Talking the Digital Talk.......................................
mediacentral.com
MSOs Talk the Digital Talk at PaineWebber Conference
By Regina Matthews
While many cable operators are more prone these days to discuss broadband services, the MSO chiefs who turned out for last week's PaineWebber Inc. media conference in New York tried to prove that they can walk the digital TV walk after years of delays in rolling out the service.
Indeed, cable's heaviest hitters went to great pains to assure Wall Streeters and other moneymen that most of their system upgrades will be finished in the next three years -- efforts that they said will generate new revenue streams, boost cash flows and deliver better service.
Some highlights:
Tele-Communications Inc. president Leo Hindery confirmed that the on-the-rebound MSO is banking on digital TV penetration rates of 15% of its subscriber base by the end of next year, 30% in 1999 and 100% by 2001.
Hindery added that that push includes the rollout of 18 special interest entertainment, nine pay-per-view, eight premium movieplex, one PPV preview and 10 DMX audio channels, as well as an onscreen navigator. The effort will cost TCI from $1.7 billion to $1.9 billion over the next three years, Hindery added.
However, he noted that digital set-top prices are still too high -- he estimated that they'll cost an average of $300 a unit in three years -- but that TCI is continuing to seek partners to help subsidize the boxes.
"I like partnerships in everything, except digital video," Hindery said, adding that TCI will probably hook up with a partner for its telephony rollout efforts in 1999.
He said that TCI's upgrade efforts will elevate "all metro markets [to] 750 MHz [and] all suburban markets [to] 500 MHz or more." That will be enough, Hindery added, to deliver full data and telephony service, and at least 193 channels of video. "[That's] more than enough for any audience," he noted.
By 2000, Hindery said TCI wants to have two-way modems available in 90% of its systems at the latest.
Hindery, whose agenda includes stemming TCI's customer erosion, said, "At the end of the third quarter, I told you we would grow subs 60,000 to 75,000 in the fourth quarter. We'll grow them substantially in excess of 90,000. [Now], we're growing subs in excess of our peers."
Many of those subscribers, he said, are return customers who've been drawn by improved marketing efforts, Hindery added.
But Hindery added that TCI has learned a lesson after raising rates the last few years. Looking into 1998, he said, "TCI is not a rate banger any more. We will be on the low end of the entire 1998 rate increase and will do it on [additional revenue from our profit] margin and digital video services."
Hindery also said he expected low double-digit cash-flow growth over the next few years from TCI's slimmed-down owned-and-operated base of 10 million customers now clustered in 16 cities.
Hindery said TCI had free cash flow of $246 million in the just-completed third quarter and that the company is holding steady to a debt-to-cash-flow ratio of 4.98 -- down from 6 at the beginning of the year.
Comcast Corp. has rolled out a $10 digital service in two markets that's serving about 16,000 subscribers, according to John Alchin, the company's senior VP-treasurer.
Comcast also has begun to deliver @Home Internet-access service to about 8,000 customers, and the customer list is growing from 200 to 300 a week, he added.
About 70% of the company's systems will be upgraded to at least 80 channels by the end of 1998, Alchin added, noting that 45% of Comcast's systems are already at 750 MHz.
Next year, Comcast will budget about $825 million for capital expenditures, down from this year's estimated figure of $935 million, according to Alchin. About $600 million will go to cable-upgrade efforts in 1998, he added.
Alchin also said Comcast wants to create a regional cellular telephony service brand as strong as AT&T's.
At Cox Communications Inc., VP-residential broadband services Chuck McElroy said the company will launch digital services in four new markets next year after this year's three-market rollout. A ninth market will be added by the end of 1999, he added.
The company began to market the service last month in Orange County, Calif., where it's offering 210 channels -- 170 of video and 40 of digital audio.
Cox also expects to launch Internet access through cable modems in at least two new markets -- including Oklahoma City -- next year, McElroy said. The package will cost about $44.95 a month with a leased modem or $29.95 if subscriber buys the $399 modem.
Cox, which is launching telephony in San Diego, will also do it in Hartford, Conn., and Phoenix in 1998, offering consumers first-line basic service at $13.99, and $8.49 for a second line, McElroy said.
On another front, he said he expects Cox's local cable ad revenue to rise about 16% in 1997 and 1998.
DirecTV executive VP-CFO Bob Meyers stood behind his claim that his DBS company is dealing with a churn rate of only 1% a month, hinting that dissatisfied customers aren't the company's main problem.
Meyers was answering a challenge thrown out earlier by TCI's Hindery to DBS service providers to prove that their churn rate is less than cable's. "About 28% of U.S. homes move every year S so that's endemic churn. Around there, you're just holding your own among general moves," Hindery said. "Actual churn in DBS belies expectation."
Meyers warned analysts that DirecTv's break-even target is being pushed back a year.
"We have a $300-to-$400 per-sub acquisition cost" compared with an estimated $42-per-customer-per-month revenue stream, he said. "We've pushed back break-even a year. We thought we could do it at around 3 million subscribers. Now, we feel we need to get to the high 4's."
Meyers said DirecTv will try to break out of its image as a seasonal gift by spreading promotional efforts throughout 1998, rather than concentrating them during holiday.
"This year, we went dark too long" after scheduling most 1997 marketing efforts for the fourth-quarter holiday season, he said.
Meyers also said his company's divorce from AT&T "won't hurt us too badly. Both sides were dissatisfied."
He added that telemarketing to AT&T customers generated only about 30,000 sales: "Selling satellite TV over the phone isn't the same as selling long-distance service. Customers prefer buying in stores where they can get a demonstration."
Meyers added that DirecTv is seeking alliances that mimic a Christmas partnership deal in which 2,100 Wal-Marts are selling dishes.
Finally, Meyers said DirecTV Interactive's rollout with Microsoft Corp. won't come any time soon, noting that beta tests are still being done and content providers sought.
(December 15, 1997) |
