Wares Over Wires: Cable Industry Talks Internet, Does It ‘See’ Internet?

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

 

(millions)

(millions)

(millions)

Value

Value

 

Yahoo

25.21

$18,764

$19,448

$744

$771

3.6%

AOL.com*

24.38

$3,870

$4,035

$159

$165

4.3%

Microsoft.com*

20.55

$2,500

$2,650

$122

$129

6.0%

Lycos

18.31

$2,768

$2,332

$151

$127

-15.8%

MSN.com/Hotmail*

17.84

$2,400

$2,500

$135

$140

4.2%

Netscape.com*

15.71

$2,350

$2,350

$150

$150

0.0%

Excite

15.52

$2,745

$2,548

$177

$164

-7.2%

GeoCities

14.87

$1,328

$1,034

$89

$70

-22.1%

AltaVista

11.13

$800

$750

$72

$67

-6.3%

Infoseek

10.87

$1,164

$1,064

$107

$98

-8.6%

TOTAL

174.4

$38,689

$38,711

$1,905

$1,882

-1.2%

AVERAGE

17.4

$3,869

$3,871

$191

$188

-1.2%

AVG. without Yahoo

16.6

$2,214

$2,140

$129

$123

-4.3%
) 1998 Internet.com *PMV=estimated private market value for Website
only


Well, the cable industry never gave up on the interactive TV pipe dream,
waiting for episodes to debut on cable systems in the past four years to no
avail.


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.


  • Tell us what you think was the biggest Internet industry
    moment of 1998 – please
    click here
    .





  • Attention Internet Startups! LaunchPad West StartUp
    Pavilion, part of Spring Internet World ’99
    , one of the world’s
    largest Internet industry trade shows offers exhibit space for startups
    ONLY at a reduced price in order to meet their often limited capital
    available at the startup stage. Contact Sean Moriarty (hurry, space
    limited): mailto:[email protected]

    News Around the Web