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Date: Sat, 19 Nov 1994 09:24:48 -0800
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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.
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Refer questions to John Higgins ([email protected] or
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Multichannel e-mail contacts:
Marianne Paskowski, editor: [email protected]
John M. Higgins, finance editor: [email protected]
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Leslie Ellis, technology editor: [email protected]

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.

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