TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/052989/05298900.016

Text File | 1990-09-22 | 6KB | 104 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.