development to differentiate themselves from competitors and ensure subscriber loyalty. With a range of cheaper, more flexible, more powerful and technologically advanced set-tops becoming available, operators have the wherewithal to do so.
?My challenge to the industry is to innovate,? said Lara Warner, a cable and telecom analyst at Credit Suisse First Boston, during a session focusing on Wall Street. ?Now is the time. You need to prove that reinvesting that capital for new growth and new products really is the way to go. It's less about boxes being deployed and more about highlighting to consumers what advantages you have.?
The message to cable from Wall Street was that cable can't afford to stand still, and the industry gets the message. ?You never rest; that's a mistake,? Comcast president and CEO Brian Roberts said at the show, questioning what the ultimate broadband speeds might be and the types of services that the industry could offer over the IP platform.
After so many years in which these products were just talked about, the current generation really is ready and is being adopted by consumers. Each new product still has its own wrinkles to be ironed out, however, whether it's figuring out the ultimate economic model for VOD or the copyright protection issues associated with producing digital and high-definition content.
High-speed broadband, although on a strong growth trajectory, is vulnerable, if only because the former Bell operating companies have a huge amount of cash flow ? some $20 billion ? at risk, Warner said. Therefore, the telcos, which have about 6 million broadband subs compared to cable's 12 million, think an aggressive drive for DSL customers is a good retention strategy for their phone customers.
While the industry ?cannot underestimate DBS competition,? said Niraj Gupta, an analyst at Citigroup Smith Barney, ?longer-term, the real competitive threat looms from the RBOCS.?
What's the answer? Add new services and applications that DSL doesn't have or that don't perform on the DSL platform. An example, said Matt Strauss, EVP and GM of Cablevision's Mag Rack VOD service, is the creation by Mag Rack of a broadband component that cable affiliates can deliver only to their HSD subscribers.
One of the big issues with hi-def is figuring out how much bandwidth should be allocated. Meanwhile, HD availability is growing, while HD-capable TV set prices are coming down ? estimates at the show ranged from 1% to 2% declines a month. Retailers are planning a big push for the holiday season. Scientific-Atlanta will even have a set top box with an HD tuner available at consumer electronics stores in Cox Communications' service areas.
More content is being produced in the HD format; even holdout Starz Encore made an HD announcement at the show, although Starz head John Sie is urging MSOs to conserve bandwidth and offer an alternative, ?high-resolution? channel. With ad-supported cable networks such as ESPN (which offers 100-plus events in HD and by spring will have 3,000 hours of HD programming), HDNet and Discovery building larger HD libraries and shooting programming in high-definition, the pay TV premium networks feel the need to get on the HD bandwagon to stay competitive. On Thursday Showtime said it would produce two additional series in HD.
HD is even becoming available on VOD ? Tom Rutledge, head of Cablevision's cable unit, said Wednesday the company would offer HD content on an a la carte basis to its iO digital customers.
VOD represents a huge opportunity for the industry, but there is still no definitive economic model. Mag Rack's Strauss thinks there is an opportunity for current VOD content that's being offered at no charge, so-called FOD, to evolve into a tier of VOD programming for which operators can charge a modest fee of under $5 a month. He envisions older series from top networks that are archived and additional or bonus material that enhances current programming.
Although there is no debate that VOD has helped the stickiness of digital, how much content is needed to drive further digital demand is still up in the air, Strauss said.
Mag Rack currently produces 34 niche video magazines and is developing additional content. Last Thursday, it began refreshing material weekly. ?If you want VOD to be adopted more heavily you need more compelling content,? Strauss noted. Areas under consideration include test preparation services, foreign languages and weight loss.
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