- Published in "Cinco Días"
- Author: Pedro Tellería
- Date: January 11, 1994
Cable television is one of the new services and business opportunities currently attracting the most attention—from politicians, companies, and private citizens alike. This article focuses on the advantages (“goodies,” as the Anglo-Saxons would say) that cable television offers both businesses and consumers, and which constitute the main reason for establishing a legislative framework and enabling the launch of major investment projects.
Rarely has there been such broad social interest in the development of a new service. The focal point for many companies, citizens, and policymakers today is cable television—a field where two key forces converge: the existence of strong latent demand among viewers (nearly 40 million Spaniards, or more than 11 million households) and a wide range of business opportunities that many firms are eager to explore.
If we correlate the latent demand in Spanish society with the experience of cable television development in other countries, we find that between three and seven million Spanish households could subscribe to a service costing between 800 and 3,000 pesetas per month. In return, they would receive programming offering between 10 and 25 channels, most of them commercial-free and thematically specialized, far better aligned with viewers’ preferences than the current broadcast offerings.
The estimated prices for cable television service appear reasonable when compared with existing pay-TV rates. More than 500,000 subscribers already pay 3,000 pesetas per month for a single channel (Canal+), and about 1.5 million households subscribe to one of the 300 community video companies, paying an average of 800 pesetas monthly. Moreover, the 4.8 million home video users who spend around 440 pesetas per month on movie rentals also represent a potential market segment likely to migrate toward cable television.
If we add up all of Spain’s existing pay-TV demand, which would logically be attracted to a broader and more affordable cable television offer, it seems reasonable to project a minimum annual market of 50 billion pesetas. This estimate does not even take into account the likely expansion of demand that a wider and cheaper offering would generate.
At the other end of the spectrum, a more optimistic scenario could be drawn by comparing the Spanish market with that of the United States, where 62% of households subscribe to some form of cable television, paying at least 2,600 pesetas per month and an average of around 4,500 pesetas. If such a penetration rate were achieved in Spain over a ten-year horizon, annual revenues could reach 330 billion pesetas, equivalent to about 0.7% of Spain’s GDP.
Beyond the intrinsic attractiveness of the cable television market itself, for some companies it also represents a gateway into other business areas. Some see it—rightly or wrongly—as an entry point into telecommunications markets currently monopolized by Telefónica, but which may be liberalized in the future.
This option, however, might prove questionable given that the network designs are topologically different. Yet certain technological choices and targeted approaches to specific market niches could make it viable. In the United Kingdom, for example, several cable television companies are already offering voice telephony services.
The concept of “Information Superhighways” is another of the sweet incentives luring some companies, which view cable television as a strategic path toward that goal. The idea of an Information Superhighway as a channel for advanced communications services promises to become one of the great sources of wealth in the coming century.
This is why the Clinton administration, led by Vice President Al Gore, has succeeded in bringing together the 28 leading U.S. companies in computing and communications to join efforts in the National Information Infrastructure (NII) project, designed to make such a communications channel possible.
The fact that fierce competitors like IBM, DEC, Apple, and Sun have agreed to collaborate in the NII project would be surprising were it not for the widespread awareness of just how much there is to gain—and to share.
In Europe, the Eurie93 project—uniting 22 telephone operators—also seeks to develop a high-capacity channel for the transmission of text, voice, data, and images. This coincidence between Europe and the United States is no accident. It reflects the latent potential to generate additional demand for advanced telecommunications services such as file transfer, access to image databases, teleworking, multimedia, and videoconferencing.
Many companies have been drawn to the lure of the cable television market and have begun taking their first steps. Electric utilities, banks, telecommunications network operators, international cable and telecom operators, content producers, and television channels are among the main players showing interest.
Some early, albeit modest, attempts already exist. There are around 800 small networks—mostly evolved from community video services—offering limited services to small residential areas.
The association AESDICA (Spanish Association of Distributed Cable Services) includes 30 companies that operate cable television networks with about 80,000 subscribers. Firms such as Procono, Crevisión, TDC, Cabledis, Vídeo-Antena, Seteca, Millisat, and Teleleón are among them.
Other, larger corporations are preparing their own projects. Sevillana de Electricidad, together with BBV, BCH, and Mulsitel, created Sevillana de Cable to serve the Andalusian and Extremaduran markets. Electra de Viesgo established Santander de Cable to penetrate the Cantabrian region. On a broader strategic level, Prisa, Telefónica, and Abengoa founded the Sociedad General de Cablevisión, with a national scope.
But if legislation allows it, this is only the beginning—the tip of an iceberg that will attract major national and international corporations, including:
- Telecommunications network operators: domestic (Telefónica, Retevisión, Correos) and international (BT, possibly through its partnership with Banco Santander, FT, US West, Bell South, Bell Atlantic).
- Cable television operators: for example, industry giants such as Cablevision Systems, Continental, Cox, Time Warner, Comcast, or TCI.
- Television channels: TVE, Tele 5, Canal+, Antena 3, or foreign networks like BBC, ABC, and NBC.
- Programmers: CNN, TBS, TNT, Cartoon Network, ESPN, HBO, Viacom, among others.
- Financial institutions: BBV, BCH, Argentaria, Banco Santander, Bankinter, La Caixa, Caja Madrid, as well as foreign banks and venture capital firms.
- Electric utilities: Iberdrola, Sevillana de Electricidad, and Endesa.
- Others: advertising firms, media suppliers, and public administrations (municipalities, regional governments).
However, the Spanish government has been reluctant to publish a stable regulatory framework that would enable the development of this highly demanded service. For at least the past two years, the long-awaited cable television law has been in a seemingly endless approval process.
After being split off and sidelined when the Satellite Television Law was passed in December 1992 (recall that the Hispasat satellite, costing 59 billion pesetas, had already been in orbit since September 1992), it now appears that a commitment has been made to bring the cable television law to Parliament in 1994.
During the development phase of this infrastructure, both direct and indirect employment would be generated in network and user equipment supply, trunk and subscriber network construction, and operations center development—amounting to between 10,000 and 15,000 jobs, or 30,000 to 60,000 man-years.
But what are the expected benefits of cable television? And what are the associated costs and risks?
Certainly, the benefits arising from the development of this service are diverse, and perhaps not all are being adequately analyzed or assessed. The main expected benefits that would result from the deployment of cable television services include:
- Expansion of entertainment offerings
- Educational tool
- Economic development and job creation
- Modernization of the national telecommunications infrastructure
- Growth of the Spanish business fabric
- Improvement of telecommunications services
- Technological advancement of the country
- Plurality of opinions and freedom of expression
The next article will seek to break down and analyze these benefits—as well as the costs and risks involved.
- Pedro Tellería is a Senior Consultant and Head of the Telecommunications Sector for Spain and Portugal at the management consulting firm Arthur D. Little.