(Page 2 of 4)
Contrary to the initial fears of many people, the programmers who scrambled their programs have reached out to dish owners, seeing in them a new market. "They're not saying, okay, now that we've scrambled, backyard dish owners can't get the programs, which is what a lot of people feared," says Thomas Rogers, counsel to the House telecommunications subcommittee. Rather, "they're establishing marketing programs to sell their scrambled signals." The issue now is whether programmers will allow businesses other than local cable monopolies to sell decoders and subscriptions. At stake is the future of cable.
Torn Between Two Lovers
Back when it was just a few rural dish owners pulling down whatever they wanted for free, the dish seemed to pose little fundamental threat to the structure of the cable industry. But "VideoCipher II," the encryption system developed for HBO by M/A-Com Inc., changed all that. Programmers quickly adopted it as an industry standard so that dish owners wouldn't have to purchase separate decoders for each service. This standardization happened without some long, drawn-out Federal Communications Commission proceeding and without a single consumer purchasing a decoder only to find it soon obsolete.
Such a quick and painless consensus is nothing to be sneezed at. It made it possible for anyone with good programming and space on a satellite to get into the pay-TV business on a national scale, completely bypassing the cable monopolies. It also made it possible for third parties with distribution agreements to act as middlemen, opening up another way to bypass cable.
Combine satellite dishes and standardized descramblers, and you get, in effect, a nationwide cable-TV system-without the cable. It is now technically possible for anyone with a dish to pick up a telephone and order Showtime, the Disney Channel, or what-have-you from any authorized distributor in the country. The M/A-Com center near San Diego merges subscriber information from each programmer into a single data stream and beams it up to a satellite. The satellite then rebroadcasts signals containing hundreds of thousands of individual subscriber "addresses" that unlock the audio of whichever services a subscriber has ordered.
Programmers have set up 800 numbers-1-800-HBO-DISH, for example-that allow dish customers to order their service directly. But one can also subscribe through a cable operator-in theory, through anyone within reach of a telephone who has a valid distribution agreement with a programmer. Bye-bye, territorial monopolies.
Now the programmers find themselves in something of a dilemma. As good business people, they aren't about to ignore the new market provided by dish owners. On the other hand, they depend on local cable operators to reach the bulk of their subscribers and therefore are loath to threaten local cable monopolies by readily authorizing independent distributors. Thus, programmers' subscription-price and marketing policies have been carefully designed to minimize competition between the dish and the cable. And that is what all the shouting is about.
"HBO and the other programmers have refused to deal with any entities outside of cable TV," charges Joe Boyle, the executive director of SPACE. Roger Carroll, an aide to scrambling critic Rep. Judd Gregg (R-N.H.), puts it a bit more colorfully: "The cable industry has pressured the programmers...to sleep with them."
Says Carroll, "We don't want to see the rural dish owner in New Hampshire, Pennsylvania, Minnesota, or California thrust back into the dark ages of television viewing. Nobody's disputing the fact that the programmers should be paid for their services. But we don't feel those services should be priced out of the market, either."
SPACE and its allies argue that the prices charged for satellite-broadcast subscriptions are artificially high, that cable-industry pressure forced many programmers to scramble involuntarily, and that cable companies and satellite programmers are trying to thwart competition by refusing to authorize independent (read: noncable) programming distributors. (SPACE has at least one very specific independent distributor in mind-Viewers First National, a venture organized by the trade group's counsel, Rick Brown.)
Steve Tuttle, of the cable industry's ncta, scoffs at such charges. "The scrambling technology has been set up so that anyone can get into the business," he says. If no independent distributors have been authorized yet, it's purely a "business decision." Adds Tola Murphy-Baran, Showtime's public relations director, "I really don't think the customer cares how the programming gets to his house as long as it gets there."
Friendly or Free?
SPACE and other dish advocates think prices may be deliberately skewed in an attempt to protect cable franchises from the new technology on the block. Their argument runs something like this:
A local cable system gets its programming from the same satellite signals as dish owners; the cable company pays the programmers a "wholesale" rate of $4 or $5 per subscriber. So programmers like HBO or The Movie Channel could make an additional profit by selling directly to dish owners for $7 or $8 a month, compared to the $12 or so that cable operators charge. For that matter, an independent distributor who bought satellite programming wholesale and marketed it nationally could also make a hefty profit. So could a cable franchise in literally any locality.
Such a cable company, in fact, would be in a good position to "package" several channels together and sell them at a discount rate, because it would already have distribution agreements and established business relationships with the programmers. Satellite scrambling, then, has created three potential sources of competition for local cable franchises: the programmers themselves, other cable companies, and independent distributors. To put it bluntly, satellite television should be blowing the idea of cable as a local "natural monopoly" sky high.