Content Cutbacks Endanger Broadband Growth

Sony studios' layoffs show content and capacity are at an impasse, a situation expected to lead to further flattening in the broadband growth curve.

Without compelling content, consumer broadband is little more than an empty pipeline whose most impressive features are faster downloads and "always on" capability.

After the early adopters, the next wave expected to pay premium rates for high-speed connections were those seeking streaming entertainment, which is virtually unavailable over dial-up networks. That idea drove the creation of now-bankrupt cable ISP [email protected], and the merger of AOL and Time Warner. It also applies to cable modem Internet connections and television.

Now, however content and capacity are at an impasse, a situation expected to lead to further flattening in the broadband growth curve.

The content creators have suffered from continually poor delivery over cable and DSL, seriously damaging the "content plus capacity equals subscribers" equation. While the biggest victim so far may be [email protected], AOL Time Warner knows it must also solve the content-capacity conundrum.

"I dont have cable television in my home because I want higher delivery speeds - I pay for it because of the programming," said Geoff Tudor, CEO of cable vendor Advent Networks.

That may become harder as the entertainment giants cut costs in the wake of the Sept. 11 attacks, even in the seemingly recessionproof TV business.

Last month, Sony announced it was reducing its U.S. TV production business. Now, AOL Time Warners TV unit is reportedly looking to cut its roster of writers and producers: The Burbank, Calif., studio of Warner Bros. may reduce its work force by 10 percent. Meanwhile, Sony, which had tied its TV operations to an ambitious broadband strategy, is cutting up to 70 jobs - about 20 percent of the combined operations work force - in large part because of the companys lack of an affiliated network.

"Television production remains a key part of our business, but the traditional network business model doesnt make economic sense anymore for independent suppliers," said Mel Harris, co-president and chief operating officer of Sony Pictures Entertainment.

The Sept. 11 attacks may have knocked the props out from under the studios, but they was already in a weakened state. After the attacks, however, networks lost an estimated $188 million in ad revenue. Fearing a further erosion of ad value, the studios are circling the wagons to protect against another threat from the personal video recorder (PVR), a device that allows viewers to skip commercials, fast forward and pause live TV delivered over cable or satellite broadcast.

In a lawsuit filed in Northern California, ABC, CBS Broadcasting, CBS Worldwide, NBC, NBC Studios, Paramount Pictures, Showtime Networks, United Paramount Network, Viacom International and The Walt Disney Co.s Disney Enterprises claim that two features on the ReplayTV 4000 recorder pose illegal threats to their businesses. The device starts shipping this month.

The biggest concern is the PVRs AutoSkip button that lets viewers digitally record shows with advertising automatically deleted. The other threats are the PVRs ability to make perfect digital copies of the networks programs and a Send Show function, which would allow viewers to distribute programming to other people via high-speed Internet connections.

The networks are not challenging the rights of viewers to record shows for personal use, which is sanctioned by a 1984 U.S. Supreme Court case involving Sony.

Sony, meanwhile, struck its own deal with PVR pioneer TiVo. A new licensing agreement allows Sony to develop products using TiVos digital video recording technology, including recently patented hardware and software designs.

The licensing deal is expected to spur lackluster sales of the PVRs coming from Microsoft, ReplayTV and TiVo. To make sales surge, prices must come down, analysts said. Research shows that $300 is the most that consumers will pay for an electronic appliance for their TVs. PVR service also requires monthly fees of about $10.

Sony is also launching a marketing venture with Yahoo! that will help promote Sonys upcoming movies such as Ali starring Will Smith and The Panic Room with Jodi Foster. Sony Music Entertainment is also considering deals with Yahoo!.

"Sonys agreement with Yahoo! will allow us to offer customers information specific to their interests in Sony," said Howard Stringer, Chairman and CEO of Sony Corp. of America. "It will also give us the ability to have more direct customer relationships across all Sony companies. This relationship will serve as one of the models for Sonys expansion into digital media in the 21st century."