From The Street...
Saturday, June 29, 2002
Broadcast Graphics ...
From a Colleague -
We have all the reports, and graphics business is on the upswing. Our sales have been about flat for 3 quarters, but that is with products that cost a whole lot less than the old (technology). The graphics division showed an operating profit last quarter (the company did not, but losses were greatly reduced). We are seeing exactly what the reports showed: there is some pent-up demand for graphics, especially since branding is important and groups are moving toward a centralized solution.
Anyway, we hope it lasts!
Broadcast Equipment Sales Forecast....
SCRI will sell you this report, summarized below.
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According to a new series of reports being issued by market research firm SCRI International, 2001 saw a decline in sales in nearly all categories of products for the video, film, and broadcast markets. While final figures from the reports, entitled "2001-2002 Broadcast/Pro Video Product Reports", are still being tabulated, the initial figures indicate sales dropped in 2001 from a peak in 2000 in a wide variety of product categories including, nonlinear editing systems, graphics and special effects, cameras, switchers, video monitors, storage, and lighting.
"The good news," however, says SCRI research director Des Chaskelson, "is that reported plans to buy in 2002 are strong, and we expect to see a rebound in 2002."
The reports cover 27 different categories of video and broadcast production equipment. Data for the report was collected via online surveys of more than 1000 US broadcast and pro video facilities working in the following vertical markets: television stations (broadcast and cable), post production facilities (video and film), video production and multimedia facilities, corporate and institutional video facilities (government, educational, medical).
For each product category, the reports show data for overall sales in 2001, plans to buy in 2002 in units and dollars, and brand shares and breakouts by type.
"One of the key trends we are seeing in both NLEs and graphics workstations," says Chaskelson, "is the move to lower priced, Windows/Mac based systems."
In the NLE product category, products priced under $10,000 accounted for 58% of all NLE sales, while only 26% of the sales came for products priced over $30,000. In the graphics and effects software category, products priced under $5,000 accounted for 77% of all sales, while only 11% of the sales came from products priced over $10,000.
For more information on SCRI's 2001-2002 Broadcast/Pro Video Product Reports, click here SCRI or contact info@scri.com
Unqualified customers...
This snippet from The Daily Reckoning warms my heart. Long ago as a video dealer in the Midwest, I learned - after several bad experiences - that the best thing to do when receiving a brown envelope with an RFQ from the Government (at any level) was to throw it away unopened. The few exceptions I made were disastrous and it has proven a great rule-of-thumb...or more precisely, finger.
" - Hooray for Home Depot! They made the headlines and made my day when it was revealed that they have a policy not to sell merchandise to the government, even for cash on the barrel-head, since doing so automatically ensnares them in required expensive, time-consuming paperwork to show compliance with all those touchy-feely laws that a dysfunctional Congress exults in making. And, of course, this will always entail random audits of that compliance - legal fees, "fact-finding" fishing expeditions of any half-witted minor functionary with too much time on his hands, wishing to make a name for himself as some "champion of the little people," and tort lawyers out for a fast buck. As government interference in the market always drives up costs and prices, the actions of Home Depot helps keep prices down. Exult, homeowner!"
Also way up at the top of my Just Say No List for Salesmen, are churches. I've never ever seen a clean deal with a religious organization. Usually late in the approval process, an appeal to a higher purpose is pulled out and used as a negotiating tool. Jeeze! as they would say on Sunday. I had friends who did business with a nationally known "preacher" in Tulsa; and watched several long-running disasters when in Iowa. Once blessed, twice shy.
These, of course, are corollaries to a more Basic Truth that your success will improve the more business you turn down and walk away from. At low points, it can be very difficult to ignore a "top line revenue opportunity"; but most organizations that succeed do so by applying good judgement about the use of their - always limited - resources. These include not only people's time and attention, but emotional investment. Once a bunch of time and attention - and money - is spent chasing something, there's a great reluctance to honestly recognize it as a bad deal, and to cut lyour osses and walk. It takes some inner grit and self confidence to do this; but doing it makes the next time much easier. And it is a great source of satisfaction to watch a competitor, "less wise" than you, pursue your rejected deal and struggle in the ensuing cragmire. Cost of walking away? Mebbe immediately significant.Vaue of the resulting schadenfreude*: priceless.
* malicious-joy; malicious glee; gloating; gloat; German
Friday, June 28, 2002
From the Street -
Well, business is different, colleagues say. Used to be, you'd go into a town, and all five stations had something going; some budget for new things or upgrades.
Then along came digital. Now out of, say, five stations, three have no plans - zip zero. One might be doing something, but no budget; and one will have a big half-a-million dollar project going. More business is now going to Systems Integrators. Fewer customers, better opportunities.
Once the basic HD requirements at a station are met, there are few add-ons. Most will only pass through, if they can. Few have followed WRAL into All Local HD…
You see it this way too?
Thursday, June 27, 2002
Earnings...
Here's an explanation of EBITDA - the recent popular (on Wall Street) measure of quality of corporate operation (and governance). Seems like it can be gamed a bit. But now with Andersen being discredited as an auditing control, some nasty things are being learned.
So ask yourself - do these terms sound familiar ? Is a company near you promoting itself with words like EBITDA and...PROFORMA EARNINGS? This linked article says look at other things: SALES, of course - and Cash Flow. The Mind Shudders in imagining what a French quasi-governmental outfit in this business might do to their books to show consistent "earnings"...Is there a Paris-based SEC equivanent? (ha ha ha ..oh you tres naive americain...). Or perhaps a Japanese one?: The Accounting Trick That's Killing WorldCom By Daniel Gross
Saturday, June 22, 2002
Also disillusioned with GG -
From a Colleague -
=================
I read the copy of the Gilder Report ... as soon as I got it
Wednesday. I had been ruminating his "prognostications" when the
commentary below (Daily Reckoning, below) came to me today.
One of the reasons I left (firm in the industry)-AND- that Gilder and others have
bothered me through the years has been this: Everyone has talked and
talked and talked about technology leading to the failure of the "old"
business models, but NO ONE seemed to want to suggest a RATIONAL model
for making money with the new technologies. I have a friend tied to the
telcos who says that bandwidth utilization of EXISTING networks is now
averaging only ~ 7% and has been DECLINING since last summer (before
9/11... maybe the loss of all the dot-com crap??).
You don't go laying more fiber or even increasing the capacity of
existing fiber when your peak useage is less than half of existing
capacity. You can have the greatest, neatest, "gee-whiz, isn't it cool"
technology in the world, but at the end of the day you have to find a
way to make money with it.
I don't expect Gilder's "reflation" enthusiasm to survive the year,
either. Our current economic situation has been caused by too much
CREDIT, and printing paper money isn't going to solve the problem of the
ongoing reduction of available credit worldwide. Businesses are already
finding it tough to borrow money, regardless of how low interest rates
"appear" to be, because banks are finally really getting worried about
being paid back. The next phase will be when banks start reducing
available credit to consumers.
It's not that I'm trying to be pessimistic, but I just get tired of all
the free-flowing crap coming from people who you thought would have been
thoroughly discredited by now....
==============================
Friday, June 21, 2002
TV Station manager gets ten years...
Here's a guy who woud probably get the Congressional Medal of Honor if he lived in Honolulu. Let's see now...NATO bombs his station and his people get killed, and he gets 10 years for surviving. Mebbe I'm missing something...
==============
Ex-Head of Milosevic TV Sentenced
By KATARINA KRATOVAC
The Associated Press
BELGRADE, Yugoslavia (AP) - The former chief of Slobodan Milosevic's television network was sentenced Friday to 10 years in prison for his role in the death of 16 television employees killed by a NATO missile in 1999.
A Belgrade court ruled that Dragoljub Milanovic caused ``grave danger to public security'' by failing to order the evacuation of his workers during NATO air raids. The families of those killed accuse Milanovic of ordering the employees to remain at work so their deaths could be used as a propaganda tool against NATO.
NATO missiles slammed into the network's Belgrade headquarters on April 23, 1999, killing 16 people - technicians, doormen and a makeup artist.
On Friday, the courtroom was tightly packed with victims' relatives.
Milanovic's lawyer, Branimir Gugl, denounced the verdict as a ``setup'' and said he would appeal to the supreme court.
The sentence stated that Milanovic was guilty of ``disobeying regulations and laws on evacuation'' during wartime.
During the alliance's 78-day bombing campaign, launched to halt Milosevic's crackdown on ethnic Albanians in the southern province of Kosovo, NATO urged the state network to either change its editorial policies or face attacks. NATO proclaimed the network to be a ``legitimate'' target.
Milanovic, chief executive of the state-run network that also served as Milosevic's mouthpiece, allegedly told employees never to leave or take shelter during the raids.
The deaths caused a public outcry in Serbia against Milanovic, a high-ranking member of the Socialist Party of Milosevic, who is himself on trial at a U.N. war crimes court in The Hague, Netherlands.
On the day of Milosevic's overthrow in October 2000, protesters stormed the television headquarters, beating up Milanovic and running him out of the building.
The victims' families, who have blamed both Milosevic's regime and NATO for the deaths, demanded that Milanovic be tried for murder. But he was only charged and convicted of endangerment of public safety, which carries a sentence of three to 15 years.
Gugl claimed his client was ``only responsible in as much as he followed direct orders by the government and the head of state'' - thereby accusing Milosevic in the deaths.
``This is a disgrace to the entire legal system,'' the defense lawyer said.
The attorney representing the families of the victims, Slobodan Sisic, praised the verdict as an ``example of how the judiciary should act in a democracy.''
The judge ordered Milanovic not to leave Belgrade until his sentence is enacted. Milanovic, accompanied by his wife, came out of the court downcast, a state television newscaster reported.
``I can't tell you anything, otherwise they will sentence me for that too,'' he grumbled to reporters.
End of the Gildered Age - Part II
Bill Bonner continues from yesterday in the Daily Reckoning : The Daily Reckoning
Birney Says :
and from my Friend Birney Dayton -
Hi Jim,
Please note new e-mail address below. The other deal didn't happen, so
we bought the place back. (There was strong talk back at NAB of Miranda buying NVision...Now a no go, it seems. Another anti-French message in there somewhere? JMW)
The problem I have with GG is that he picks up on a trend and
extrapolates endlessly without ever looking at the natural limits on the
growth mechanism. E.g. if bandwidth kept growing at the rates he was
predicting a couple of years ago, we would all be watching 6 channels of
HDTV simultaneously for 64 hours a day, or some such. He also tends to
look at one facet of a situation and not look for the essence. E.g.
cable has more bandwidth than one phone pair, but a million pairs at
even 1 Mb each is a terabit of bandwidth, which is 200 times that of
cable. Further, the whole 4.5 GB of BW on the cable has to be supported
past every sub. Thus Telcos have the best franchise for real two-way
communication and this makes cable good for broadcast and pretty
expensive for interactive. The bias toward broadcast is far greater
with satellite. In the end, Cable may be a good compromise, but there
is still a huge amount of capital to spend for them to get there and
their return channel BW is a mess. I suspect if you add up investment
and debt for any cable company, you won't find one that has ever had a
sensible return.
With respect to the death of broadcast, I agree that the broadcasters
focus on the idea that the consumer is pretty dumb. The catch is that
they actually measure what sells very carefully, so they are either more
right than GG wants to believe, or maybe it is just the fact that we all
want to veg out part of the time and for that time we are all a little
dumb. Another way of looking at it is if all consumers were really
smart (and offended by being labeled stupid by a supplier), GM would
have imploded years ago - I, for one, won't buy a car that won't let me
turn off the damn headlights. Instead, they are just gradually losing
share. I think this is closer to the reality for broadcasters. They
are unlikely to gain share, but their cost of operation per sub (so to
speak) is closer to the satellite model than the cable model. In a
decent sized market, they still make a lot of money.
As far as the recording devices go, they are useful for canned
programming and not the least bit interesting for timely events.
Watching last week's news or football game on your Tivo is not
interesting. I submit that for the most lucrative demographic, timely
programming consumes well over 50% of viewer time. That same
demographic group is not going to waste time erasing commercials on the
Tivo. It will rent from Blockbuster or record the Satellite program
that was paid for and didn't have commercials. I agree that time is the
valuable commodity and time spent fiddling with the Tivo is time wasted.
There is also the notion that for some programs, the commercials are the
best part. Witness the Super Bowl.
The bottom line is that you just have to be careful oversimplifying
anything in life.
The moral is if you are going to invest in GG's recommendations, don't
stay on the train past the point where his simplistic analysis breaks.
Cheers,
Birney Dayton
CEO
NVISION, Inc.
Phone: (530) 265-1000
Email: birneydayton@nvision1.com
Thursday, June 20, 2002
Gilder Death of television - cont'd
Go to Amazon and buy Gilder's Classic - "Death of Television" from several years back. This ,following below, is an update - an excerpt from the June GTR. A little humbled, but not shy, he expounds his recent take on TV in its many forms. Love the hyperbole....
============================
From the National Association of Broadcasters in Washington to a conference of NewsCorp on Heyman Island in Australia, they laughed when I waved my armsand recited the theme of a chapter of my 1989 book Microcosm, predicting
"The Death of Television." They yawned when I parlayed it into a book the next year
called Life After Television. Those were the days when the broadcasters ruled the air
and imagined that the fumes of their programming and advertising smelled like roses
along the road to the future rather than the fragrant residue of horses and buggies.
Television, so I said, was a top-down, lowest-common-denominator broadcast
system attempting to extend a paradigm of dumb-terminals or boob tubes into a
world of ever-smarter computers. It would die. They took me aside and confided in
a whisper that "of course it was a boob tube—because the people are boobs." The
broadcast execs knew it—"from market surveys."
I continued year after year to make my case. Advances in digital processing power—
the already familiar Moore’s law—would converge with a newer, less heralded, but even
more heroic expansion of fiber optic networks to yield a "worldwide web of glass and
light" with smart terminals at the edge. With vast gains in the viewer’s control over both
timing and content, the longstanding top-down, master-slave, couch-potato culture
would give way to a world of pullulating variety, choice, and intelligent interactivity.
As I have been saying for more than a decade, this vision is coming true, "any day
now." In 2002, at last, you can watch it unfold. Driven by chips and optics, the Internet
has already displaced television as our chief information medium. Now yet another technology
—one that I utterly failed to foresee in the 1980s—is spurring the disruption of
television as an entertainment medium. With the slower-than-expected roll-out of lastmile
broadband connections, hard-disk data is emerging as the real TV killer. With the
cost per megabyte of storage dropping a thousandfold since the mid-1990s—from a
dollar a megabyte to a dollar a gigabyte—low-cost hard-drives now enable consumerclass
devices such as TiVo (TIVO) or ReplayTV that can store, shift, and de-louse
weeks-worth of video. TiVo’s mid-market digital video recorder (DVR) handles 30 hours
of video on a 30 gigabyte drive, while SonicBlue’s (SBLU) newest ReplayTV box harbors
up to 320 hours worth on a 320 GB drive.
The huge bandwidth advantages of cable and satellite have been slowly transforming
broadcast television for three decades. But while they greatly expanded
choices, they did not address even more important issues: flexibility and time. Given
that the customer’s time is the ultimate scarcity in today’s world, real choice isn’t just
choosing what to watch, but when to watch.
Video-on-demand offerings from the cable companies—Comcast (CMCSK), Cox
(COX), Charter (CHTR), Cablevision (CVC)—only minimally fulfill this concept
of choice. You can select a limited assortment of movie titles usually rotated weekly and
played at pre-set times. Two years ago TiVo broke through the boundaries of both content
and time by wasting cheap digital storage. Record anything (or everything), and
watch it at any time, with no commercials and no clumsy VCR tapes.
Now SonicBlue’s ReplayTV is taking the concept one step further by enabling users
with broadband connections to share video over the Internet. This move sparked a lawsuit
from Hollywood and a court order that SonicBlue must keep detailed records of each
customer’s viewing, storing, and sharing habits. Fortunately, the
mandate was just overturned on appeal, but SonicBlue, and
Napster before it, have jolted Hollywood and Madison Avenue.
The Motion Picture Association of America has even put out a
white paper suggesting a law requiring all the world’s analog-todigital
converters (present in virtually every digital device that
links to the real world) be equipped with a special "cop chip" to
police everything you watch, read, and hear.
Like the Xerox (XRX) machine, the VCR, and Napster,
the threat of hard-drives and software has blinded the content
world to how these inventions could expand its markets.
It continues the fight to crack down on its best customers.
It’s easy to see why. Seventy percent of digital video recorder
(DVR) users report they use their machines to skip commercials,
which today consume more than one-quarter of all airtime.
Forrester Research predicts 58 million DVRs will be in
American homes by 2005. That means traditional advertisers
will reach some 40 million fewer households within three years.
Moreover, these early DVR adopters surely comprise the mostsought-
after advertising demographic. I said it twelve years ago:
The current broadcast advertising model is dead.
Though DVRs are sure to be popular—close to a million
were sold through May—TiVo’s and SonicBlue’s
prospects are uncertain. The guts of their products are
already contained in other common household appliances.
The PC already has a hard-drive. Today a stand-alone
120 gigabyte drive capable of storing some 120 hours of
video costs $109. With a little software, the PC can easily
double as a digital video recorder. Sony’s (SNE) latest Vaio
desktop does just that. Sony is also the first company to integrate
DVR functionality into a cable set-top box, which will
soon be available to Cablevision customers, and Motorola
(MOT) and Scientific-Atlanta (SFA) are right behind.
Although TiVo has achieved 45 percent of its sales (200
thousand units) through its partnership with DirecTV, it’s
doubtful satellite subscribers will continue to want or need
two distinct boxes. Satellite set-top boxes, which unlike cable
boxes have the advantage of being all-digital, are already
swallowing TiVo’s DVR capabilities. Unless TiVo and
SonicBlue can master a software licensing model, it is unlikely
they will succeed as companies. Not with PC makers like
Sony and Dell (DELL), set-top box kings Scientific Atlanta
and Motorola—and Microsoft (MSFT) (can Bill Gates’s XBox
be far behind?)—squeezing them in the hardware arena.
Regardless, TiVo and SonicBlue give us a glimpse of life
after television. And none too soon….
Light traffic
Imagine that between now and December, carriers
needed to install and light the equivalent of 14,840
Corvis (CORV) 160 lambda WDM systems to accommodate
seismic traffic growth over backbone links.
During the headiest days of network expansion—the late
1990s—so bizarre a prediction would have invited derision.
Yet, at that very time, many in the industry were unwittingly
scripting such an Internet flood for the second half of 2002.
The advent of browsers and the World Wide Web propelled
Internet traffic to a doubling every three to four months, for
100 times growth from December 1994 to December 1996.
Had the trend continued, even at a declining rate as assumed
by us and other observers, the 1.5 petabytes (a thousand trillion
bytes) that crossed U.S. Internet backbones during
December 1996 would have swollen to massive dimensions.
The mid-1990s trend would have brought traffic to between
300,000 and 474,342 petabytes this month and a million to
1.5 million petabytes by December. Multiply these aggregate
monthly values by 8 to get traffic in bits and divide by 2.6 million
seconds per month for bit rate, and we would project a
data deluge of 1,464 Tbps (terabits or trillions of bits per second)
today and 4,630 Tbps by year’s end.
That’s the average bit rate, based on uniform data flows.
But in datacom, sudden traffic bursts can swell to six times
the average bit rate. Accommodating rush hour, when peak
bit rates exceed 80 percent of lit capacity and performance
sharply degrades, capacity must be 25 percent above the 6-
times peak rate. By December, with 4,630 Tbps average
traffic, we’d require 3,472,500 lambdas or 21,703 Corvis
systems, an increase of 14,840 systems in just six months.
Forget it. As reported in last month’s GTR, since that
surge ended in December 1996, Internet backbone traffic
has been approximately doubling annually. Of the reputable
studies confirming this trend, RHK gives us the highest estimate
of U.S. monthly backbone traffic—100 petabytes last
December. (On the low end, Larry Roberts of Caspian
Networks estimates 50 petabytes.) Running with RHK for
the moment and assuming traffic growth holds, we should
reach 141 petabytes this month and 200 petabytes by
December.
Repeating the calculations performed on the previous
example, including an accounting for 6:1 traffic spikes and
the necessary 25 percent overbuild to maintain minimallyacceptable
quality of service, we discover that 3.3 Tbps of
bandwidth could carry this month’s core Internet traffic.
That’s equal to 330 lambdas, each 10 gigabits per second
—three Corvis systems (two fully-lit systems plus 10
lambdas). By December, assuming 200 petabytes of traffic,
we could do it with 460 lambdas, still handled by three
Corvis systems. If traffic continues to double annually, by
December 2003, six systems (900 lambdas) suffice, an
increase of three systems over the year. By December 2004,
we’re up to 1,800 lambdas or twelve systems, an increase
of six. Or, if Roberts is right—he estimates half the traffic
of RHK—the bandwidth in a mere six Corvis systems
could transport all core Internet bits by December 2004.
Since the average connection length in North America is
about 2,300 kilometers or half the cross-continent distance,
perhaps we will need to light only three fibers per
link instead of six, based on Roberts’s figures.
Actually, it’s not quite so bad for equipment manufacturers
and their components suppliers. We have been examining
backbone traffic in the U.S. only. More than half of Internet
traffic originates abroad. China is coming on strong; they will
need lambdas too. Back in this country, most of the traffic
keeps to metropolitan areas, which require their own networks
in addition to the Corvis backbone links. Furthermore, even
after the carrier carnage, more than one or two carriers will
remain, each maintaining and upgrading various networks of
its own. Broadwing (BRW), which has not lit all of its Corvis
lambdas, is already contemplating network expansion into
Florida. In addition, average traffic over lit lambdas will continue
to decrease as carriers waste more and more bandwidth
to drive switches and electronics from their networks, lowering
precious overhead and remaining solvent. So, several hundred
lambdas really won’t do. We’ll need a few more.
How many more is not the point. Our order-of-magnitude
calculations tell us that if today’s Internet backbone
traffic doubles annually over the next several years—
a growth rate that has roughly prevailed since 1997—the
additional traffic through 2004 will require extra backbone
bandwidth on the order of the total capacity of a few
Corvis systems. With surplus carriers going bankrupt,
freeing up their networks, this does not make for a robust
economic model.
Bandwidth or spanwidth
But don’t despair, just yet. In the mid-1990s, all sensible
people knew that Internet traffic would forever double
year over year, even as it was growing at 5 times that pace.
By the late ’90s, extreme expansionism became chic,
though traffic growth had already tumbled back to its pre-
1995 pace. Now we project the dot.com doldrums on into
the future. Yet all such projections are doubtful. The average
last mile link now stands at less than 100 kilobits per
second. But the average wireless local area network
(802.11b) operates at four or five megabits a second after
overhead, and the next generation (802.11a-x) will carry 30
megabits per second or more in its 54-megabit stream.
With more than a million already deployed, these wireless
LANs are the fastest growing technology in networking.
Meanwhile, wire-line local area networks are moving from
10-100 Ethernet cards to gigabit per second Ethernets.
Though the dream of rapid deployment of gigabit Ethernet
throughout the metro has come a cropper with the bankruptcies
of Yipes and Metromedia Fiber and with the collapse
of the Cogent (COI) and Telseon business models,
the potential remains alive for better-capitalized companies
to pursue. All the incumbent local exchange carriers
(ILECs)—the generic name for the once "Baby" Bells—are
now sampling gigabit Ethernet equipment. With most of
the competitive local exchange carriers (CLECs) near bankruptcy,
the now geriatric Bells might seem unlikely to venture
into new technologies. But there are powerful reasons
for the Bells to ply various forms of Viagra in the local loop.
Those reasons are cable and satellite.
In the early 1990s, I wrote a cover story for Forbes titled
"Why Cable Will Win." Published at a time when cable revenues
were one-tenth of telco revenues and cable profits were
non-existent, I based my confidence on the greater bandwidth
of coax, which I estimated to be potentially 80 thousand
times the bandwidth of the twisted pair lines that comprise
the copper cage of the RBOCs (regional bell operating
companies). Key to unlocking the bandwidth of cable was the
transition to digital transport. While analog capacity of coax
was some 370 megahertz at the time—some 60 analog oneway
TV channels—CableLabs had demonstrated the possibility
of sending 8 gigabits per second of two way digital data
over it. At the time, the capacity of twisted pair dialup was
estimated to top off at about 100 kilobits or so. Thus came
the 80 thousand estimate. Now various forms of digital subscriber
line technology have raised the capacity of telco copper
to a megabit or so, while the cable potential now has been
demonstrated to reach tens of gigabits per second. Cable’s
potential last mile bandwidth remains more than ten-thousandfold
greater than the bandwidth of the telcos.
If bandwidth is king, why are cable company stock prices
in the doldrums? One answer is spanwidth. When I predicted
that cable would win, satellites had yet to emerge as an
important rival. While cable companies offer more bandwidth
per customer, satellite companies offer a hugely more
cost effective broadcast technology. Just three satellites can
spray the entire surface of the earth with 500 channels of
broadcast video. The Hughes (GMH) Ku-band 601 HB
satellite, for example, commands 22 transponders that each
transmit 36 megahertz signals. At two bits per hertz modulation,
one satellite can issue a continuous broadcast stream
of 1.58 gigabits per second (some 500 video channels at 3
Mbps) to 100 million homes in the U.S. at a total capital
cost of some $300 million, including launch and insurance.
For every home passed, that comes to less than two-tenths of
a cent per megabit per second. The comparable cable cost is
nine cents, some 45 times more. Satellite’s spanwidth edge
will expand with the deployment of new Ka-band satellites
that can increase the bandwidth of a satellite to roughly the
same level as cable’s current 4.5 gigabits per second.
Although the 250-millisecond delay to a satellite
sharply compromises its usefulness for interactive media,
whether voice phone calls or games, satellite companies can
collaborate with telcos and other terrestrial players to offer
two-way services. For example, satellite companies could
join with new 802.11 wireless vendors to provide a two-Sonic Innovations (SNCI)
way Internet capability. For more demanding business customers,
an alliance with Soma Networks could yield full
two-way links at 11 megabits per second plus 4 carrierclass
voice-over-IP services. Moreover, digital video
recorders from TiVo and Sonic Blue or from satellite settop
box vendors could permit provisions of near video on
demand. With satellite already fully digital, it can integrate
with other Internet services more readily than cable lugging
its legacy of 370 megahertz of analog channels.
Ingenious new satellite technologies allow robust
Internet services. In the rural aerie of Tyringham, I myself
link to the Net through a DirectWay always-on two-way
connection to a Hughes satellite that currently runs at about
400 kilobits per second downstream and 56 kilobits per second
upstream. This service will drastically improve with the
rollout of new Ka-band satellites and other new technology.
Clearly, satellites will offer devastating competition to
cable in broadcast services. Yet broadcasting is the least
lucrative of all communications models. Two-way communications
bring some ten times more revenues than
one-way communications. The satellite challenge to the
current cable business model of video broadcasting is
likely to push the industry toward opportunities that
conform far better to the real bandwidth advantages of
the cable fiber-coax plant.
Direct Broadcast Satellite is the last television play. It is
now winning in broadcast applications. Its all-digital systems
and personal video recorders are luring many of the best
cable customers. By contrast to all-digital DBS systems, with
their hard-drive accessories for time shifting, cable TV
remains a partially analog, defectively digital hybrid, with
circuit switched voice, botched business data, and a cumbersome
modem kludge that constrains upstream flows to a
strangled hundred kilobits per second. In this losing broadcast
battle with satellite, cable’s marketing scheme allows
prices to drift upwards while its services stagnate and it
depends on lobbying and litigation to keep satellite at bay
with must-carry mandates and local bans. Satellite will blow
away this strategy in the broadcast market since its everadvancing
spot-beam technology and terrestrial alliances will
soon allow it to offer local and interactive services.
Ultimately, however, satellite spanwidth cannot trump
cable bandwidth. Although satellite promises to offer
some 5 gigabits a second of bandwidth from three satellites,
comparable to cable’s 4.5 gigabits a second, in fact
cable’s bandwidth is 60 million times larger since it can be
separately linked to each of its scores of millions of customers.
Satellite is inexorably limited in bandwidth. All its
systems put together could hold less than one percent of
Internet traffic, and Internet traffic doubles every year.
By exploiting cable’s inherent bandwidth advantage
to offer personal video services on demand and broadband
communications links, the industry can regain the
initiative against satellite, relegating DBS to a niche service
for rural areas and worldwide broadcast applications.
But cable’s promise goes far beyond merely trumping
satellite. Cable has become a dire threat to the Bell local
exchange carriers as well.
Some $50 billion in new investment over the last five years
has transformed the old one-way tree-and-branch CATV networks
into two-way hybrid-fiber-coax (HFC) networks that
could potentially serve the current $65 billion communications
market of small and medium-sized enterprises. These
customers provide the Bells with a large share of their profits.
With an array of new technologies that exploit the bandwidth
of hybrid fiber-coax networks, cable is poised to become a full
service telecommunications player. It may even fulfill the gigabit
Ethernet plans of the competitive local exchange carriers. If
so, all the old optimistic projections of Internet traffic might
come true over the next five years.
Coax to the max
Cable is on the verge of a bandwidth bonanza. Recent
issues of the GTR have focused on Narad Networks. By
eventually quintupling the current bandwidth of cable to
accommodate multiple gigabit Ethernet business services,
Narad alone can entirely transform the technological and
financial frontiers of the industry.
Although Narad systems can be deployed incrementally
as opportunities arrive, Narad changes the frequency characteristics
of the cable by overlaying first 1.14 gigahertz and
then 5 gigahertz two-way channels above the existing cable
service (which is restricted to frequencies below 860 megahertz).
While the Narad system does not affect existing cable
spectrum or service, the overlay does entail the substantial
cost of replacing all the amplifiers between the neighborhood
node and a particular business customer. For any substantial
business, the investment has an almost immediate
payback. Just three business customers can quadruple the
revenues from an entire existing neighborhood system.
Indeed, this Narad opportunity represents an immense
upside for cable and allows the industry almost instantly to
emerge as a devastating competitor with the telcos in the
local loop. A Narad deployment could ultimately allow a
cable operator to replace the entire cumbersome 860 megahertz
analog-digital system with a fully Digital Narad
Ethernet system that can offer two-way broadband video
and telephony to businesses and residences alike.
In the short run, however, millions of smaller companies,
proprietorships, and home ventures need bandwidth
but cannot compensate readily for the disruptive effects and
costs of replacing network amplifiers. Cable industry insiders
declare that Narad faces a long uphill trek in persuading
MSOs to hire new specialized personel and add custom
devices to their expensively upgraded facilities. For these
operators and small business customers, Advent Networks
offers a cheaper alternative that requires only two additions
to the plant—at the headend and the customer premises—
that give each subscriber a dedicated IP channel within
vacant channels in the existing cable spectrum. (Cable operators
have left open anywhere between one and four 6-
megahertz channels for next generation services like
Advent.) This channel can reach any content, at any time,
from any source, including other subscribers across the Net.
Consisting of an Ultraband rack of switch-router blades and
a gateway at any customer, the Advent system is a unified
digital transport platform that can theoretically transform
the entire 860 MHz of cable into a two way network
upgradeable without truck rolls. Providing 5 to 40 megabits
a second of downstream speed in 5-Mbps increments and
0.5 to 8 megabits a second of upstream, Ultraband does not
disturb the MSO with any need to change its existing cable
spectrum assignment. Advent has the advantage of playing
within the existing bounds of cable standards and spectrum.
This conservatism is both Advent’s marketing strength
and its technological weakness. It does not create any new
bandwidth. Since much of the cable is underused, and
Advent needs only one 6 megahertz channel to get started,
there will be many opportunities to deploy the system. But
Advent has to enter the fray and compete with current services
in what is arguably a zero sum game. Narad transcends
the zero sum game and adds an entirely new game: domination
of all the communications services in the local loop.
Terayon’s return
The third, more immediate, option for widespread
cable services to small businesses is the DOCSIS 2.0 cable
modem. Made possible by Terayon’s (TERN) previously
proprietary S-CDMA technology, DOCSIS 2.0 is now the
next-generation industry standard that will triple upstream
bandwidth to enable voice-over-IP and other two-way services.
Terayon has working modems and head-ends and
enjoys at least a six-month lead on chip-competitors
Broadcom and TI and has even more of a jump on its chief
head-end competitor Cisco (CSCO).
Because it is so out of favor on Wall Street, however,
Terayon is a powerful investment opportunity. Wall Street
simply hates Terayon. The company trades at a remarkably
low price-to-sales multiple of 0.41. By comparison,
Broadcom’s P/S ratio is around 6, as is the industry average.
The P/S for the entire S&P 500 is 3.17. Terayon’s market cap
of just $141 million is about one-third its cash-holdings of
$310 million. Having retired much of its debt at 20 cents on
the dollar, Terayon’s long-term obligations are $178 million,
down from $300 million a year ago. The Street’s skepticism
springs partly from rapidly declining prices and shrinking
margins in the cable modem business, where Taiwanese
manufacturers are taking over. Nevertheless, Terayon’s
strength overseas, its plans to exit the modem business and
focus solely on chips and head-ends, and a possible break-
through with DOCSIS 2.0 systems in the U.S. point to a
potential high upside for the stock.
At least one industry insider is excited about a fourth
means of reaching small enterprises, a new concept called
"surface fiber." Developed by TeraSpan, the system replaces
deep boring with shallow trenching of a virtually uncrushable
tube conduit, greatly reducing the cost of putting optical
fiber into the ground. Cheap Gigabit Ethernet optics
would then create a fiber-fiber architecture instead of the
usual hybrid-fiber-coax system.
None of these four approaches is readily available to
satellite rivals and only "surface fiber" is open to the telcos.
As cable comes to terms with its losing position in any
broadcast competition with satellite, visionary MSOs will
break out of their legacy trap and grasp their real opportunity.
Cox in particular already has substantial telephony
and data services for small and medium-size businesses.
Though suffering with the rest of the cable industry from
association with Adelphia and its debt and leadership
issues, the Atlanta company offers a compelling chance for
investors to get aboard a vessel of broadband digital communications
at a time when most of their potential competitors
—the CLECs—are near bankruptcy.
Reflation
For the first time in more than two years, we see genuine
good news on the economic front. Deflation, the
dearth of money that caused the 2000-02 market slide, is
abating. Sky-high real interest rates are falling. With the
highly predictive price of gold at $317, up 25 percent
from its 20-year low of $254, and with the dollar slightly
weakening from super-strong levels, the Fed is finally
supplying enough money to relieve much of the downward
pressure on prices, on dollar debtors, and potentially
on capital investment budgets. The Bank of Japan
is also at long last ending the yen’s deflation and sparking
a resurgence in Asia.
The end of deflation is especially positive for America’s
cable operators, who have historically financed their businesses
with debt. (Comcast, for example, carries $12 billion
in debt; Cox, $7 billion; Charter, $17 billion.) For
much of the last two years, the cable companies, while not
immune to the market downturn, avoided the catastrophic
fate of the highly leveraged telecommunications sector.
Unlike the start-up next generation networks and CLECs
who suffered severe deflationary price declines and customer
cutbacks and were unable to roll-over their debt, the
cable companies were largely impervious to cash-flow
slumps because of their semi-monopoly status in most
geographic areas. But recently, as deflation kept eating
away at telecom, reaching all the way up to tier one companies
like Qwest (Q) and WorldCom (WCOM), the
cable industry’s leverage has become a real concern.
Adelphia, the nation’s fifth largest cable MSO, is on the
verge of bankruptcy, and the sector’s stocks are trading at
historically low price-to-EBITDA ratios.
Fortunately, "reflation" appears to have arrived in time to
rescue the balance sheets of the remaining cable operators.
But is it enough to spark a broad-based market revival?
Mike Darda of Jude Wanniski’s firm, Polyconomics,
says we aren’t going to see the market pop like it did in the
1982 and 1985 reflations. Then, equity multiples (e.g., P/E
ratios) were at rock bottom. Those market booms were the
product of reflation and multiple expansion. Today, even
after a two-year bear market, multiples have only regressed
to historical averages. In other words, a growing and reflating
economy is good, but it’s not likely to be accompanied
by a multiple explosion. Darda thinks it’s a "stock picker’s
market." Don Luskin of Trend Macrolytics agrees. He says
the S&P 500 yield gap—a comparison of earnings expectations
and prevailing long-term bond yields—is back to its
average for the first time since 1998, signaling a fairly or
even under-valued broad market. According to his model,
tech stocks are still slightly overvalued, but he is beginning
to look at select names in technology.
Nevertheless, with the full coterie of supply-siders—
David Malpass, Brian Wesbury, Jude Wanniski, Don
Luskin, Larry Kudlow, John Rutledge, and Art Laffer,
among others—on the same generally optimistic page for
the first time in a while, flickering macroeconomic lights
can be seen at the end of the dark telecosmic tunnel.
George Gilder, Charlie Burger, and Bret Swanson
June 18, 2002
Gilder Agonistes....
Well... poor George. An interview in July Wired magazine details his fall from grace, "economically". Wired 10.07: The Madness of King George
==============================================
And this, from one of my daily reads - The Daily Reckoning, by Bill Bonner, living in France...
END OF THE GILDERED AGE
by Bill Bonner
Are you a villain or just naive?
- Question put to George Gilder by
one of his subscribers.
"Listen to the technology," Carver Mead, professor of physics at Caltech advised his famous student. George Gilder listened carefully. If he strained his ears enough, he believed he could almost hear the cosmos speaking. "Buy!" he thought he heard.
Gilder did not usually buy. Judging from the press reports, he has about the same interest in picking stocks that we do...and the same fashion sense. But this Ulysses of the Telecosm had forgotten to plug his ears or have himself lashed to the mast. Thus, the sirens at Global Crossing got him...and drove him crazy.
An article in the July issue of Wired chronicles "The Madness of King George." Poor George; another hero of the Boom Age is being recast as a villain. Here in Great Barrington, Massachusetts, says the Wired report, "One of the tech world's more famous - and controversial - prophets is contemplating how he could have been so right over the past half-dozen years and yet seen everything turn out so terribly wrong."
"Many of his partisans are calling for tar and feathers," continues the report.
The press is full of "the mighty fallen" stories; Gilder's name appears on a long list. But in today's letter, we will not join in kicking the poor man when he is down. Still, since we were practically alone in poking fun at Gilder two years ago, we feel entitled at least to pick up a stick and prod the corpse.
"A new economy is emerging," Gilder had written in his book, Telecosm, "based on a new sphere of cornucopian radiance - reality unmassed and unmasked, leaving only the promethean light."
We didn't know what that sentence meant when we quoted it two years ago. We still don't. But even back then, when Global Crossing was still a going concern, we worried that Gilder may have stared into the telecosm for a little too long.
It was all very well to blather about how Global Crossing helped to bring "a new epoch of spirit and faith" with its "majestic cumulative power, truth, and transcendence of contemporary science and wealth." But with a P/E ratio of NEGATIVE 130, a man would be a fool to put money on it, we thought at the time.
To his credit, but not to his benefit, Gilder put his money where his mouth was. He did not merely mislead investors, like Grubman, Blodget and Kozlowski. He misled himself; Gilder bought into everything...Global Crossing, the New Era, his own publishing business.
In a better world, maybe things might have gone differently. Gilder was earnestly blathering before large crowds - 350 people paid $4,000 each to attend his Telecosm conference in 1997...thousands heard his speeches, for which he earned $50,000 each - and making good money. In 1999, his list of recommended tech stocks averaged more than 247% return. And by the end of 2000, his newsletter reached 70,000 readers paying $295 a year. At the peak, a word from Gilder could push a stock up 50% in a single day.
"For a few years in a row there, I was the best stock picker in the world," says Gilder. "But last year you could say...I was the worst."
Gilder bought out his publishing partners at the peak. Then, techs crashed...and suddenly, people weren't interested in attending his conferences or reading his newsletters; they no longer seemed to care how many bits you could crowd onto the head of a silicon chip. And then, in January, came the news that his favorite corporation...the company he thought would "change the world economy"...had filed for bankruptcy protection. "You can be just fabulously flush one moment, and then the next, you can't make that last million-dollar payment to your partners, and there's suddenly a lien on your house..." said Gilder, reflecting on his fortunes over the last few years.
Gilder, who got very rich when things were going his way, got very unrich when they changed direction. Poor George - once rich, but still famous and still hallucinating - is broke. If he were not - he should be.
More...as the Daily Reckoning continues tomorrow...
Bill Bonner
============================
Friday, June 14, 2002
The End Is Coming...
Here's a real pessimistic view: PrudentBear.com
But it is only one of a rising chorus of those who look back in economic history and can find no explanations nor precedents for the current numbers, behavior, or optimism.
Wednesday, June 12, 2002
Cadaver Bones....
My sixth and seventh cervical (neck) vertebrae were removed in an operation a week ago and replaced with"cadaver bones" and a titanium piece joining them. I'm a bit slowed down, and just getting over the drugs used in the whole procedure. I now have to wear a hockey-mask-like neck brace...all the time, for the next couple months or so. This all built up over the past few months - diagnosed originally as "bone spurs" that were pinching nerves. No trauma or other physical reasons for the sudden deterioration of the disks. Can't drive for awhile, but the office is close and new employer is very understanding. Pain meds of many kinds have been generally ineffective, even strong ones; and they seem only to screw up my sleep.
Sunday, June 02, 2002
Sony and Apple...
At one time, Sony actually built some components (disk drives?) for Apple computers. I don't know what the relationship is now, but trying to visit the Sony website with a Macintosh is a real challenge.
Being one of the First Mac Users Ever, I've learned to live with the discrimination and apartheid-like practises of a PC-dominated world. Like racial discrimination in the USA, it now has almost all gone away; solutions/files are either compatible with both, or separate-but-equal solutions are seen in most computer products, software, and web sites. But going to Sony.com and trying to find out something about the Broadcast and Professional Products is a real challenge. Like finding a Whites Only Drinking Fountain. With a Mac G4 PowerBook,OS 9.2, and Microsoft Internet Explorer (IE5), their opening page says it is not compatible with Mac IE:
This site is currently unavailable
for Mac IE users, please click
here to download the Netscape
browser or open this URL in
your Netscape browser.
(It's been this way for some time, I seem to recall...). OK. I click and the link leads me through the downloading of Netscape Navigator 3.0.4 (My only choice...) After installing and restarting the Mac, I open it, but numerous error windows appear complaining about Javascript errors and such; I do it all again, with the same results; then all locks up.
So then I find buried deep inside my hard disk, a copy of Netscape 6 ! Pretty current. Opening Netscape 6, I try again, getting into several parts of the Sony site without problems - until I go to the same opening page of the Broadcast/Professional site:
This site is currently unavailable
for Netscape 6 users, please click
here to download the Netscape 4.76
browser or open this URL in
your older version of Netscape.
OOps...won't open in Netscape 6. Again, following this new link, I now install a third version of Netscape (this one 4.76) - and voila as they now say in Grass Valley, I get to view the Sony Broadcast and Professional Products site. Wow. But it acts quirky and eventually locks up trying to get some "HD" medical camera info. Too much time invested already, and this is Sunday not Sonyday.
Colleagues tell me Sony Medical is not successful because it's run as a box business and there is no customer service. Jeeze - Sony tried that approach in Broadcasting long ago, but it was not until they spent some Real Money and Bought Some Smart People that Sony Broadcasting really took off. They've already been thru a coupla management house cleanings in Sony Medical, maybe next time they'll get it right. In the meanwhile, remember that old Japanese saying: More Dealers, More Sales...
Options and "transparency"...
Stock Options. Old firms don't need them, call them deceptive; New firms need them, and use them in lieu of real cash money to help them grow.
Here is a "balanced" view: Suggestions on how to properly value stock options and a scheme to put them into a balance sheet, to let boards and investors properly evaluate the risks incurred. American Spectator May/June 02
