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Cutting a New Path

Tue, 07/31/2001 - 8:00pm
Craig Kuhl, Contributing Editor


Small operators find an inexpensive way to implement digital headends

Borrowing a page out of the successful HITS (Headend In The Sky) business plan, small cable operators have finally hit upon the right combination of satellite-delivered signals, simple transcoders and set-top boxes that promises to give them a leg up in their all-out assault against DBS and other competitors.

"Quick Take," as the approach has been dubbed, is a low-cost digital headend system that allows smaller cable systems to offer more than 150 digital channels without incurring the cost of a traditional digital headend. In many cases, small systems can launch Quick Take for less than a $30,000 investment in headend equipment.

The potential impact of Quick Take could be huge for smaller cable operators, who in the past have been shut out of digital services because of the prohibitive costs associated with digital headend equipment, which routinely average more than $100,000 per site.

With competition intensifying from DBS, overbuilders and local multi-service providers of all flavors, small cable operators have been desperately searching for an inexpensive way to match their competitors' channel lineups while adding vital ancillary revenue streams from pay services. Quick Take may finally be the answer.

"The mixture of technologies looks just like digital, but it's $15,000 versus $150,000," says Steve Weed, president of Millennium Digital Media's Northwest Region, one of the first systems to deploy Quick Take. "You still have to make some bandwidth room, but this is very exciting and completely changes the equation for smaller operators, and just about anyone can do it."

Quick Take and HITS are essentially the same to the naked eye. But an arrangement between HITS and WSNet, a wholesale provider of direct-to-home digital video programming, was made to give MDUs access to the technology and services. The traditional HITS to QAM modulators model morphed into HITS Quick Take with the WSNet model branded as WSNet Quick Take Plus. Set-top box manufacturer Motorola and transcoder vendors Drake and Blonder Tongue developed integral parts of the Quick Take technology. WSNet is a wholesale provider of direct-to-home digital video programming.

The technology was initially designed for MDUs but was quickly identified as having a much greater purpose. "We were using the application in apartment complexes through HITS2Home and felt it would work for smaller systems. It's essentially HITS2Home without a dish," Weed maintains.

With HITS Quick Take, digital signals are delivered via satellite to a transcoder at the operator's headend, where they're converted from QPSK (Quadrature Phase Shift Key) modulation to QAM and combined with the cable system's existing analog signals. Those signals are then delivered via coaxial cable to Motorola's set-tops in customers' homes. Customer installation is identical to regular digital installation times and costs.

"This is a great answer for small cable systems and for special MDU needs in large systems, where customers are being lost. Quick Take allows the use of available analog channel space or re-purposing analog space for digital use. As a result, small operators can avoid expensive plant rebuilds, MDU build-outs and headend equipment to deliver a competitive digital programming package to their customers," says Paul Bambei, vice president of operations for HITS.

The HITS and WSNet Quick Take solutions.


Another operator, Sikeston, Mo.-based Galaxy Cablevision, is close to launching the Quick Take service as well. The system currently uses a DirecTV overlay to provide its customers with a tier of digital programs, but is leaning toward deploying Quick Take to accomplish the same goal. "We've been talking about it, and know how it works. We've lost 4.5 percent of our subscribers each year the past four years to DBS and want to marry these new technologies to offer the same service as large systems with 870 MHz. It's the only way for us to compete. If we don't, we'll see revenue and cash flow continue to erode," says Jim Gleason, president and COO of Galaxy Cablevision, LP.

And he should know. Galaxy recently installed an expensive digital headend just prior to Quick Take's emergence onto the scene. "We would have done Quick Take if it was available before we built the expensive headends. But we still see it as a 1,500-subscriber-and-up strategy. It's a much more cost-effective solution for getting digital cable into the 1,500-2,500 subscriber range and it costs much less than digital cable. But there still are costs associated with it," Gleason notes.

And some limitations. Quick Take is not truly interactive; it requires a telephone connection to communicate back to the headend. Yet as a pure video play, Quick Take is getting the attention of more smaller operators.

"The technology isn't new, but (it's been) scaled down to make it affordable. If you have a box in everyone's home you can get $60 per month or more, and the technology extends the life of lower (capacity) systems and is an affordable business model and technology that can change the life and value of smaller cable systems. It's a huge breakthrough," gushes Ben Hooks, CEO of Buford Media Group L.L.C., a small system operator who recently launched Quick Take and is preparing to launch the HITS and WSNet Quick Take Plus combination in eight additional systems.

Various HITS Quick Take-type options are available for cable operators (see sidebar), most notably the HITS to QAM model and the approach using WSNet. "With the WSNet model, cable systems leave their local and off-air channels in an analog format and re-deploy the basic and expanded basic satellite channels in a digital format from WSNet transponders. Operators can choose to deploy a digital overlay with HITS or convert to an all-digital solution with WSNet," explains Kim Lawrence, director of cable affiliate sales for WSNet.

The difference between HITS Quick Take and WSNet's Quick Take Plus models is that HITS offers only what's on its transponders; while WSNet gives operators the ability to pick programs from additional transponders and offer up to 200 channels. It's more expensive, however, because of the additional costs attributed to program licenses. HITS, on the other hand, requires a simple transport fee, with operators being responsible for their own programming rights. Both options, Lawrence says, are viable alternatives for smaller operators and include significantly more channels, including pay channels and digital music.

Quick Take does have its limitations versus digital cable, however. Admits Lawrence: "Digital cable will allow two-way services and advanced digital boxes for new services like (high-speed data). But Quick Take is a great solution for small operators who want to add video services. They're losing customers because DBS is offering hundreds of channels. Quick Take is suited for smaller operators who want to provide additional channels, including pay channels, at less cost," adds Lawrence.

An integral part of the cost equation for smaller operators is the set-top box. Even with the substantial headend cost savings associated with Quick Take, capital is still needed for set-tops, which average about $250 apiece. Says Gleason: "From a competitive product standpoint, Quick Take is a very big deal, but equipment like set-top boxes is still expensive and requires capital. It gets down to how leveraged the operator is and if he can afford it."

For many smaller operators, investing $250 in a single set-top box can be a scary financial thought, especially when only one box, Motorola's DSR 470 set-top, can enable Quick Take technology, and two-way service isn't part of the equation.

"The bulk of the costs are at the headend and Quick Take is aimed at watching TV, not home banking or two-way applications, so it's not a part of that whole industry force. But Quick Take is throwing smaller operators a lifeline for a small investment," says Kevin Wirick, vice president of marketing for Motorola's satellite and broadcast network systems.

Motorola's DSR 470 looks for QAM signals and is equipped with digital and analog cable tuners which can integrate the two signals streams into one service when satellite signals are coded into the set-top box while the transmodulators (from Drake and Blonder Tongue) take the satellite signal, hence the name Quick Take.

Motorola, Wirick adds, is designing a redesigned DCT-1000 set-top that will cost about $99 and will offer video-on-demand (VOD) and interactive services that can be tied into digital headends. "We want to enable the DCT-1000s with the least expensive headends and find a way to bridge the low-end costs to the DCT-1000 set which can be refurbished and put into an inexpensive headend," Wirick adds.

Once past the headend issue, the ROI (return on investment) is raising Quick Take's expectations as well. "Fifty customers will pay back the cost of equipment and installation. There's no dish, and cable guys can install the product, which is branded like analog or regular digital cable. What's great is you can get multiplex feeds of six HBOs and can sell premium channels at the same price. This is what we've been waiting for to help compete. It's a real breakthrough," Weed says.

A growing number of smaller operators are now getting the Quick Take message. "It can lead to a $100-per-month package for a $20,000 investment. Customers will spend more money on their cable service, and that's the appeal," says Chip James, president of ICE Cable Holdings, a small cable operator who's in the process of acquiring smaller systems.

Quick Take's appeal is strong enough to cause smaller operators such as Galaxy to push ahead with plans to launch the new technology. Concludes Gleason: "It's a big breakthrough and we're finalizing negotiations with WSNet." But it still has a cost associated with it. "It's no slam dunk. Not everyone has the money to do it," he cautions.

Whether enough smaller operators can afford Quick Take to make it the Holy Grail of applications isn't yet clear. One thing is certain, however– with the cost of a Quick Take headend about 80 percent less than a traditional digital headend and DBS competition in full swing, the low-cost approach to digital service could get real popular, real quick.

 

Five Quick Take/Hits Options for Small Operators

  1. HITS to headend
  2. HITS to home
  3. HITS to QAM system
  4. HITS and WSNet to QAM
  5. HITS and WSNet to home (for non-wired areas).
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