With two years and $150 million invested in a state-of-the-art facility, Tele-Communications Inc. is finally poised to enter the digital age later this year when its Headend In The Sky (HITS) facility begins beaming digitally compressed video to headends around the country.

Instantly, the advent of digitally compressed video channels can transform a run-of-the-mill, 36-channel cable system into a marketer's dream - a system of more than 100 channels and a full slate of movies that repeat so often they resemble video-on-demand service.

While TCI's own systems will certainly benefit from the HITS service, which promises to save the company millions by transmitting numerous channels over a single satellite transponder, the jury is still out about whether HITS will be a "hit" with other MSOs.

Huge facility

HITS is actually housed in part of TCI's sprawling 260,000-square-foot National Digital Television Center in Denver, where the company has spent tens of millions on digital equipment used to create, edit, transmit and receive video. The NDTC (as TCI insiders call it) is full of potential: it is home to five, full-service studios, each of which has a dedicated control room; numerous graphics workstations; on- and off-line editing suites; and 12 post-production suites.

TCI's National Digital Television Center, located in Englewood, Colo. Photo courtesy of TCI.

Already, the center originates 15,000 hours of video programming and is the master control center for no fewer than 23 channels, including offerings from Request, Kaleidoscope and Starz!

TCI's top management has grand plans for the NDTC, hoping to make it the "hothouse" where original programming content is fostered and fed to help fill the vast number of new channels that will become available in the digital age. Although TCI has production crews in Los Angeles and New York City, overhead costs in Denver are 30 percent less than in L.A. or the Big Apple-which has already caused several top-flight video and film production crews to relocate to the Rocky Mountain region, according to BJ Raynes, director of market development-digital services at TCI Technology Ventures.

"There's probably no facility in the country that's as full-service as we are," notes Charlie Kennamer, senior director of engineering services at HITS. "From production to uplinking, this truly is one-stop shopping."

The NDTC is tied, via redundant fiber optic Sonet rings, to TCI's 37,000-square-foot Technical Operations Center in the "Starport" uplink center, located about 12 miles southwest of the NDTC. There, 19 earth station antennas up- and down-link programming to satellites. Given its unique geographic position, Starport can one-hop video across both the Atlantic and Pacific oceans.

But where TCI really hopes to recoup its investment is with HITS. Acting as a sort of video broker, TCI can receive satellite programming at the NDTC, digitally encode it and then beam it back over satellite to thousands of headends across the country. This strategy can save smaller cable operators from having to invest heavily in massive amounts of digital headend gear and bring new programming choices to even the most rural cable subscriber.

"It's clear the public has an appetite for more channels and higher quality video," notes Dr. John Malone, TCI's chairman and CEO, during a HITS promotional tape. He said the resounding success of DirecTv, Primestar and other direct-to-home satellite services shows that the public demands high-quality video sources.

The costs of digital

In order to be a HITS affiliate, a cable operator will have to spend roughly $65,000 per headend, which will provide enough hardware to receive and transmit 50 channels out over the cable network. At about $1,300 per digital channel, that's actually less money than the $4,000 to $5,000 it costs to add each analog channel, according to Kennamer.

In order to receive the digital programming, three key pieces of equipment have to be purchased from General Instrument, which holds the patents on the DigiCipher II technology TCI has chosen to implement.


The first is a new Ku-band satellite dish that has to "see" Hughes' Galaxy VII satellite. Then, for each transponder, one "integrated receiver/transcoder" has to be deployed. This unit does most of the work. Its output goes directly to the "C6U" upconvertor, the output of which goes into the cable system's combiner and out over the network.

In addition, one "data collector" is needed if TCI performs the actual addressing and controlling functions. The data collector is essentially a "remote client" that polls each box and reports purchase information to the central host computer. If the cable operator chooses to retain control of the set-top addressing and control function, he needs to deploy his own addressable controller.

But TCI is fully prepared to authorize any operator's set-tops - for a fee, of course. By rolling the functions of its old TCI Addressable Center into the HITS Operations Center, the company already addresses roughly 600,000 analog set-tops that populate 350 TCI systems. "We've rewritten all the software and went to new hardware" to do that, notes Kennamer.

Where's the set-top?

Obviously, the key component to the system is the set-top box itself. Plagued by manufacturing delays, the set-top has actually postponed the launch of the HITS service, much to the chagrin of TCI officials. "If the vendors would have brought product to market a year ago, HITS would have been up and running," notes Kennamer. Currently, TCI plans to take delivery of its first set-tops in the next few weeks, which it will use to test the entire system. Then, set-tops will roll out to real customers beginning in the third quarter of this year, signaling the true "launch" of HITS service.

After repeated delays and slipping schedules, this time, "The delays are behind us," Kennamer believes.

Part and parcel with all the delays has been a perception that HITS isn't ready to go yet, either. Nothing could be further from the truth, in the eyes of TCI. "We want people to understand we are real, even if we're not up and running yet," notes Kennamer.

While that remains to be seen, TCI is actively shopping the HITS service to other MSOs. The company already has "a lot" of letters of intent from several different operators that "represent a lot of subscribers," says Raynes. Affiliates are "chomping at the bit" and constantly asking when the set-tops will be ready for deployment, says Raynes. "They're very anxious and very excited about this."

One company that is keeping close tabs on HITS is InterMedia Partners, which plans to deploy the service a short time after it launches, according to Ken Wright, vice president of engineering for the MSO that is partially owned by TCI.

"It's a good way for us to launch a near-video-on-demand product for those who might switch to DSS," says Wright.

"We're glad someone has stepped forward so operators can compete" with DTH services, agrees Tom Jokerst, vice president of engineering at Charter Communications. "I think it's critical if we're going to hold our customer base-HITS is a way to do that."

Indeed, many of the medium-sized MSOs are looking at HITS as a way to offer both NVOD and regional sports packages, much like DirecTv does now, which would slow the subscriber erosion that has already occurred. But at least one operator who runs several small, rural systems, believes HITS is a day late and a dollar short.

"It's two years late-and the industry's focus has changed," said one executive from a small operator who asked not to be named. He actually pointed to several downsides, including the cost of the set-top, the headend gear ("most of us wouldn't be adding 50 channels, so the cost per channel goes way up," he says) and the fact that there's no local flavor that comes with a national satellite service.

"HITS was originally conceived as a way to consolidate and eliminate headends, which would have saved us money," notes the executive. "But that hasn't panned out. If they went back to that original idea, that would be a good scenario."

Kennamer disagrees. "The economies of scale HITS brings are good for the entire industry," he says. "The only way digital compression makes (economic) sense is on a regional or national scale."

With digital compression gear installed in the NDTC, TCI is ready to launch HITS.
Education is key

As HITS moves closer to deployment, efforts have turned toward preparing and educating potential affiliates about the service-and about how life will change in the digital era.

"We're trying to get the industry prepared for this," notes Raynes. "Digital production is a whole new animal. It's an opportunity for operators to change the way they do business."

By that, Raynes means everyone-from installers to customer service representatives to the consumers themselves-needs to be educated about what the service offers and how it works.

To help that process, HITS has already hosted one day-and-a-half-long symposium on the subject and will likely host others. In addition, it will soon form an advisory board consisting of operator affiliates to help the launch go off-hopefully without a hitch.

Raynes believes TCI's "digital simulation" test in Mt. Prospect, Ill. has already proven there's a customer appetite for the type of programming HITS will offer. That test, which consisted of 60 channels of video, 24 of which were NVOD in format, resulted in buy rates nearly double of traditional pay-per-view, Raynes says. In addition, revenue per home increased dramatically, and the company was perceived to be better and more hi-tech, she says.

"But the education process is very important," she notes. "Installers have to be able to explain the service and make sure consumers understand it."

With HITS, TCI is "boldly going where no man has gone before." It just hopes someone is there when it gets to its destination.