Wares Over Wires: Cable Industry Talks Internet, Does It 'See' Internet?
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This week's big cable industry convention in Anaheim is all abuzz about cable Internet. Oddly, wired warrior John Malone is not making any predictions this year. Ever since cable titan Malone's infamous 500-channel universe sermon on the mount in 1994 the cable industry, captains of American business, half of Hollywood and all of Gollywood (futurists) have waited with baited set top for the interactive TV golden age to arrive.
Four years ago, about the time Time Warner's Full-Service Network was fizzling after a few months of letting people zap down reruns of 'Flipper' whenever they wanted, the humble Internet exploded and steamrollered anything the cable and media companies dreamt up.
The Internet changed all that with its grassroots growth and own personality that defies board room logic, linear thinking and the best laid plans of coaxial cowboys.
|Internet.com's||October||Nov 18||Dec 2||Nov 18||Dec 2||Percent|
|WEBDEX||Users||Market cap or PMV*||Market cap or PMV*||User||User||change|
|AVG. without Yahoo||16.6||$2,214||$2,140||$129||$123||-4.3%|
The part AT&T doesn't get is that the cable infrastructure is in need of a few more horsepower at the headend to be able to handle two-way traffic.
Only a small percentage of cable homes passed in the U.S. (let alone the world) have half the chance to hook up to a two-way cable Internet connection.
Said another way, telcos may be buying into cable at a time when cable's existing infrastructure is fully mature and in need of surgery to give it anything close to resembling an interactive face lift.
For all intents, the cable system in any locale enjoys an effective monopoly on its service area. Nearly all the 100 million U.S. households are passed by cable and about 67 million subscribe to it with four or five cable operators controlling the lion's share of that universe, led by TCI.
On a private market value basis in a merger or acquisition, a cable subscriber "sells" for about $2,000, give or take a few hundred depending on the deal. The 67 million cable universe holds an implied value at that level of $134 billion. The cable operator garners about $35/month per subscriber for programming or the industry as a whole about $28 billion a year from sub fees.
Here's the hole in the cable model: user relationship. In the top 10 Web/interactive services in the world none of them are cable owned, only one is owned significantly by a major media player with broadcast/cable/program/Web and movie interests (Disney owns 43% of Infoseek).
And the relationship, we would warrant, is everything.
The wire is interesting and cable backbones for Internet could generate multi-billions in bandwidth providing--but the "front ends" or ways into interaction are staring cable right in the face and none of the cable gurus sees it clearly enough to acquire one of them.
For if the cable wire gets classified by the FCC as "common carrier" the same way AT&T, MCI, or any other telco wire is, then the value per cable sub could plummet.
If coaxial wire (cable) gets treated like twisted pair wire (telco) then effective monopolies are gone, along with the value of owning one of them.
In that scenario the "relationship" with the user is everything and then some. If so, the values being paid for the top 10 Web sites, with users rivaling cable systems, could seem very cheap. The WEBDEX table above could provide a handy shopping list for the cable kings to consider.
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