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Instead, programmers are charging dish owners more than cable viewers pay. And the only distributors they have authorized are local cable operators-and only within the cable operators' own franchise areas. This policy prompted Kaultronics, a small cable franchise in rural Wisconsin, to send letters to 100 townships in its area asking them to grant it paper "cable franchises" so programmers would allow it to sell their services to local dish owners.
Critics of the current arrangement say third-party distributors would cut prices and give cable operators more incentive to reach out to dish owners. They see the programmers' refusal to deal with independents as a deliberate attempt to limit competition. "We want HBO, Showtime, Disney, Playboy to make the service available to outside distributors and let competition dictate the price," says Stephen Glass, owner of Heavens Above, a dish-equipment store in Worcester, Massachusetts.
Glass knows how far the programmers are willing to go to enforce their "cable friendly" distribution policy. From February until the end of April, he offered discount HBO-Cinemax subscriptions to customers who purchased the M/A-Com decoder. While Home Box Office was billing dish owners $19.95 for the pair, Heavens Above charged only $11.95. The store signed up customers through SPS, a small cable company in Boise, Idaho, that buys HBO service wholesale. Glass phoned in customer information to SPS, which forwarded it to HBO for VideoCipher authorizations.
"We were passing through the $11.95 that SPS charges us right to the customer," Glass says, "to kind of give the industry a kick in the behind" after scrambling was implemented. The promotion also helped generate business during what Glass terms "the slowest period we've had since we began the business six years ago." News of Glass's bargain price spread through satellite-dish dealerships like wildfire. His store received inquiries from over 40 states. By the end of April, Heavens Above and SPS had sent about 1,100 subscriptions to HBO.
Consider: just one distributor in Boise, selling at a discounted rate through a small store in Massachusetts, signed up 25 percent of the 6,000 dish subscriptions HBO had received by April 25. Yet on that date, HBO informed SPS that it would no longer take its orders for the activation of VideoCiphers because they were dealing outside their franchise area. "They don't want a free market," fumes Glass. "They want a controlled market."
The Sweet Ring of Money
Cable operators and programmers see the dish as an extension of the traditional cable business and therefore part of their turf, not an alternative or a competitor. "You know the old debate about what business are you in, railroads or transportation?" asks Tola Murphy-Baran of Showtime. "That applies here. You are either in the cable-TV business or you are in the business of delivering entertainment to people's homes." HBO's Alan Levi used identical language to make the same point, suggesting that the idea has currency among the cable powers that be.
The more savvy cable operators, say Murphy-Baran and Levi, recognize that the dish offers them a new business opportunity and are beginning to pursue it by marketing programming to dish owners. But these programmers' spokespersons firmly believe that dishes will be significant only in areas where it is uneconomical to lay cable. "Cable is still the best deal in town," affirms Steve Schulte, Showtime's man in charge of directbroadcast development. "If it wasn't for dealers promising freebies within franchise areas, these dishes never would have appeared in cabled areas."
The programmers are being cautious and conservative. For 10 years they have worked hand-in-hand with cable operators to promote pay TV in general and their products in particular. From this standpoint, it makes sense to adhere pretty closely to the traditional practices: authorize a single distributor in a territory and minimize the potential for satellites to unleash competitive, nationwide distribution.
"We decided to enter business in the most cost-effective way," says Levi of HBO, "and that was to utilize the distribution mechanism that we already had in place, which was working through the cable operators." In the programmers' view, cable operators build "brand awareness" for programs. The cable business, says Levi, "is not simply a matter of laying down wires. It's knocking on doors, making telephones ring, placing print ads to build the business." Levi thinks it is premature to talk about independent distributors. "That may very well come about as more services scramble and more dishes are sold. But at this point where we have a total of 7,000 subscribers, it's hard to cost-justify developing a brand new nationwide marketing system for a potential of 1.5 million subscribers."
The programmers are at best suspicious and at worst openly scornful of the ability of independent distributors to sell their wares. "I'm not ready to trust my product to any newcomers on the block," says Steve Schulte of Showtime. "You have to make a big distinction between taking orders and selling programming. Lots of people want to take orders. They can pick up the telephone and call an 800 number just as easily as the customer can. But when you ask them to describe in 25 words or less the difference between HBO and Showtime, they hem and haw." Schulte says he doubts that the would be third-party distributors will be interested in listening to complaints or in disconnecting the service when asked to.
Meanwhile, SPACE and its allies are trying to use the government td force programmers to authorize third-party distributors. In September, Senators A1 Gore (D-Tenn.), Wendell Ford (D-Ky.), and Dale Bumpers (D-Ark.) introduced a SPACE backed bill requiring any programmers who scramble to give distribution rights to any noncable company that meets certain criteria or to allow cable operators to sell scrambled signals to dish owners outside their franchise boundaries. The bill would also require all scrambled networks to use the same encryption technology-something that is already happening without government interference-and would increase the penalties for satellite jamming like Captain Midnight's stunt.
Such legislation is probably beside the point. Market pressures are already undermining the cable franchises' control over programming sales to dish owners. The potential market is just too big for programmers to ignore.
In May, HBO's Levi was musing about the possibility of a "kind of Publisher's Clearinghouse concept. Perhaps there is a mechanism similar to that, not by mail but by phone, so that the dish owner can quickly and easily order multiple services at a discount." Meanwhile, as the cable and dish interests have squabbled before Congress, M/A-Com has gone ahead and produced 100,000 descramblers, and close to 8,000 people have purchased them. Two other electronics firms, Anixter and Channel Master, are selling them under a licensing agreement. Future satellite-dish designs will include the descrambling circuitry, eliminating the $400 expense for the decoder.
Dish dealers and programmers are already forging important links. For example, Viacom, the parent company of Showtime and The Movie Channel, is offering dish dealers a $10 rebate for each new Showtime subscriber they sign up by passing out promotional materials with decoder purchases. Such joint marketing efforts will no doubt spread.