Test Planned for High-Tech Pay-TV System

Three of the country’s largest telecommunications companies said Friday that they will test-market a high-tech pay-TV system allowing viewers at home to choose what they want to watch from more than 1,000 movies and other attractions.

Denver-based cable giant Tele-Communications Inc., American Telephone & Telegraph and regional phone company US West will conduct the test among 450 TCI-affiliated cable subscribers in Denver. It is scheduled to begin this fall and run 18 months.

“What we’re trying to do here is figure out the next generation of investment for the cable-TV industry,” said John Malone, chief executive of TCI.

Called Viewer Controlled Cable TV, the test will consist of two pay-per-view services: one allowing viewers to select from a library of more than 1,000 movies and the other a multichannel service showing 15 different movies a day.

The Denver test, and a similar project by Time Warner Inc. in Queens, N.Y., are significant because they will help to shape the local cable-TV systems of the future.

Malone explained that significant developments in optical fiber, digital and video-compression technology have made possible the deployment of advanced, interactive cable systems within three years.

TCI will build special fiber-optic and coaxial cable lines into the homes of its affiliated subscribers in suburban Denver. US West will provide the fiber-optic “trunk” line to the neighborhood, while AT&T; will provide the computer software, cable box and remote control device in each subscriber’s house.

“This reflects the convergence of the telephone and cable-TV companies,” said John S. Reidy, a media analyst with the investment firm Smith Barney, Harris Upham & Co. in New York.

Local phone companies are banned from operating cable-TV systems and have been lobbying in Washington to have the regulations overturned. But only cable-TV lines now are able to deliver video programs into the home, and the cable industry has been vigorously fighting to keep the telephone companies out.

The cable industry, however, believes that it is on the verge of technical breakthroughs that will, in effect, turn each home into a video rental store. Video rentals are a $20-billion-a-year industry, and the Hollywood studios--which supply the most popular tapes--want a larger slice of that pie. In future cable systems, the studios would share in the revenue from each showing rather than only from the sale of a videocassette to a rental store.

Malone said the “video on demand” movie or program would cost subscribers the same as a one-night rental from a video store and a pay-per-view event would cost between 50 cents and $5.

One of the reasons cable operators are embracing pay-per-view is that their revenues from traditional pay-TV services, such as Home Box Office or Showtime, are plummeting. Viewers can rent movies from home video stores months before they are shown on cable-TV.

Pay-TV is “a crucial part of the cash flow of a cable system,” said Paul Bortz, a Denver-based cable industry consultant. “So cable companies have to find something to take them on to the next generation and to compete with the home video stores. That is why the industry is moving to multichannel pay-per-view and ‘video on demand.’ ”

Earlier this year, Time Warner announced that it would build the nation’s first 150-channel cable-TV system in Queens, N.Y. The system, which would include fiber-optic lines capable of carrying many more channels than current systems, would eventually allow viewers to select from hundreds of movies at any time of the day.