From: owner-cablereg-l@netcom.com Date: Sat, 19 Nov 1994 09:24:48 -0800 Reply-To: higgins@netcom.com CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 11/21/1994. Vol.1, No.47 Copyright 1994 Multichannel News. Reproduction/distribution is permitted so long as this document is left fully intact. NO CHANGES are to be made to this document without the written consent of Multichannel News. Listserver, Gopher, FTP info attached at bottom. Refer questions to John Higgins (higgins@dorsai.dorsai.org or 212-887-8390) For Multichannel News subscription information: 800-247-8080. A bargain at $78/year. Multichannel e-mail contacts: Marianne Paskowski, editor: Mpcable@aol.com John M. Higgins, finance editor: higgins@dorsai.dorsai.org Kent Gibbons, new media editor: kentgibb@well.com Leslie Ellis, technology editor: Ellis299@aol.com HOT NEWS * FCC Rules Put The Sqeeze on New Nets * FTC Clustering View Snagging Viacom Cable Deal * Not Every Op Is Fleeing Cable QUOTES OF THE WEEK "It's just too rough out there, son. We fought a valiant fight for almost a year, with unbelievable restrictions. It's going to be a very hostile environment for several years to come because as the rules stand now, there's virtually no space out there." Stan Hitchcock, chairman of startup network Americana Television, on how the little FCC's going forward rules do for new networks. Americana disclosed it will go dark Dec. 31. "Operators are going to have to throw out the book on what historically has been acceptable to our management style and our egos and start cooperating." Marc Nathanson, chairman and CEO of Falcon Cable TV, on fighting competiton. NEW FCC RULES COULD CRUNCH STARTUP NETS New York -- Many start-up networks could be harmed, not helped, by the Federal Communications Commission's new going-forward rules allowing operators to add new programming. Industry executives said that the FCC rules motivate operators to initiate channels as quickly as possible to maximize their cash flow under the new rules. As a result, basic networks that are not already on the air could find the slots grabbed by more established services. The chief beneficiaries are expected to be established cable services that have not been able to get wide distribution, including Courtroom Television Network, Comedy Central, E! Entertainment Television and The Learning Channel. Also, broadcasters that started networks as part of their retransmission consent deals like fX, America's Talking and ESPN2, will be able to force their way into any available space. Already one small startup is going dark. Americana Television last week decided to pull the plug Dec. 31 after launching full-time last January. With just 700,000 subscribers, Americana president Stan Hitchcock calculated that the going-forward rules would give him perhaps another 500,000 subscribers in the coming months. After spending $15 million so far and facing another $6 million to $10 million to hang in for more six months to see if the market changes, Hitchcock's backers decided to shut down the network and convert the company into a production and distribution operation. The special tier for new programming services is fine for networks whose financial plans call for the relatively low penetration. But smaller startups may find no room available on basic. Diane Asadorian, general manager of Horizons, a service being prepped by the Public Broadcasting System, began revising the network's financial plans as soon as she learned the details of the FCC order. Horizons has planned to charge low license fees for its public affairs programming, relying on wide basic distribution to generate enough money to sustain the network. "I'm sitting here trying to figure out a way we can do this with much lower penetration," Asadorian said. Jay Levin, chairman of planned ecological channel Planet Central said that if a startup's financial plan hinges on enhanced basic distribution "you're screwed. I completely agree." However, Planet Central's plan has always called primarily for a la carte and high-tier distribution, with only 25 percent on basic after several years. "On the surface, this looks like a fairly decent incentive," said Rob Stoddard, vice president of the Cable Telecommunications Association. "But when you look and see there's more than 100 networks out there, truly niche-based services are left out in the cold." SOME OPS READY TO WAR WITH TELCOS If at first glance it seems perfectly reasonable that ever more medium- sized MSOs are crowding onto the sales blocks, think again. When the head-to-head competition has MSOs and telcos going door-to-door to dislodge each other's customers, a number of operators believe that they cannot just survive, but actually thrive. Among the cable companies choosing to take on the telcos, many see an opportunity for success in the radically streamlined version of the cable business and cooperation with the alliances forming around major MSOs. "Operators are going to have to throw out the book on what historically has been acceptable to our management style and our egos and start cooperating," said Marc Nathanson, chairman and CEO of Falcon Cable TV. So far, he and others note, there's been no great groundswell in local alliances notwithstanding the rapidly changing business environment. "There's significant support among MSOs at the top," Nathanson said, "but the word hasn't filtered down. At the local system level there's still a lot of resistance to working with neighboring systems." But competition should soften some of this resistance, said William Bresnan, president of Bresnan Communications. "If I can interconnect with other systems for local origination, ad sales and local and regional news and I can add the headend in the sky, I get a more efficient, cost-effective service with more localism than DBS," Bresnan said. New spot-beam satellite technology supporting regional targeting of services is one of several key tools underlying the emerging regional cable entertainment and telecommunications service strategy, Bresnan noted. Of course, there also is a need for major capital outlays, which is one reason so many cable entrepreneurs are cashing in their chips. "It's going to take a lot of entrepreneurial guts to stay in this business," Nathanson said. "Let's call a spade a spade," he added. "You can't say TeleCable [Corp.] and Newhouse [Broadcasting Co.] acted frivolously." In fact, Nathanson said, the two companies demonstrate that an MSO can justify exiting the business from just about any perspective. "TeleCable [selling to Tele-Communications Inc.] is leveraged two times, and Newhouse [selling to Time Warner] has all the money in the world," he said. "If what I'm reading in Multichannel News about [Cablevision Industries chairman] Alan Gerry selling out to Time Warner is true, the rest of us have to ask ourselves whether this is a sinking ship." CONSERVATIVES FORM MINI-PAY FOR '96 Washington -- Fed up with what they say is the liberal bias of the national media, conservatives have long hungered for alternative sources of information and entertainment. Now comes the Conservative Television Network (CTN), which hopes to tap into what it sees as the disaffection among TV viewers on the right. "This new network will amuse, inform, entertain and involve conservative America," said Sen. Malcolm Wallop (R-Wyo.), head of an advisory panel to CTN. The potential market is huge, according to Anthony Fabrizio, CTN's president and co-founder, who called a press conference here last week to announce the network. Saying that there is little capacity for new channels, Fabrizio said the network hopes to debut in March or April 1996, which "will be a critical time in politics" coming in a presidential election year. At a mini-pay price of $3.95 a month, Fabrizio said CTN needs to attract just 300,000 subscribers in its first year to be viable, and just 1.4 million over the long haul "to make it a very profitable network." Fabrizio is optimistic about getting at least that many subscribers, and points to the recent Republican landslide as additional proof that there is a demand waiting to be met. Fabrizio hailed other efforts to push conservative views on television -- notably the C-SPAN-like National Empowerment Television -- but suggested CTN was more ambitious, projecting an investment of $45 million before turning a profit after three or four years. He would not reveal the venture's financial investors. As for programming, Fabrizio said it was still largely in a developmental stage, but he did say the network would have an in-house news division that would produce broadcasts at least twice a day as well as documentaries. The network also plans to do political satire and is looking at carrying syndicated shows. SAN DIEGO GIVES PACBELL VDT OK Pacific Bell's video dial tone service in San Diego will operate without franchising regulation, under a contract the San Diego City Council approved Nov. 15. Disheartened cable operators, including Cox Cable San Diego and Time Warner Cable, fear that other California cities will take their cue from San Diego, which decided VDT is not equivalent to a cable franchise. Operators have one more shot at convincing regulators that the agreement puts them at a "serious competitive disadvantage." Final wording in a council workshop and a final vote are scheduled for December. "We're disappointed they didn't agree to do a workshop first. It's clear Pacific Bell is using San Diego as a model and will now go across the state to get concurrence to dig trenches and hang wires without giving up anything," said Robert McRann, vice president and general manager of Cox Cable San Diego. Operators appear to have a chance at modifications. Although the vote to introduce the contract was unanimous, council members' views on the issue were not. Several council members wanted to make a staff analysis of a list of operational issues presented by Time Warner San Diego division president Ann Burr. The cable analysis document said that cable is held to a discriminatory standard. For instance, it states that cable is required to build out its area in two years while PacBell will have up to 16, and that cable has to have preapproval for above-ground vaults and other plant locations while the telco will have no oversight. Two members (who's districts are not scheduled in the initial fiber deployment) questioned why the city was approving any agreement when PacBell does not yet have the right to offer VDT. The dissenters also worried about the city's inability to collect fees from the telco. HUNDT: FCC PLANS QUICK OKAY ON SOME VDT PLANS Reno, Nev. -- The Federal Communications Commission will quickly approve video dial tone applications for phone companies serving states that have opened local phone markets to competition, FCC chairman Reed Hundt said last week in a speech to state regulators. "If a carrier files an application to construct a video dial tone system in a state that allows local exchange competition and the application does not raise any novel statutory or regulatory issues, the FCC will act quickly on that application," Hundt said in an address at the National Association of Regulatory Utility Commissioners meeting here. Hundt's comments could be interpreted as good news for the cable industry if he was suggesting that the FCC would target VDT applications in the 10 states that allow phone competition. Competition reduces the threat of cross-subsidization, cable's chief worry about telco entry. To date, the FCC has approved one commercial VDT application, that of Bell Atlantic Corp. to serve Dover Township, N.J. But on Oct. 20, the FCC finalized its VDT rules to deal with a backlog of more than two dozen VDT applications. New Jersey has limited local phone competition, according to the National Cable Television Association. Hundt said the FCC would help bring local phone competition by setting "clear rules for number portability" and by ensuring that wireless phone providers can fairly interconnect with local phone networks. ~ CABLE MAY PUT MUST-CARRY BACK ON HILL AGENDA Washington -- The cable industry has added a new item to its 1995 legislative wish list: repeal of must-carry. Cable sources last week said that repeal of must-carry will be part of the industry's legislative agenda when the new Republican-controlled Congress convenes in early January. For the record, the National Cable Television Association maintains that its efforts on must-carry will remain focused in the courts, not in Congress. "We are concentrating on what we are doing," said NCTA spokesman Rich D'Amato. Before the Republican landslide became a reality, NCTA president Decker Anstrom said that in addition to pushing for major telecom reform legislation, he would ask Congress to modify the program access provision and the effective competition test in the 1992 Cable Act. But emboldened by an election that shifted power to its biggest supporters on Capitol Hill, some in the cable industry have decided to expand the agenda to include must-carry, which requires operators to set aside up to one-third of their channels to local broadcast stations. Broadcasters were not happy to hear cable would attack their biggest accomplishment in the cable re-regulation bill. "How badly does cable want their telco bill? My suggestion is that your cable sources put their minds in gear before [they put] their tongues in action," said Doug Wills, spokesman for the National Association of Broadcasters. MCCRACKEN SAYS TV, NOT PC WILL LEAD Washington -- Silicon Graphics chairman and CEO Edward McCracken said last week that broadband interactive networks will succeed to the extent that they offer fast, entertaining choices to consumers. "If we can't do it fast, we are going to lose the consumer," he said. McCracken was the main speaker at the Convergence 1994 convention hosted by Multichannel News/CommPerspectives. McCracken suggested that the technological challenge was to give consumers what they want -- movies-on-demand, for example -- within a half second of making the selection. He predicted television will be the dominant "on ramp" for the information superhighway, because cable TV is widely available, comes with easy-to-use remote control functions, constantly entertains and is relatively inexpensive. McCracken was less sanguine about the potential dominant role of personal computers, saying the technological leap from TVs to PCs was too big for many people and that PCs would "continue to intimidate" consumers. McCracken cautioned against overhyping the information superhighway. He said consumer demand would shape the types of services offered. He said marketing as much as technology would determine the financial viability of broadband interactive networks. "We may build the highway, but the consumers should design it," he said. FTC CLUSTERING SCRUTINY SLOWS DEAL, VIACOM SAYS New York - Viacom Inc.'s plan to sell its cable systems and combine Showtime with rival pay network Encore is still alive, but company executives told analysts that the deals are being hindered by antitrust regulators' scrutiny of Tele-Communications Inc. According to Wall Street analysts participating in a conference call to discuss Viacom's third-quarter earnings, company executives said that concern over the Federal Trade Commission's review of TCI "on a number of matters" has slowed progress of the negotiations. The FTC is investigating TCI's planned acquisition of TeleCable Corp. over local system clustering and its partnership with Comcast Corp. to take over shopping network QVC Corp. TCI has been negotiating to merge its Encore Media Corp. pay TV unit into Viacom's Showtime Networks Inc. as part of a settlement of Viacom's antitrust suit against the giant MSO. InterMedia Partners L.P., in turn, is negotiating to acquire the 1.1 million-subscriber Viacom Cable operation for $2.4 billion. While sources have said TCI is not backing the particular partnership acquiring the Viacom systems, InterMedia has extensive financial ties to the MSO. While the InterMedia piece ostensibly is not dependent on the Showtime/Encore merger, Viacom president Frank Biondi has acknowledged that the two negotiations have been tandem. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- WELL, IT BEATS "THE GRINCH" The legacy of Reed Hundt may have been set by his odd demonstration of going-forward rules. After approving the commission's order, Hundt attempted to explain the rules by shuffling colored eggs representing channels among egg cartons representing various program tiers. That led puzzled PaineWebber media analyst Chris Dixon to quip that the FCC chairman "wants to be known forevermore as Easter Egg Hundt." Bungee jumping at a convention booth? Not quite, but California Cable TV Association folks nevertheless choked over The Discovery Channel's gimmick for the Western Show. Discovery teamed with Outward Bound to play off the net's "explore your world" theme. Discovery will erect a small 12-foot-tall platform with a fake rock wall. You climb up the wall to the platform (there's a ladder for wimps) then climb into a harness with ropes attached. In one of Outward Bound's standard "trust" exercises, you jump off the edge, relying on your buddies (or perfect strangers standing in line) anchoring the ropes below. Trust only goes so far with CCTA'ers, who forced the network to load up on liability insurance for the schtick. Teams we'd like to see: Reed Hundt anchored by four cable CEOs, or John Malone secured by four Bellheads. *---------------------------------------------------------------------* HOW TO GET THE CABLE REGULATION DIGEST: E-MAIL - To: listserv@netcom.com Subject: Ignored Body: subscribe cablereg-l FINGER - higgins@dorsai.dorsai.org FTP - ftp.vortex.com/tv-film-video/cable-reg GOPHER - gopher.vortex.com/*** TV/Film/Video*** WWW - www.vortex.com *--30--*