ANAHEIM, Calif. In stronger terms than most leaders in the cable industry usually dare, AOL Time Warner co-chief operating officer Robert Pittman used the Western Show Thursday (Nov. 29) to herald home networking as the key platform to extend the reach of cable beyond the set-top box, beyond cable modems, and beyond the transmission of TV shows to couch potatoes.
In trumpeting the potential for home networking to feed simultaneous streams of television signals, data and other services like music and telephony, Pittman an inductee of the Broadcasting and Cable Hall of Fame for his pioneering work with MTV and AOL noted that today's consumers spend $60 billion for television. "But it won't be long before they're paying more for data from cable companies than for TV," he said.
Pittman also suggested the potential for cable operators to offer a huge library of music through a CD player-like box hooked to cable, which could make the stereos in consumers' living rooms obsolete.
Pittman's bullish outlook for home networking flies in the face of the technical difficulties and costs that have hobbled the movement for the past three years. It also defies the resistance that consumers have expressed toward the extra charges associated with the bundled services that seem synonymous with home networking. "Consumers have an allergic reaction to the word 'bundling,' " Pittman admitted.
However, Pittman insisted that the steady growth of the Internet and the vast amounts of money consumers continue to spend on Internet-related goods and services is the bellwether of home networking's success.
"We're seeing a big change in the Internet business that's beginning to look a lot like the TV business," he said. Pittman noted that households today are moving toward several personal computers rather than just one, just as homes 25 years ago began to accumulate televisions. Today, he noted, the average number of TVs per U.S. household is 2.4.
As this trend repeats itself with PCs, "that's great for the cable industry," Pittman said, "because it proves the need for home networking." A home with two or three PCs but only one narrow-band phone line will create conflicts that cry out for broadband, multichannel, cable-based solutions, he said.
Foot in the door
Throwing another long-delayed promise into the mix, Pittman noted that home networking will accelerate with the widespread introduction of subscription video-on-demand (SVOD). SVOD is envisioned as a monthly flat-fee service that would provide access to all programming channels like HBO in a given month. This service will be available, Pittman said, through a personal video recorder (PVR) inside a set-top box, or in perhaps 5-to-10 years through a connection to a cable system's "smart" headend.
With home networking and PVR, consumers within the same household could watch different movies or prerecorded TV programs on different TV sets with the power to pause, rewind and manipulate each video, Pittman said. By eliminating the unit-pricing model that has hindered the growth of pay-per-view video-on-demand, Pittman said SVOD will make such services more appealing to consumers, and far more lucrative for cable providers.
Pittman emphasized that by using home networking "to drag the broadband connection into the home," cable systems have their foot in the door to pitch many more "incremental" products. "Since we're already hooked through the cable, for small increments we can provide more services," he said. "For small increments, we can market [each service]."
He went on, "The key for us is thinking about: I've got the basic relationship with the consumer, what can I add?"
Pittman answered his own question with a list. He said that today's typical consumer is paying $50 to $60 a month for basic cable, including a few premium add-ons like HBO or digital cable. Pittman estimated that this consumer might be willing to tack on $10 to $20 for SVOD, and perhaps $10 to $20 beyond that for a "digital jukebox" music service that places thousands of CD titles at his or her fingertips. To these increments, Pittman said a cable system could add home networking to organize all these new services $10 to $20 a month, with maybe $30 to $40 more for cable-based phone service, and $15 to $20 for access to multiple Internet service providers.
"Pretty soon, you've got a model where you're tripling the revenue out of the home, and moving from TV and entertainment to data." Added up, Pittman's new bill, piled up incrementally, totals from $115 to $160 a month.
The bottom line is whether consumers even for the opportunity to sample 10,000 CDs a month, or watch 12 straight episodes of "Sex and the City," or call Mom in Milwaukee on the TV set are willing to cough up $160 a month for cable. As another cable leader, Charter Communications president Carl Vogel, cautioned at the opening of the Western Show Wednesday, "We're a great industry and we sell a great product. But at the end of the day, it's only television."