CONTENT: CABLE'S COMPETITION KILLER

K.C. NEEL

Content may be king, but when it comes to high-speed Internet access today, technology is still the crown prince of broadband.

At some point, many industry observers believe content may be the defining characteristic that differentiates cable modem service and digital subscriber line services. Most MSOs and DSL operators say the technological qualities that distinguish each platform will continue to dominate the marketing tactics used to lure customers for some time to come.

Excite and Road Runner both already offer a sizeable amount of ex-???clusive content as part of their national backbone services. Excite CEO George Bell, who announced last month he is giving up his day-to-day operational duties to concentrate on more strategic matters, wants to beef up the Excite portal to include even more content and information. The company is working on expanding its instant messaging and music programs, and Bell wants to turn Excite back into a strong portal after losing ground in the past couple of years to competitors America Online and Yahoo!.

Local content works Many cable operators offer their own proprietary content as part of their high-speed Internet access services. Most of the content is local in nature and has been somewhat successful for the MSOs, albeit not cheap. Cox Interactive Media has aligned itself with several local and national content providers to give its customers a wealth of product they can access through the MSO's various local city sites.

For instance, the company teamed with the California Federal Bank in September in a deal that links the bank's Web site with the city sites on Cox Interactive Media's California network. The MSO also has teamed up with the Animal Foundation of Southern Nevada to launch a "Kitty Cam" on the local Las Vegas city site.

The tactic appears to be working. The local content compiled by Cox has helped the MSO outpace its competition in the local market sector of the Internet. According to Nielsen/NetRatings, the Internet audience measurement service of Nielsen Media Research and NetRatings, earlier this year Cox Interactive Media's Internet network was first in frequency and consumption metrics: visits per person monthly, pages per person and time spent on site. Cox's network of local content beat America Online's DigitalCity.com, Ticketmaster-City Search and Knight Ridder Real Cities to win this category.

Comcast also offers an extensive slate of local content the MSO either aggregates or man-ufactures on a regular basis, according to Suzanne McFadden, Comcast Online Communications' national director-marketing. Comcast users can personalize their content choices, which can be segmented by "channels." For example, users can access news clips or watch movie trailers for upcoming new releases.

"We know people don't really want to see text when they sit down with their computer," she says. "They'd rather watch a clip, and with broadband, they can do it and enjoy it. So in some cases, they might be seeing a clip from Fox News Channel, but it might not be the clip they saw on the TV network."

With Comcast's local InYourTown .com sites, users can access community bulletin board information, local restaurant guides and reviews and entertainment updates. The company has dedicated several full-time employees around the country whose job it is to keep the sites updated and constantly expanded, McFadden says. Much of the content comes from third-party producers, she says, but the company also creates a good deal of its own proprietary content.

Marketing the technology Despite these and other efforts by MSOs to amalgamate proprietary content, most of their mar-keting efforts remain firmly centered around broadband technology. Right now, McFadden says, getting customers to sign up for broadband service vs. staying with a narrowband service is the biggest challenge operators face. Speed has been the most attractive feature of broadband to date, she says.

"That's why the technology is the No. 1 marketing driver today," McFadden says. "We have the advantage over DSL right now, and there's not much research to determine why consumers may pick one over the next yet. But we do have the advantage because we've been offering the service for four years, and people are already doing business with us on the video side. That's the strongest thing that differentiates us today."

Four years ago, Comcast marketed its broadband service as a faster on-ramp to the information highway. The MSO is launching a new campaign this week that tells customers its service will enable customers to use the Internet in a whole new and efficient way.

"In our early stages of deployment, we had a lot of customers who just wanted a high-speed modem," McFadden says. "But now they really are beginning to want more. The whole package - the technology and the content - is becoming more important. Content is going to seal the deal more and more."

Not necessarily - at least for a while, says consultant Gary Arlen. Some research suggests DSL will overtake cable modems within the next five years and that DSL providers will accomplish this simply by cutting their prices. Other research from Allied Business Intelligence suggests cable modems will continue their market share lead of customers over DSL, but not because of content. Rather, the study predicts cable modem service will supercede DSL simply because it's easier for customers to install.

"AOL proved the value of the walled garden," Arlen says. "Packaged content is important. But the DSL providers, which are predominantly Baby Bells and competitive phone companies, don't know how to do content, and when they've tried, they've not done a very good job with it."

They'll likely sell their services based on price and speed, he says. It'll work for a while - until they can better figure out how the content side of the business works.

"Nothing I see today would suggest that content will become a focus for DSL (providers)," Arlen says. "But in the future, I could see how it'll take on a larger role."

Packaging and pricing If content is going to become more important to customers, it remains to be seen just what kind of content will be available, what consumers will want and how the content will be presented. Some industry insiders believe it won't be exclusive content that differentiates the broadband players. Rather, it'll be the way the content is packaged and priced.

For instance, broadband subscriptions in Comcast's Sarasota, Fla., system are above average despite the fact that the system has a higher-than-average senior population - a group not known for being early adopters of new technology.

"These people have a lot of disposable income, and when they hear they can get and send photos of their grandkids and family, broadband Internet service becomes more attractive," McFadden says.

Different markets and demographics will force cable modem and DSL operators to put together several packages of broadband service, just like cable video service today, she says. Companies have overriding national distribution deals, but the channel positions may be different, and the packages may vary as well. Content may be proprietary, but it will also have to be flexible and wide-ranging to appeal to the most customers.

That likely will mean much of the content will have to be farmed out and licensed. There will be few content producers willing to sign exclusive deals with just one distribution platform, insiders say. If a distributor is willing to pay extra for something special - much the same way DirecTV has paid a premium for its "NFL Sunday Ticket" product - there will be ways to deliver proprietary content at least temporarily, one content producer says.

"Most operators don't want to pay extra for anything like that," he says. "And most programmers want to use different avenues of distribution to put their brand in front of as many eyes as possible. The cost of differentiating product among distribution platforms is expensive and complicated. I just don't see too many programmers that will be willing to do it or operators that will be willing to pay for it."

Instead, the way content is presented to consumers will most likely set apart the various broadband platforms, says WorldGate Communications' SVP Gerard Kunkel.

"Packaging will be the way the broadband providers differentiate themselves with consumers," he says.

Packaging could come in various forms, such as local content and repurposed cable programming, says Clearband VP-marketing Jeff Huppertz, who remains convinced content will ultimately be the defining differentiation between DSL and cable modem service.

"Once you get past the minutiae, the systems are similar. Customers don't care whether they're getting their product at 1 megabit or 2 (megabits)," he says. "The content and the services a provider brings to the table will be what really drives subscriptions."

To be sure, there will have to be plenty of new contract negotiations that have to take place before an operator can offer a product like Clearband's service.

Huppertz and his team are in the process of talking to operators and programmers about the technology.

"This is all about making the PC more like a TV set," Huppertz says.

That may or may not be a killer application for operators trying to compete with satellite-delivered broadband services and DSL, observers say. However, the concept of offering content appears to be growing in importance, even if it's not a priority yet.