Stringer and His Brood Have Cable TV Market Dead in Their Sights

Now that he’s left Larry Tisch’s on-the-auction-block CBS to create a new multimedia network for Michael Ovitz and three of the seven Baby Bell telephone companies, Howard Stringer gets to experience a better class of rumor.

“Funnily enough, I got a call at home from a studio chief this weekend--I won’t give you his name--and he said, ‘Congratulations.’ I, of course, asked, ‘What for?’ ‘For buying MCA,’ he said.

“Now, as far as I knew, we had not bought MCA and I was actually wondering, could we possibly have bought MCA without my knowing about it? You know how paranoid you can get in these kinds of new situations. . . .”

For the record--or, more precisely, for the moment--Howard Stringer and his Baby Bells insist they aren’t about to buy a piece of Matsushita’s Black Tower. For that matter, Stringer says, he’s not planning to turn around and bid for Tisch’s Black Rock, either--although, he acknowledges, the possibility “hovers in the background. . . . I have mixed feelings about it. The (regulatory) rules don’t make it clear that you could buy the whole lot, and it’s not clear that splitting up a network--getting rid of the owned-and-operated stations--makes any economic sense. So for me at the moment, it’s just a distraction.”

Such tempting distractions aside, what Stringer says he is focusing on is building a new kind of television network via the copper wires and optical fibers of a traditional kind of telephone network. Stringer and the Baby Bells are taking dead aim at cable TV.

“Customer service is the key,” he says. “The company that brought you phones that work will bring you video that works. By the end of next year, our customer base should be in the millions.”

Intriguingly, however, interactive entertainment and digital multimedia won’t be the wedge Stringer uses to carve out market share. At a moment when combinations like DreamWorks and Microsoft give new meaning to the concept of “hype”-ermedia, Stringer promises he is going to capture audiences the old-fashioned way: with old-fashioned programming.

“I have to get into the linear programming business,” he says. “Interactivity itself is still a bit of an unknown. . . . We’re looking now to get program licenses and negotiate retransmission agreements.”

Much as Barry Diller and Rupert Murdoch launched the Fox network nearly a decade ago by offering independent TV stations a way to reap the benefits of network economics at a fraction of the cost, Stringer is counting on his network infrastructure to create profitable new economics for both programmers and customers.

For example, instead of building video networks to serve everyone in a region, the services could be targeted to only the most lucrative telephone exchanges in the area. A marginal cost investment in telephone switches could lead to bold new ways to skim the creamiest parts of the market. “Niche-casting” video on demand theoretically becomes far more cost-effective.

Indeed, Stringer argues that in their lust for larger audiences, cablecasters have “lost their nerve for niching. . . . It makes you want to scream into the night because they lost their opportunity.”

Instead, says Stringer, they’ve tried to mimic their broadcasting brethren “by focusing on the 18-to-49 or, at best, 25-to-54 segment of the media market.”

This perennial youth grab, Stringer insists, ignores the unambiguous demographic reality that “within a decade, over 100 million Americans will be over 50 and they’ll be the ones with the most disposable income.”

Stringer wants them on his network. “This is my little dream,” he says. “I ran this by advertisers at CBS without particular success, but if we can create niche channels that get them, we will have a very good audience very quickly.”

That’s not to say that Stringer wants to go from CBS to GBS--the Geriatric Broadcasting System--but that demographic trends are every bit as important to his vision of the network future as the technology trends.

“When people do develop a navigator for handling all the channels on a network,” Stringer says, “that navigator had better be good for people with arthritis.”

Consequently, Stringer doesn’t passionately embrace the interactive opportunities of new media as much as warily shake hands with it. “Initially, I think we have to start by selling the familiar rather than the novel,” he says. “Video on demand is one way of getting people comfortable with the idea of interactivity. . . . Of course, a large part of my company has to attack the prospects of interactivity with all the enthusiasm of a 19-year-old.”

However, Stringer stresses, new genres of interactivity are not going to be the way his new network will be defined in the marketplace. That’s the irony: The Baby Bells, which are counting on fancy interactive network technology to give them their competitive edge, have hired a CEO who views technology as a problem as much as a solution.

Then again, as companies like Matsushita and Sony would acknowledge, there have been far more failures than successes when technology-based consumer companies attempt to launch pop-culture networks. What’s more, the Baby Bells who fund Stringer’s as-yet-unnamed company may ultimately discover they have less in common than they thought.

“This would be very hard to do without Michael Ovitz and CAA,” says Stringer. “They’re going to be the glue here. A large part of my job is generating this mystique to make complicated alliances work. . . . But keep in mind that this is as much a defensive effort as well as an offensive diversification, given the attack on their key business.”

Whether this unusual alliance of Hollywood, broadcast television and dial tones can hold together in the face of competition and strategic temptations remains to be seen. The notion that demographics--rather than technological innovation--will determine its success makes it a most unusual new-media bet.

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Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times. He can be reached at schrage@latimes.com by electronic mail via the Internet.

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