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Cable Industry Puts on a Show of Unity

June 16, 2003|Sallie Hofmeister | Times Staff Writer

CHICAGO — The cable industry is roiling with conflicts, from rising rates to skyrocketing programming costs to Rupert Murdoch's plans to buy satellite leader DirecTV and thereby dominate the competition.

Yet these divisive issues were barely mentioned by top executives last week at the industry's annual convention here.

The reason, according to several participants: They were executing a well-orchestrated plan to keep the mood upbeat for Wall Street, Washington and the press.

Indeed, the industry leaders who run the National Cable & Telecommunications Assn., the convention's sponsor, were keen on presenting a united front and determined not to air their dirty laundry. Several industry leaders were told by convention officials: "We don't want any headlines. There are a lot of legislators here," said one person close to a top chief executive on the event program.

The cable industry may be recovering from a two-year bout of the blues, characterized by a bankruptcy filing, big debts, sagging stock prices and multiple federal investigations into accounting practices. But it remains under a microscope: Congress is weighing whether to regulate cable prices to stop the ever-spiraling rise in consumer rates. A proposal by Sen. John McCain (R-Ariz.) would create tiers of cable programming, giving customers more freedom to purchase only the channels they want rather than the bundles operators now require them to buy.

Some cable operators urged Congress for the first time to get involved because they say programming costs have soared out of their control, as fees for sports rights have escalated. But most industry executives would rather solve these problems on their own, fearing the unintended consequences from any government intervention. The situation has pit programmers against each other and sent relations between cable operators and channel suppliers to "an all-time low," said one executive.

At the center of the controversy is ESPN, the most expensive of all the basic cable channels. For five years, the popular channel, owned by Walt Disney Co., has charged 20% annual rate hikes while cable distributors have tried to keep their rates from rising more than 5% a year.

Some recent headlines telegraphed the rising hostilities. Just last week, one trade magazine quoted Disney Chairman Michael Eisner calling Cox Communications Inc. Chief Executive James Robbins a "whiner" for complaining about prices that Eisner said are justified. Robbins accused Disney of "Goofy math."

The industry is hoping the "three-day truce" in Chicago will take the heat off the issue. So, the sparring and one-upmanship that have enlivened cable conventions of the past were missing this year.

Among the guests from inside the Beltway were Sen. Conrad R. Burns (R-Mont.) and Rep. Fred Upton (R-Mich.). Federal Communications Commission Chairman Michael K. Powell and FCC Commissioners Jonathan Adelstein and Kevin J. Martin also made appearances.

Leaders appearing on the opening panel -- AOL Time Warner Inc. CEO Richard Parsons, Viacom Inc. President Mel Karmazin, Comcast Corp. CEO Brian Roberts and Microsoft Corp. Chairman Bill Gates -- were downright effusive about the industry's cooperative spirit.

The overriding message: The cable industry has no match in the digital future.

Shrugged off was the threat posed by the proposed acquisition of DirecTV by Murdoch's News Corp., noteworthy because the media mogul's last attempt to enter the U.S. satellite TV market in 1997 was labeled "Death Star."

"It's not really, in my judgment, a threat to the primacy of cable," said Parsons. "There's no Death Star out there."

Gates, appearing on stage at the convention for the first time in five years, said he was as excited today by cable's future as he was seven years ago, when Microsoft invested $1 billion in Comcast, an endorsement that set off a five-year rally in cable stocks on Wall Street.

"Anyone who thinks cable is at some plateau will be very surprised by what they see here," said Gates.

The exhibit floor was a reflection of an industry that after a decade-long consolidation has been concentrated into the hands of just a few giant programmers and cable operators. Viacom, Disney, Comcast, News Corp.'s Fox, General Electric Co.'s NBC, Discovery Communications Inc. and AOL Time Warner's Turner Broadcasting took up nearly half the real estate with flashy booths featuring their stables of channels.

Few new channels were pitched. And the other half of the exhibit space was devoted to suppliers of new technologies that are cable's holy grail. Since 1996, the industry has spent $75 billion to upgrade its cable systems for delivery of digital services such as phone calling, high-speed Internet access and interactive TV that are seen as future growth engines. Comcast's Roberts said he is most excited by a new $35 gizmo from Pace Micro Technology that could replace much more expensive set-top boxes now used to enable analog TVs to pick up digital signals.

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