cable company strategies re moving forward in particular markets --
Cable firms take different paths
Rogers, Comcast move to meet the competitive threats facing the industry,
Friday, February 13, 2004
globeandmail.com
Canadian cable-TV tycoon Ted Rogers talks effusively about how much he admires Ralph Roberts, founder of Comcast Corp., the giant U.S. cable system.
Mr. Rogers even sent his son Edward, as a young university graduate, to Philadelphia where he could learn the cable business from the savvy Mr. Roberts and his up-and-coming son Brian.
This week, Rogers Communications Inc. and Comcast, the biggest cable companies in their respective countries, took two strikingly different steps in meeting the competitive threats facing the industry throughout North America.
Mr. Rogers yesterday announced a $200-million thrust into local voice-telephone service, taking on entrenched phone companies led by Mr. Rogers' long-time nemesis, BCE Inc., and Telus Inc.
That initiative paled beside Comcast chief executive officer Brian Roberts' bold expansion into media content by bidding $54-billion (U.S.) for Walt Disney Co., owner of movie studios, television networks and theme parks.
But these two companies, so closely tied by friendship, are also working on the same basic game plan: They are adding new services for their cable networks at a time when plain old cable TV has become a mature product, under attack from new players and technologies.
The differences in response reflect variations in timing and opportunity, and, to some extent, contrasting regulatory regimes and competitive threats.
"We have very different rules and sets of circumstances," said Phil Lind, vice-chairman of Rogers, pointing out that nothing of Disney's relative scale exists in Canada, and Rogers wouldn't be allowed to keep all its content pieces, in any case.
Still, Brahm Eiley, president of Convergent Consulting Group Ltd., says all cable companies in North America -- including Quebec's Vidéotron Ltée and Western Canada's Shaw Communications Inc. -- are in the hunt for services to pump over their high-capacity networks.
This drive is offensive and defensive. These companies collectively spent up to $100-billion to upgrade these networks since the late 1980s, Mr. Eiley says, in moves that critics said were foolhardy, given looming threats from satellite and Internet technology.
To prove these critics wrong, "they want to offer everything they can," Mr. Eiley said, whether it is digital television, video-on-demand, high-speed Internet, or, increasingly, voice communications in the nature of the phone companies.
For the Roberts family of Comcast, it's a question of offering every possible service and content feature to 21 million cable customers in the United States.
For Ted Rogers and son Edward -- who now runs the Rogers cable unit -- it means selling competitive phone service to a potential 3.2 million homes in Eastern Canada and, as a bonus, to eat into the cash flow enjoyed by Bell Canada in its near-monopoly local phone market.
The external threat is technology and deep-pocketed rivals. Satellite TV is making inroads on cable and its backers are formidable. In the United States, control of one big satellite player, DirecTV, recently passed to media giant Rupert Murdoch's News Corp.
Mr. Lind said the News Corp. move is a fundamental reason why Mr. Roberts is moving to buy a vulnerable Disney at this time. For example, Mr. Murdoch wants to take Sunday night National Football League games away from the Disney-owned sports channel ESPN, and put it on DirecTV satellite.
By owning Disney, Mr. Roberts can more easily combat this huge threat by presenting ESPN's case to other cable operators, who are chafing under the increasing costs of programming on the popular sports channel.
In Canada, Rogers and Shaw Communications -- which itself owns the StarChoice satellite service -- must contend with BCE, which operates the Bell ExpressVu satellite service. (Shaw plans to introduce a phone service as well, although at a lower price than Rogers.)
In addition, SaskTel and Manitoba Tel are both moving to offer television services over their networks, in the continued blurring of boundaries between television and telecommunications.
Dvai Ghose, an analyst for CIBC World Markets, says all this jockeying consumes a lot of capital spending, but he suspects that in five years, cable and telecom companies may still be dominant in their traditional areas. The hype, he said, may be much more significant than any shift in market share.
Still, the rewards for cable companies can be huge as Cox Communications Inc. of Atlanta has proven in its pioneering phone service. Mr. Eiley said in some established markets, 55 per cent of cable customers are taking phone service, and the operating margins are about 40 per cent. It has helped Cox take a strong lead in high-speed Internet over the phone companies' service.
But there is less incentive for Canadian cable companies to buy a big content supplier. One effect of Canadian content rules is that there is less distinctive material on different cable and satellite systems. In the United States, unique content is more crucial in differentiating delivery services.
Canadian cable and telecom companies may be more inclined to spin off their content arms if, as expected, foreign ownership rules are relaxed. Foreign investors will likely be allowed to hike ownership of the transmission side, but not culturally sensitive media operations.
Just because Mr. Roberts is buying movie studios and television production doesn't mean Comcast has been left behind in telephone services. Mr. Lind says that Comcast is well established in local telephony -- in fact, all the U.S. cable companies have made the move to varying degrees.
But he said the aspirations of Rogers, Shaw and other cable suppliers have been blunted by the extent to which the regulatory climate has favoured telephone companies. He said Rogers wants rules that would prevent the phone companies from using their monopoly power to shut off competition, before it even gets started.
This, of course, is an old Rogers theme -- that for the past 40 years it has been battling an entrenched rival that benefits from a sympathetic regulatory system.
Ted Rogers has argued that the linchpin of BCE's competitive strength, in areas as diverse as wireless and satellite TV, is its dominance in local phone services. By forcing BCE to compete in this area, the thinking goes, it would slow down the cash machine that fuels BCE's other operations.
Still, there is something wistful in his newest assault on the phone companies. In a conference call yesterday, he cheerfully admitted that Rogers was relatively late to the local telephone game.
Mr. Rogers listed areas where he saw himself as a groundbreaker -- in FM radio, cable television, wireless and high-speed Internet. This time, Mr. Rogers was willing to let the other cable companies blaze the path, so that he could move in with something that was tested.
Not being first "relaxes me a bit," Mr. Lind admitted yesterday. "From time to time, it's fun not to be out in front." |
