The apparent collapse of a US$500 million bet on the future of TV has once again thrown into question whether we'll experience anything resembling facilities-based video competition before the next millennium. Reports last week that Bell Atlantic Corp., NYNEX Corp., and Pacific Telesis Group are finally bagging their resilient yet somewhat scatter-brained TELE-TV venture didn't shock anyone as much as it confirmed a prevalent theory: The Bells have put video on the back burner.
The three Bell companies released an ambiguous statement late Friday, saying only that they're formulating TELE-TV's 1997 business plan and are "continuing to discuss a more efficient way to manage the work activity." They have not denied reports that they're folding the operation.
Long distance, of course, is more familiar territory, and most of all, it's simple. Video, on the other hand, is not. Entrenched cable TV operators lurk under every rock. Direct broadcast satellite is adding millions to its rolls. And when you start talking about interactive services, you're drifting way over the heads of most Bell company execs.
And so reports of the death of TELE-TV - a venture that began with much fanfare and lured high-profile executives from Hollywood, Wall Street, and the telecommunications giants - seem grounded in a sturdy logic; more solid, in hindsight at least, than the logic behind the venture's inception.
In the early '90s, Michael Ovitz was just about the hottest agent prancing around Hollywood from his throne at Creative Artists Agency. Not surprisingly, executives from Bell Atlantic, NYNEX, and Pacific Telesis were gaga when he started selling them on a video-programming enterprise that could combine the production smarts of Hollywood with the distribution savvy of the Bells.
Ovitz began wooing away entertainment executives to take the helm. Howard Stringer left CBS to head the venture. Sandy Grushow dumped his gig as head honcho at Fox Entertainment Group for a senior spot. Others followed. It seemed as if the venture that would later be called TELE-TV could do no wrong.
As it turned out, Ovitz may have unwittingly sold the Bells - and perhaps his friend Stringer - down the river. Ovitz reportedly said the venture would cost $50 million to get off the ground; as of last week, analysts were estimating its cost at $500 million. Ovitz said he could line up all kinds of content deals; then before any of them built any steam, he bolted from CAA to take the Number Two spot at Disney.
The Bells were left holding a bag of promises and a bunch of bored executives holed up in the venture's Reston, Virginia, headquarters. And here's the best part: Disney just happens to be a partner in the Americast programming venture - a mirror image of TELE-TV run by most of the other Bells.
But observers who follow the entertainment biz are not floored by these developments. "This is not surprising," says Phillip Sirlin, an analyst at Schroeder Wertheim & Co. in New York. Noting the inaction of TELE-TV over the past couple of years, he says the Bell companies "never really had any commitment to this."
The ripple effect of TELE-TV's demise could be significant for some. Thomson Consumer Electronics, for example, just signed a $1 billion equipment deal with TELE-TV that could now dry up. Silicon Graphics may have to write off a deal for digital media servers that was expected to be worth at least $5 million. And a bunch of smaller companies like DiviCom and Avnet also must give up some juicy contracts they've signed with TELE-TV over the past few months.
Another big loser could be CAI Wireless Systems, a struggling wireless cable operator that was buoyed to new heights last year when Bell Atlantic and NYNEX poured $100 million into its coffers. CAI's stock then traded for nearly $20 per share. But in recent months it had sunk to $3, and after Friday's developments, plummeted to about a buck fifty. CAI was planning to use TELE-TV programming to launch its new digital video offerings.
Amid such romance and wreckage, you're sure to find a conspiracy theory sprouting here and there. Like, for instance, the contention many are making that the Bells started TELE-TV, Americast, and all this talk of video grandeur simply to create uncertainty and make it harder for cable companies to borrow money from banks. With no money, they can't upgrade their networks to compete. Of course the theory, though pretty clever, is unsubstantiated. Nevertheless, the dog-eat-dog world of entertainment is nothing if not intriguing.
