Cable Industry Puts on a Show of Unity

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.

There was also some glitz. Cheerleaders pitched the new College Sports Television channel, and pop singer Michael Jackson’s 10-minute cameo for the 4-year-old MBC Network was the highlight of the floor show. Still, many conventioneers pined for the days when the cable industry was run by entrepreneurial pioneers as outlandish as CNN founder Ted Turner. Turner rarely obeyed a gag order, bringing wild applause at a 1996 convention with his vow to “squish Murdoch like a bug.”

In the past, Karmazin has helped spice up the stage with his acerbic asides and put-downs. During the opening panel this time, he fidgeted in his chair and comically shuffled his feet, but was unusually buttoned-down.

The NCTA declined to comment on whether the tone of the conference was tightly controlled. There was, however, one subversive moment offstage that vividly captured the strain between programmers and distributors.

Early one morning, Bob Gessner, president of a tiny Ohio cable operator called Massillon Cable TV Inc., showed up as thousands of conventioneers arrived. On chairs, he placed hand-made stickers chiding ESPN for its steep rate hikes: “The Ever Spiraling Price Network brings TIERS to my eyes.”

It was a not-so-subtle reference to McCain’s proposal to put expensive sports channels in a premium package such as HBO, so that all customers don’t have to pay for them. Although cable operators would love to “tier” sports, programmers object because they would lose scores of subscribers. Operators estimate ESPN would fall from more than 80 million customers to 25 million. Revenue would drop dramatically since channels are paid based on subscribers. Advertisers also pay based on reach.

Meanwhile, non-sports programmers worry that if Washington gets involved, their prices could be regulated too. As Powell warned the industry last week: “Be careful what you ask for. There is no surgical legislation in America anymore.”

Gessner met an unforeseen setback in his distribution plan. As quickly as he laid the stickers down, an executive he said was from ESPN followed in his path, picking them up. But the propaganda was already in wide circulation, drawing scowls from top Disney executives, he said, but praise from almost everyone else. Said Gessner: “It was done in a spirit of fun, but there is a very serious side to it.”

In deference to the spirit of the truce, some top executives wore the sticker -- on the inside of their suit coat lapels.