RIVALS-TURNED-PARTNERS Alliances form for digital revolution

July 27, 1993|By Elizabeth Sanger | Elizabeth Sanger,Newsday

The biggest alliance of the digital revolution, so far, was hatched over a lunch of burritos and enchiladas.

On one side of the table sat Dennis Patrick, an executive with Time Warner, the world's biggest media and entertainment company and the nation's second-largest cable provider. On the other side was his friend, Laird Walker, a vice president for US West, a regional phone company based in Colorado.

On March 5, 1992, as they split a plate of black bean nachos at the Austin Grill in Washington, D.C., the phone and cable industries were thought to be fierce rivals: The cable industry was looking to offer some form of phone service over its networks; phone companies were fighting for the right to deliver video programming over their lines.

But by the time the key lime pie arrived, Mr. Walker and Mr. Patrick had decided cooperation might be better than competition. Or, as Mr. Walker put it, "The information marketplace is so huge it didn't need to be a win-lose proposition."

That realization led to more than a year of intense negotiations -- and a deal, announced in May, in which US West will invest $2.5 billion in Time Warner.

The two companies agreed to build a $5 billion television system that would serve subscribers in about 30 states with digital, interactive telecommunications services -- the on-demand movies, personal home shopping, picture telephone, video games, video everything that promises to deliver the ultimate couch-potato experience.

The Time Warner-US West partnership -- a high-stakes union of rivals -- is the most striking example of a deal-making frenzy that has swept corporate America.

Partnerships are announced almost daily, pairing such unlikely couples as the old Ma Bell (American Telephone & Telegraph) with MTV's parent (Viacom); a department store chain (Macy's) and a cable TV giant (Cablevision Systems); and two cutthroat computer competitors (Apple and International Business Machines Corp.).

Driving these joint ventures is a belief gripping executives from California's Silicon Valley and Hollywood to New York and Fort Lauderdale, Fla.: They're on the crest of a technological wave that can carry them into the 21st century -- or crush them.

What may be shaping up is a clash of technology titans -- mega-teams of computer, telephone, entertainment and cable companies, each hoping to carve up the emerging markets by using each other's expertise. The outcome could determine what services become available and how quickly; how costly they are for consumers and how profitable for investors; and whether they are regulated closely, like phone service, or loosely, like cable.

"I think every cable company is talking to every telephone company,"says Charles Dolan, a cable industry pioneer and chairman of Cablevision, which has systems on Long Island and in New York City. "We have talked to many of the phone companies about what we can do to complement each other. We don't think of them as competitors."

Stanford Levin, economics professor at Southern Illinois University at Edwardsville and a phone company consultant, said, "You've got a situation where the lines between telephone service and cable service and information services and things they keep promising us are blurred."

The potential is for a historic realignment of whole industries. For entertainment, publishing and retail businesses, interactive services offer great peril and great opportunity.

Some companies may be doomed to extinction unless they dream up new businesses. Who needs a video store when you can tap into thousands of movies at any time through your television? Will newspapers go electronic, or will many just disappear?

'Virtual reality'

Today's home-shopping channels -- which already generate more than $2 billion in sales a year -- will be transformed when programmers can take viewers into department stores, let them browse through the housewares department and order a frying pan to be delivered the next day. The idea of an out-of-body shopping experience through "virtual reality," as experienced by Boopsie of the "Doonesbury" cartoon strip, may not be all that far-fetched in a few years. The movie industry is experimenting with interactivity -- "I'm Your Man," a film whose plot is shaped by the audience, played in New York City last winter. And companies like Time Warner see a gold mine in recycling their vast archives for home use.

"These libraries are already there and paid for," said Bob Pittman, a Time Warner executive who created MTV. "All the revenue that comes in goes to the bottom line."

Tom Pardun, president of US West's multimedia communications group, predicts that nationwide there will be a lot of experimentation in

1994 and initial rollouts of interactive services in 1995; by 1997 and 1998, he thinks, interactive technology will be largely in place for most viewers.

Meanwhile, there are fortunes to be made:

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