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MAVIS SCANLON
Turtles beware.
Cable operators are in a furious race to retain market share while garnering new revenue streams from digital services. Speed evolved as the mantra of Broadbandwagon, this year's Western Show.
"This is not going to be a business of getting new subscribers," said Doug Shapiro, a managing director at Banc of America Securities, in a session addressing cable's financial future. "It's about cable operators selling more services to existing customers."
When asked what cable operators should be most worried about Barry Diller, chairman/CEO of USA Networks, says, "Getting it out there."
Tech and cable executives, from Cisco Systems' John Chambers to Liberty chairman John Malone to AT&T Broadband president/CEO Dan Somers, all said upgrades had to be done and done fast.
While competition has spurred the cable industry, as Michael Willner, president/CEO of Insight Communications points out, it sure hasn't helped the MSOs' stock prices.
Trying to pinpoint a culprit for the slide in cable stocks has proved elusive. A myriad of factors have come into play this year, from increased concern over regulatory issues to competition to pressure from the financial markets and an overall slowdown in economic growth.
Against this backdrop, cable operators are spending millions to upgrade their systems, to rapidly deploy the digital and interactive services that will deliver revenue growth in coming years.
While exhibitors put their best faces on for the press, showing off spiffy new products and concepts, some show attendees say privately that the feeling on the floor was one of fear and anxiety over the market's dramatic decline rather than one of exuberance and excitement.
Despite the fact that more people showed up this year than last - 32,817 attendees registered as of Thursday, compared with 31,208 for 1999's show - the shift in sentiment is a marked change from a year ago.
Still, there was optimism among panelists that we are truly beginning to see digital and interactive services take hold. It's been nearly a decade since John Malone envisioned a 500-channel universe, and his now infamous quote is consistently held up as an industry benchmark.
Malone said he remains convinced that, in the long term, cable has a better infrastructure than DBS or DSL, rivals stealing away market share today.
Executives on both the programming and operations side defended their efforts.
"We're in the early period of a radical revolution," said Diller of USA Networks. We're in the early stages, but it is happening, he adds, and the development of services such as those offered by TiVo and Replay will push that quicker and further.
Last week's announcement from interactive TV software provider OpenTV that it signed its first U.S. customer, the 98,000-household cable outfit USA Media Group, bolstered Diller's comments.
As far as investors are concerned, "There's a lot of impatience out there," says Somers of AT&T.
Analysts say regulatory concerns and competitive issues have weighed heavily on the stocks in recent months.
With earnings warnings piling up like cars on L.A.'s 405 freeway at rush hour, almost no sector has escaped jittery investors with fingers on the sell button.
Cable stocks, viewed as a defensive buy, have outperformed many sectors year-to-date. The Kagan cable MSO average is down 33% year-to-date (the 70% year-to-date drop in AT&T shares has helped pull the average down further) compared with interactive TV stocks, which are down 81.5% year-to-date through Thursday, and e-commerce tech stocks, which have fallen 67% year-to-date.
"Wall Street, in many respects, always rushes to judge," says John Martin, a director at ABN Amro and a former Time Warner VP-investor relations. The Street "overreacts to the upside as well as to the downside."
What cable operators have to do is provide a better product than the competition, says Shapiro.
"If you have someone on the fence," he says, that better product is less likely to produce churn.
As Chambers at Cisco says, again referring to the race for customers, "Whoever gets that connection first - data, voice, video - with good service, will probably have that customer for the next 10 years."
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