Bills Billion-Dollar Bet

The cable industry is a strange business, historically parasitic in nature. It came into existence because of the inability of television broadcasters to provide an adequate signal to some households.

Cable owed its initial growth to gaps or limitations in legislation: the unwillingness of governments to allow unfettered access to airwaves, for example, or the unclear legal title to signals from distant or foreign stations.

Its boom period in the 1970s and 1980s stemmed from exploiting private-sector restrictions, such as the unwillingness of film studios to allow their expensive films to go directly from cinemas to over-the-air television.

It has provided a convenient subscription-based alternative form of distribution for those suppliers or consumers unhappy with mainstream advertiser-supported broadcasting. In the UK, its relative success in providing cable telephony arises in part from the lingering unpopularity of the former monopoly supplier, British Telecommunications.

 

In short, cables success has stemmed not so much from any inherent technical or managerial superiority as from the failings or limitations of its rivals.

Now it owes its future prospects to the relative sluggishness of telecoms companies in seizing the opportunities thrown up by the new era of electronic communications. This is what Mr Gates says he has in mind in investing in Comcast: the creation of broadband connections to everybodys home, to allow the creation of a whole new communications medium.

Despite the glamorous nature of the challenge, cables comparative advantage is mundane: it owns the poles, ducts, trenches, junction-box sites, rights of way and all the other lowtech paraphernalia of delivering physical connections to some 60m US households and some 40m in Europe.

To provide those 100m households with the broadband interactive services of Mr Gatess imaginings will require many more billions of dollars. Most of the cable systems will need wholesale upgrading to meet the technical challenge. It is a formidable business challenge, made more uncertain by the lack of an assured market.

When cable systems were constructed, in the three decades from the 1960s, they were monopolies. Franchises were awarded by local or national governments. In return for an assured monopoly, cable operators promised universal service within their areas.

Though such franchises persist, they are no longer impregnable monopolies. Changing technology and regulation makes rivals of telecoms companies in many countries. Satellite transmission is another threat; so is over-the-air multi-channel digital broadcasting.

In short, investing in upgrading cable systems is a much less certain venture than the original construction of the systems and that was rocky enough, at times. The future of cable may require, in short, the sort of head-on confrontation with rival delivery mechanisms that the industry has so far avoided.

The biggest uncertainty, however, lies inside consumers heads. Will they want the new interactive medium that Mr Gates is headily concocting for them? History is littered, of course, with pundits predicting that this or that entertainment medium will flop because theres just no demand for it. Cinema, the talkies, radio, television and, for all I know, the illustrated magazine, the lyric opera and the illuminated manuscript have all been predicted as failures due to insufficient demand. All have triumphed.

So precedent is certainly on the side of the visionaries. Still, within the long roster of successful new media, a trend is apparent: each successive innovation has required less audience participation rather than more. At each step, the imaginative effort required of the consumer has fallen. Radio stories require less effort than books; cinema and television less than either.

The few new interactive media that have achieved genuine mass response - such as home shopping require less participative effort than traditional shopping. The interactive vision implies a reversal of this trend: a stepping back from passivity towards a fuller involvement of the audience. That may be a vision too far.

There is undoubtedly pent-up demand among some consumers for broadband home connections. Enthusiasts are switching from passive TV watching to the more active use of the worldwide web. Accessing the web over the traditional phone system is frustrating, and there is a market, among a sizeable minority of households, for more powerful connections.

And there is a number of ways in which the interactive visionaries are working with the trend towards greater passivity. Some of the uses of broadband connections will reduce the imaginative effort required to undertake participative transactions, like selecting a holiday destination.

All this implies a modest, information-based growth at interactivity not enough, perhaps, to justify the scale of capital investment required to upgrade older cable systems but certainly enough to encourage anyone constructing a system from scratch to build interactivity in from the outset.

To justify universal broadband connections to the home requires something that is not yet in prospect: the creation of an art form that exploits it. Parallel-action, tension-building thrillers exploited the new cinematic medium of the early 1900s, quiz shows used the potential of early radio and I Love Lucy exploited the essentially domestic medium of 1950s TV.

The new interactive broadband art form will need to be powerful and involving enough to overturn the historical trend towards passivity. It will need to be, perhaps, some form of three-dimensional you are there experience.

We are still some way from that prospect. In the meantime, the provision of internet access over cable will keep early adopters and business users happy. In the US, the @Home internet-over-cable system is available to 5,000 subscribers in 10 communities; there are comparable fledgling systems in Canada and the UK.

This sort of development has contributed to a general recovery in investors attitude towards cable, as telecoms operators prove slow in bringing their own high-speed internet offerings to a wider market. The satellite threat also seems less formidable, as Mr Rupert Murdochs US ambitions in this field are now cosily gathered into a shared venture with cable operators. Such trends will go some way towards justifying Mr Gatess billion-dollar bet. But it will take much more money, and much more imagination, to give cable a chance of breaking out of its parasitic relationship with other communications industries, to become a medium in its own right.

Peter Martin