THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, March 12, 1995 TAG: 9503110196
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
DATELINE: RESTON LENGTH: Long : 194 lines
When ex-CBS Broadcast President Howard Stringer last month joined phone companies Bell Atlantic, NYNEX and Pacific Telesis to lead their fledgling video joint venture, he sounded like a middle-aged man relearning how to play with toys.
``It's already fun blue-skying about the kinds of things that we can go for,'' the affable, British-born Stringer told reporters. ``It's not often at this stage that you get offered . . . this exhilarating an opportunity to learn something new.''
But after two years of preparing to battle for TV viewers, the rank-and-file employees of Bell Atlantic Video are beyond their new boss's blue-skies stage. Their focus can be summed up this way, said production-studio director Michael Lasky: ``Implement. Implement.''
Next month, Bell Atlantic plans to launch the most expansive market trial ever of videos on demand, the cornerstone of its strategy to become a major player in TV services. About 200 workers at the company's video subsidiary in Reston, a Washington bedroom community, are behind the pioneering effort to turn phone lines into entertainment conduits.
The upcoming test in 1,000 Northern Virginia homes will help set the stage for more extensive cable and on-demand video offerings that Bell Atlantic and its telephone partners plan in other major metro areas, including Hampton Roads, starting next year.
Bell Atlantic executives said they are confident customers will find the 650 movies, TV shows and other on-demand programs to be offered in the market trial worth paying for.
``The future is going to be a video future,'' said Bell Atlantic Video President Frank W. Pereira. ``We're going to take our customers to the next generation of electronic services.''
Signs of the preparation for market launch are everywhere around the two-story glass-and-brick building that houses the phone company's TV pioneers. Posters count down the days. Graphic designers in softly lit work areas rush to finish video promotions for the service. Workers are stringing cables to tie together electronic components.
Reston is the technological nerve center for the as-yet-unnamed Bell Atlantic-NYNEX-Pac Tel venture, formed last October. Bell Atlantic Corp. Chairman Raymond W. Smith has crowed that this Northern Virginia community will become a mecca for video technology.
Others, however, wonder whether Smith and his fellow phone-company CEOs are committing the next great American industrial folly.
Howard Stringer himself expressed such a view in a February 1994 magazine article.
``This may be an aged, conservative, rear-guard position,'' he told The Economist, ``but I know of no evidence that viewers are crying out for more television.''
A $2 million-plus salary and a share of the profits from the phone companies' venture may have helped change his mind. But Stringer sounded like a man truly converted and baptized when describing last month what he'd seen at Reston and the NYNEX and Pac Tel video centers.
With ``time-shift TV,'' as some in the joint venture have taken to describing their video gambit, ``we'll be giving audiences the opportunity to watch what they want when they want. That is a significant change.''
How enthusiastically people go for video on demand will largely determine when and how extensively phone companies will offer a panoply of more truly interactive offerings: games, shopping, schooling and medical consultations, for example.
It will likely also help the phone companies decide how aggressively to develop their own video programming. They've already made some overtures in that area by hiring as a consultant one of Hollywood's top deal-makers, Michael Ovitz, chairman of Creative Artists Agency.
If their grand plans are successful, there will be a lot of carnage along the information highway. Cable operators, broadcasters and video-store owners all have reason to worry. Their pockets aren't nearly as deep as the phone companies', and their method for delivering entertainment and information may be proven inferior.
Cable operators appear particularly vulnerable. As part of their planned full-fledged video launch next year, the phone companies intend to offer the same cable networks, like HBO and TNT, that cable systems now carry. And the video-on-demand libraries that they are readying through trials like Bell Atlantic's could make the cable operators' pay-per-view choices look puny - at least initially.
Given cable providers' relatively poor service reputations, many customers will switch rather than give their cable systems a chance to match the phone companies' stride, predicted Lancelot Braithwaite, technical editor for Video magazine in New York.
``It's almost universal,'' Braithwaite said. ``Just about everybody hates their cable company, and just about everybody is satisfied with their phone company. Who do you think will have the leg up?''
But cable veterans like Franklin R. Bowers, vice president and general manager of Cox Cable Hampton Roads Inc., predict a rude comeuppance for phone executives. They'll find that delivering TV services reliably isn't as easy as they think, he said.
Bowers and other cable managers say their biggest worry is that the phone companies will use their greater financial muscle to shove aside competitors. The cable industry wants federal legislation to make it harder for phone companies to use phone revenues to subsidize TV ventures. Cable operators also would like a head start into the local phone business before phone companies get into video.
The proposals are kicking around Congress. If they're included in a comprehensive telecommunications-reform bill this year, the phone companies' video rollouts could be slowed.
But if that doesn't happen, ``we'll be ready for them,'' Bowers vowed. ``We're putting together the infrastructure to provide us the flexibility to do whatever it is we have to do.''
Even he admits, however, to be being impressed with what Bell Atlantic has accomplished so far.
At its Reston center, Bell Atlantic Video has converted more than 700 hours of movies, TV shows and other programs into bits of data and then stocked that data inside a specialized computer known as a video server.
That server, about the size of a half-dozen large file cabinets, will function like a jukebox. Starting next month, when a customer in the video-on-demand market trial uses his or her remote control to order a program, the server will send a stream of data through the phone lines to the customer's TV set-top. The set-top will, in turn, convert the bits of information into sounds and images.
Bell Atlantic hasn't indicated what it will charge for the programs in its video library, other than to say that it will test various price levels to see what the market will bear. It hopes customers will be willing to pay a premium for the convenience of having so many choices available.
The 200 initial movies will be only about one-tenth of what a typical video store offers. But Bell Atlantic plans to change about 25 percent of its on-demand library every month. ``You shouldn't ever have that old Saturday night situation where nobody went out and got a movie and there's nothing on pay-per-view and . . . broadcast TV just happens to be not what you want,'' said Richard E. Beville, Bell Atlantic Video vice president and general manager.
Besides program titles and prices, Bell Atlantic plans to test several other variables in the market trial. It will try various program previews, which customers will be able to order at no charge by punching a button on their remotes. And it will experiment with expanded service and installation hours - as early as 7 a.m., as late as 11 p.m.
Preparing for the trial hasn't been easy.
Delays in getting federal regulators' approval helped push the start date back about a year. And the company has had to overcome big technological obstacles.
Just getting programs into its video server was a major challenge. The first two-hour movie that Bell Atlantic ``digitized'' took 150 hours to complete and cost $150,000. Now, its Digital Service Bureau is converting programs at an ``industrial scale,'' said Bell Atlantic Video spokesman Lawrence Plumb: in about six hours per film and for as little as $3,000.
The hardware and software involved in delivering video on demand, tracking bills and supporting customer service was also quite involved. About 15 software vendors alone were enlisted.
Producers, directors, graphic designers and audio and video engineers had to be recruited. And meshing their disparate talents has proven harder than some phone-company managers expected.
Bell Atlantic Video had planned to spend up to $200 million gearing up for full-fledged market services. That doesn't include a sister company's cost, as yet undisclosed, of laying the fiber-optic cables that will form the backbone of the video network.
The company will back-bill part of its cost to date to NYNEX and Pac Tel now that the three are equal partners in the video venture.
But that wasn't what drove their partnership, said Bell Atlantic's Pereira. He said the motivating factor was the company's desire to be part of a service that had a ``national footprint.'' Bell Atlantic had hoped to accomplish that through a $33 billion purchase of Tele-Communications Inc., the nation's largest cable operator. But that deal collapsed early in 1994.
By joining together, Bell Atlantic, NYNEX and Pac Tel will cover six of the nation's seven largest metro areas and 30 million households. Pereira said the venture's scope will grow because other regional phone companies are interested in joining.
Despite its scale, the venture will heavily stress local decision-making when deciding what on-demand programs and broadcast and cable channels to offer, Pereira said.
``We'll be providing the core packaging . . . the templates,'' he said. ``But our general manager in the Norfolk area, for example, will have autonomy to tailor the product to meet the needs of that marketplace.''
The upcoming video-on-demand trial in Northern Virginia illustrates that strategy. Besides all the major Hollywood studios, the Big 3 broadcast networks and independent programmers like National Geographic and Time-Life Video, Bell Atlantic also turned to a half-dozen Washington-area TV stations for local shows.
When the phone companies go into a full-fledged market launch, Pereira envisions agreements with local TV stations all over the country to make daily newscasts part of the on-demand service. That way, you will be able to order up the day's local 6 o'clock news when you get home from shopping at 9:30.
It's a new way of looking at TV. Next month, Bell Atlantic will start finding out if the public is willing to pay for it.
``We don't have the luxury right now of thinking, `Gee, wouldn't this be cool someday?' '' said Bell Atlantic's Lasky. ``The answer is, `What's going to work tomorrow?' '' ILLUSTRATION: Graphic
Text by DAVE MAYFIELD; Graphic by ROBERT D. VOROS/Staff
HOW IT WILL WORK
SOURCE: Bell Atlantic
[For complete graphic, please see microfilm]
by CNB