Cable TV Systems Facing Gridlock Industry Giants Scramble To Accommodate Explosion In Number Of Channels
The challenge was coming up with a cable channel that people would watch. And the solution in Fallbrook, Calif., was goldfish, swimming in a bowl placed in front of a clock. All day long, music would play in the background while viewers read the time through the gentle movements of the goldfish.
“That was one of our big attractions. People just loved it. We had that on for a couple of years,” said Ron Murray, recalling his first job in cable television 30 years ago.
“But if you had fish floating, that was a major, major problem.”
Dead fish in prime time would almost be a welcome inconvenience for cable operators compared with what they face now - namely, too many channels, not enough space for them all, and the multibillion-dollar costs of expanding channel capacity and services. “Most systems are channel-locked,” said Jim Leach, regional director of government affairs for TCI Communications Inc.
Cable television’s traffic jam is compounded by the launch of the Fox News Channel. On Nov. 1, ESPN, which already has two sports channels on many cable systems, will launch a third, called ESPNews. On Dec. 12, Turner Broadcasting will unveil CNN/SI, a 24-hour sports news channel produced by CNN and Sports Illustrated magazine. And on March 31, CBS will join the cable competition with Eye on People, an entertainment and information channel.
Waiting backstage are about 85 cable channels, including the Sewing and Needle Arts Network, the Gospel Network, the Military Channel, the CEO Channel and CHOP T.V., devoted to “bringing martial arts to the world.”
For most it will be a long, long wait for the wide exposure they want.
“We just completed a system upgrade that took us from 54 channels to 82, and we’re out of channels already. That’s how dynamic the growth is,” said Murray, who now is vice president and regional manager of Time Warner Cable, which spent about $25 million to $30 million to upgrade the service for its 107,000 subscribers in the Chicago area.
“There’s got to be 25 other channels waiting to get on. For us, this is drop and add and shuffle the deck.”
The traffic jam is not a new development, but, for several reasons, it has taken on a new sense of urgency for cable operators. The creation of new specialty channels shows no signs of letting up. Some of the biggest names in programming are creating cable channels and, because of their clout, they are able to push their way onto already crowded systems, often forcing out existing channels.
And the economic consequences are daunting. Facing strong competition from satellite television, wireless cable and telephone companies that are entering the cable business, cable operators are being forced to spend millions to upgrade their systems. They also have to consider investing in the emerging fields of high-speed data services and telephone services as well.
With it all is the increasing public clamor for more program choices. “Consumer expectations have been raised across the board,” said Rob Stoddard, vice president for corporate communications at Continental Cablevision, the nation’s third-largest cable operator.
“It is one of the most critical issues we are facing because the Turners and Foxes and the big companies that are starting new channels have gotten incredibly good at publicizing what they are doing, and in the court of public opinion, that puts tremendous heat on us to deliver what they are producing.”
A major unanswered question, however, is how much consumers are willing to spend for this seemingly endless cornucopia of programming. That issue, at least for the moment, has been shoved to the background by the rush to produce and carry new program channels.
The squeeze is not confined to the cable operators or the small-time producers of cable channels.
Among the communications giants, the fight for space resembles a nasty international trade war. News Corp., parent of Fox, has sued Time Warner Inc., the nation’s second-largest cable operator, over its decision to carry MSNBC (launched in July) instead of Fox News. News Corp.’s announcement was preceded by remarks from Ted Turner, Time Warner’s new vice chairman, that compared News Corp. Chairman Rupert Murdoch to Adolf Hitler. (Turner later apologized.)
Time Warner’s decision deprived Fox of roughly 10 million homes, almost one-sixth of the 63 million U.S. households hooked to cable. Having access to as many homes as possible is the key to success for new channels, which is why gridlock is such a big problem.
“It’s much tougher to get into the game today,” said Roger Ailes, chairman and CEO of Fox News and former president of CNBC. “Capacity is tight. It’s one of the toughest things in the business.”
Nationwide, channel capacity on cable systems ranges from 35 to more than 80 channels. Many cable companies are upgrading their systems to handle more than 80 channels, but the process often will stretch well into 1998 and beyond.
Channel capacity will be greatly enhanced - perhaps by 100 channels when digital technology is widely available, probably after the year 2000. “That depends on whether the technology is ready and whether the economics work,” said Steve Reimer, vice president of operations for Continental Cablevision, which has about 360,000 subscribers in the Chicago area.
Reimer said Continental has started a two-year upgrade process to add channels. TCI, the nation’s largest cable operator, also has begun upgrading for its 400,000 northeastern Illinois subscribers.
Lloyd Werner, executive vice president of sales and marketing for Group W Satellite Communications, which is handling the marketing of the upcoming CBS cable channel, predicted it will be seven years before half of the nation’s homes have digital systems. By the year 2000, Werner said, the average home will have access to 50 channels, and only 10 percent will have more than 100.
The transition to digital will not be quick, and its speed will be directly affected by the price consumers are willing to pay for the enhanced service. In short, Werner said, “the channel capacity problem is not going away.”
Neither is competition. In the newly deregulated telecommunications arena, cable operators face increasing competition from a variety of technologies. The fastest-growing television delivery system is direct broadcast satellite, which offers viewers more than 100 channel selections, depending on the program package they purchase. Some Wall Street analysts have predicted the number of DBS households could reach 20 million by the year 2000, but some in the television industry say the growth will be much slower.
At the same time the cable industry has to protect its own television franchise, there is rising demand for high-speed data systems, which can be delivered via cable. And there are opportunities for many cable systems to enter the telephone business, if they choose. “We’ve got a fair amount of capital coming in, but where do you spend the money?” asked Continental’s Stoddard. “There are any number of ways to split that hair.”
In the meantime, cable operators will continue to spend more to upgrade their channel capacity, recognizing that much - if not all - of the space will be quickly gobbled up by new program channels.
Still, TCI’s Leach said it is not at all clear how much programming consumers will accept and pay for.
“We don’t know yet what that consumer threshold is,” Leach said, “but we’ll find out, sooner than later, I suspect.”
xxxx COX REACHES LIMIT Cox Cable of Spokane offers 76 channels but can’t add more without major technology upgrades, said Kim Boston, director of marketing and communications. The company’s main fiber optic lines can handle more, but the cables that connect to individual homes are at capacity, Boston said. There are no immediate plans to upgrade those so-called drop lines, she said.