CABLE TV: ENTRENCHED CABLE LEADERS LOOK DOWN ON DBS THREAT: PRICE AND SERVICE CITED OVER NEWEST COMPETITOR

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If cable giants like TeleCommunications Inc. were shaken by the February announcement of a $1 billion merger between Rupert Murdoch's News Corp. and direct broadcast satellite provider Echostar Communications, they're not admitting it in public.

Cable is too strong, they say, too entrenched, to feel an immediate threat from the new venture, Sky Television.

The cable leaders contend that most of cable's 65 million-plus customers (vs. about 6 million DBS subscribers, including some 430,000 on Echostar) are not about to forgo cable's pricing and beefed-up service for a competitor that may not be able to offer local broadcast stations anytime soon-cable's key advantage and one reason for the rise of multiple systems operators.

DBS LEADERS POSITIVE

For their part, the leading DBS providers-DirecTV (with 2.4 million subscribers) and PrimeStar Partners (1.75 million)-are sunny about the future.

For one thing, they are skeptical that Sky will be able to deliver the promised 500 channels by 1998. Foreign ownership of U.S. media properties, copyright laws and technical considerations-Sky will operate seven satellites working in conjunction to pull it off-could delay or even snuff out the enterprise. What's more, they wonder how much Sky is going to have to charge.

While the answer to the last question is likely to be whatever the market will bear, Sky brushes off naysayers.

COMFORTABLE WITH TECHNOLOGY

Jim Platt, senior VP-corporate communications for News Corp., points out: "Our cable and satellite competitors have an interest in being skeptical [about Sky's capabilities]. We're comfortable with the satellite technology we plan to use."

He says Hughes Corp. (part owner of DirecTV) is building the satellite that will deliver "spot beam" coverage and they are "confident it will work."

Mr. Platt estimates Sky will be able to offer local broadcast stations in 35% to 50% of U.S. homes in about a year and about 75% by the end of 1998.

As far as foreign ownership goes, "It's quite clear that foreign ownership issues do not apply to the satellite business," says Mr. Platt.

However, it's not as if satellite and cable executives take the News-Echostar deal lightly. They recognize Sky as a potentially strong competitor (the company was nicknamed "Death Star" by one industry observer), and they're readying new products and marketing strategies in the hope of attracting additional viewers and keeping current ones.

remembers a prediction

Cable has certainly heard reports of its premature demise before. Cindy Winning, group VP-marketing for Jones Intercable, recalls a prediction a few years ago by Bell Atlantic Chairman Ray Smith that cable would soon cease to exist.

"Where's Ray Smith today?" Ms. Winning asks. "He's gone. You don't hear about him anymore."

What cable operators do want people to hear about is modernization, price and local service.

Jones, for instance, is now offering a digital converter box in some markets. The box will compress the cable signal, allowing one channel to deliver six to 12 channels in its place.

"Such capacity will put us in the range of satellite, and of course, the digital picture is better than analog," says Ms. Winning.

DIGITAL CABLE

Meanwhile, TCI, the nation's largest MSO, will roll out digital cable in all of its markets this year, according to Bob Thompson, senior VP-communications and policy planning.

"The service will provide as many channels, in more consumer-friendly combinations, as any satellite company will," he says.

Time Warner Cable, the nation's second-largest MSO and part owner of PrimeStar, also will roll out digital cable by the end of this year to anyone who wants it.

"Some customers find digital very attractive," says Mike Luftman, VP-corporate communications for Time Warner. "If it's 20% [of subscribers], we'll provide digital to that group. Whatever the demand is, we'll meet it."

RARELY SHY ON RATES

An investment in digital technology and other system improvements will cost MSOs plenty, but they have rarely been shy about raising rates.

Just a couple of weeks after News Corp. purchased Echostar, for instance, TCI announced it would charge an average of 6.8% more in all markets, an average increase in monthly fees for expanded basic service of less than $2.

Cable operators maintain that pricing is largely out of their control anyway. They fault programmers such as ESPN and Disney Channel for not holding the line.

"In many cases," says Ms. Winning, "you can't find why a network is charging more year after year. The public doesn't understand that operators are .*.*. seeking the best value equation."

Viewers are getting just that through their cable provider, asserts Mr. Thompson, whose company also owns a stake in PrimeStar.

"We think we'll do very well against the satellites," he says. "Our price is about half of what DBS charges and we've got twice the product."

In other words, as long as cable can deliver local stations to viewers the industry will always have a leg up. It's an argument MSOs can make for at least a year but then, assuming Sky takes off, it may run into problems.

"By the time Murdoch launches, DirecTV and PrimeStar will have mined all the easily panned gold in DBS," says Mr. Luftman. "A latecomer will find it hard to gain market share."

Satellite addition

That is exactly what PrimeStar had in mind when, in January, it activated a new satellite that will increase capacity from 95 channels to 160. When the transition takes effect April 20, PrimeStar will introduce a "clustered" program package that organizes all sports, movies, family programs and other viewing fare into blocks of consecutive channels.

PrimeStar says this concept will pave the way for subscribers who want to "hyper-surf" to their favorite areas.

"We're going to help viewers go where they want to go a lot faster," says Denny Wilkinson, senior VP-marketing & programming. Last month, the company debuted ads-using celebrities such as skater Kristi Yamaguchi and famed sunbather and actor George Hamilton-promoting the service. Later this summer, PrimeStar will begin offering a color-coded remote control that facilitates hyper-surfing.

WEATHER COMPETITIOn

At the same time, PrimeStar will begin offering local weather forecasts, the first by a DBS company. Called "MSNBC Weather by Intellicast," the 24-hour service incorporates 10 separate channels.

A viewer in New York for example, would flip to "Northeast Weather" for a regional, national and international forecast. He would also get the Manhattan weather, PrimeStar promises, in less than four minutes.

Mr. Wilkinson adds that PrimeStar will continue to lease its dish and converter box to customers. In the past two years, the company has spent about $225 million promoting the PrimeStar brand to earn the company a 40% market share. And PrimeStar isn't going to give that up without a fight.

Says Mr. Wilkinson: "It's going to be a nice battle this summer."

NOT PULLING ITS PUNCHES

DirecTV plans to pull no punches, either. Jim Remo, DirecTV's exec VP, says his company has been offering a channel-clustering concept since the service was launched in 1994, "so this is nothing new to us." It's moving ahead with other plans, including a platform that integrates advanced personal computing functions with satellite programming. Co-developed with Microsoft, the system will be rolled out sometime this year.

"We will beam video and Website data into the computer," says Mr. Remo. "The information will be stored on the hard drive, and the user will be able to retrieve it any time. This option will give the illusion of instantaneous access to the Web."

In one possible application, a viewer could watch Food Network and be able to pull down a recipe the chef is discussing from the screen's toolbar.

Subscribers will have access to all DirecTV channels but will need a high-end multimedia processor with at least a three-gigabyte hard drive and a high-resolution monitor.

While the PC service is geared for a specialized audience, Mr. Remo says DirecTV will soon move into a new phase in its overall strategy. If last year was devoted to creating DBS-category awareness, 1997 will "build the DirecTV brand."

Mr. Remo acknowledges past consumer confusion regarding the purchase price of DirecTV hardware; he says the net cost of $199 has been clarified.

Consumers now "know what the retailers are selling," he says.

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