THE TELECOM REFORM BILL : A Double-Edged Sword : IMPACT ON ENTERTAINMENT : Cable, Phone Firms Gird for Newly Defined Roles

If the telecommunications reform bill passes in its current form, it would have far-reaching consequences for the entertainment industry, as new competitors are allowed to deliver video services to America’s households, cable operators are freed to offer phone services and television and radio broadcasters are permitted to own more stations.

“This will be great for the economy and for jobs,” said Christopher Dixon, an analyst at PaineWebber Inc. “Capital is waiting on the sidelines for these rules to be defined. Without it, the economy could be plunged into a recession.”

While the biggest winners may be the technology suppliers that would build the hardware to bring increased competition to the market, software suppliers, such as Hollywood studios, and cable programmers could see their position strengthened in the long run. As telephone companies drive into the video delivery business, they would spur demand for pay-per-view movies and programming services, like the Discovery Channel and Court TV.

“The whole notion that there are new customers and more ways into the home for us is encouraging,” said Lee Masters, president and chief executive of E! Entertainment Television, a cable network based in Los Angeles. “When you have only one customer, they dictate your terms. You’re more likely to get the deal you want when there is a telephone customer, a cable operator and four direct broadcast satellite services in a market.”

While one design of the legislation is to end the virtual monopoly enjoyed by cable operators, some question how serious the local phone companies are about overhauling their systems to mount a competitive threat. It would cost them less to enter the long-distance business, which is more than twice the size of the $23-billion-a-year cable business.

Many local phone carriers have scaled back plans to upgrade their wires for video delivery, but some are forging ahead with alternative technologies, like microwave, as an incremental step into the business.

The bill reflects congressional uncertainty about how quickly cable will face real competition. While lawmakers originally intended to fully deregulate cable prices immediately, in the recent round of debates they opted for a slower phaseout of regulation over years to prevent consumer rates from jumping dramatically before serious competition emerges.

Cable operators are willing to live with extended price regulations because of their big victory: Entry into the $129-billion-a-year local phone business. The leading cable operators, including Tele-Communications Inc., Time Warner and Comcast Corp., already have led a march into the business as state laws have allowed, hoping to cast themselves as one-stop shops for video, voice and data services.

The promotional opportunities are endless: Time Warner, for instance, could give away one-month of free Home Box Office to cable customers willing to try its phone service--all on one bill.

While spurring competition in the video delivery into the home market, the bill encourages consolidation among broadcasters, allowing single companies to own television stations that reach 35% of all TV viewers, up from the current 25%.

“This will set off a flurry of buying activity, with station prices remaining strong through 1996,” said Jim Rosenfield, a managing director of Veronis, Suhler & Associates, a media investment banking firm.

The bill also raises the number of radio stations that one company can own. Analysts said radio consolidation would quicken as station groups capitalized on the benefits of combining local operations to gain operating efficiencies.

Analysts predict that the television networks that are now bumping up against the 25% ownership limit will be big buyers. Westinghouse Electric Corp. bought CBS Inc. this summer in anticipation of the easing of the rules and already reaches more than 30% of the country’s viewers. The merging of the two companies’ radio operations also was regarded as a big benefit.

The consolidation could make it more difficult for independent syndicators like King World to launch shows as the networks increasingly use their station groups as launching pads for their own first-run syndication shows.