TIME: Almanac 1993/TIME Almanac 1993.iso/time/052989/05298900.016

Text File | 1992-09-23 | 5.9 KB | 114 lines

                                                                                BUSINESS, Page 68

Tune In, Turn On, Sort Out


Cable TV's success brings fierce rivalry and growing scrutiny


    Cable television was a strapping adolescent when Congress
agreed in 1984 to free the industry from regulation to give it
room to grow. Since then the business has developed with a
passion. Now a vigorous adult, cable reaches 54% of U.S.
television homes and has annual advertising revenue of more than
$1.8 billion, compared with just $60 million in 1980. But the
industry's rapid expansion and newfound clout have prompted
sources ranging from consumer groups to motion-picture studios
to call loudly for renewed regulation.

    In perhaps the strongest action yet, Senator Albert Gore
last week introduced a bill that would empower local communities
to set rates for basic cable services. To increase competition
among cable-system operators, the Tennessee Democrat would
allow telephone companies to enter the cable business. In
addition, the bill asked the Federal Communications Commission
to study the cross-ownership of cable networks and systems by
the same companies. Said Gore, a frequent critic of the cable
industry: "Deregulation has allowed too many cable companies to
gouge consumers and left too many consumers as unprotected
victims."

    The measure comes amid quickening competition in the cable
industry as firms battle harder than ever to expand their
market share. Last week Home Box Office, a Time Inc. company
that operates the largest pay movie network, said it will launch
a 24-hour comedy channel this fall as its first basic cable
service. Two days later, MTV Networks, a sister of Showtime, the
second largest pay movie channel, announced plans for similar
comedy programming early next year.

    But the rivalry hardly stops there. MTV and Showtime are
both units of Viacom International, which two weeks ago brought
a $2.4 billion antitrust suit against Time Inc.; American
Television and Communications Corp., of which Time Inc. owns
82%; and HBO. The action charges the defendants with
discriminating against Showtime on cable systems that ATC
operates across the U.S. Time Inc. has vigorously denied the
charges.

    In part, such wrangling reflects industry uneasiness over
the proposed merger of Time Inc. and Warner Communications Inc.,
which will create a strengthened No. 2 cable-systems operator,
behind Denver-based Tele-Communications. "The burning issue
right now is how much access the Time-Warner group will give to
its competition," says an executive of a rival cable company.
According to a study by Michael Salinger, a professor of public
policy at the Columbia University business school, system
operators may indeed show bias toward their own networks over
channels owned by other companies. Says he: "I found that ATC
systems tend to favor HBO and Cinemax," an affiliated pay
service. "Similarly, Viacom (which also owns cable systems)
tends to favor Showtime."

    As cable networks proliferate, many operators are limited
in how many channels they can accommodate with outmoded
transmission equipment. "The real problem is channel capacity,"
says Michael Luftman, a spokesman for ATC. Reason: many cable
systems were built at least ten years ago, when the technology
permitted room for only 36 channels. That capacity will grow to
some 70 or more channels in the 1990s as operators around the
country install new equipment. The advanced hardware will create
more room for rivals on the same system and a wealth of new
programming opportunities for everything from local news shows
to solemn religious services.

    Under deregulation, the rates that cable subscribers pay
for basic service and rates for premium programs have moved in
opposite directions. Paul Kagan Associates, a California-based
research group and trade-magazine publisher, found that the
average monthly charge for basic service climbed from $11.90 in
1986 to $14.40 last year, an increase of 21%. At the same time,
the typical fee for premium offerings such as HBO and Showtime
fell from $10.31 a month to $9.91, down nearly 4%.

    Critics of cable have attacked the present industry
arrangements on several fronts in Washington. The measures
include a bill introduced last month by Ohio Democrat Howard
Metzenbaum, chairman of the Senate antitrust subcommittee, that
would limit the number of subscribers that any system operator
could control to 25% of the total U.S. cable audience. The FCC,
meanwhile, is preparing a report on the impact of cable
deregulation that is due out next year. In a separate action,
the agency has begun reviewing a rule that bars broadcast
networks from owning cable systems. The networks already have
interests in cable channels that range from NBC's month-old
Consumer News & Business Channel to the ESPN sports channel, a
venture of ABC and RJR Nabisco.

    Experts say it is unlikely that Congress will seriously
consider changing its hands-off policy toward cable before the
FCC completes its in-depth report. Nor do Washington watchers
detect any ground swell of enthusiasm for efforts to roll back
the 1984 legislation that deregulated the industry. Says a
Senate staffer who keeps a close watch on cable developments:
"There's a feeling of `If it ain't broke, don't fix it.' "

    The industry-wide ferment is certain to continue, however,
as hundreds of small cable operators merge into regional units
or sell out to the giants. Ultimately, the number of systems
could dwindle to a handful. "The same thing happened in the
movie industry 50 years ago," says Robert Thomson,
Tele-Communications' vice president for government relations.
"They once had many more studios." With that prospect in mind,
the major cable companies are scrambling today to make sure they
do not wind up on the cutting-room floor tomorrow.