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Insights from home entertainment industry experts. Home Media blogs give you the inside scoop on entertainment news, DVD and Blu-ray Disc releases, and the happenings at key studios and entertainment retailers. “TK's Take” analyzes and comments on home entertainment news and trends, “Agent DVD Insider” talks fanboy entertainment, “IndieFile” delivers independent film news, “Steph Sums It Up” offers pithy opinions on the state of the industry, and “Mike’s Picks” offers bite-sized recommendations of the latest DVD and Blu-ray releases.


Opinion
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6 May, 2002

THE MORNING BUZZ: Franchises Are the Entertainment Equivalent of a Sure Thing

Since the breakup of the studio system, film companies have been looking to reinvent those hallowed decades when they had firm control over creation and distribution of their product – the closest they would get to a sure thing. With the newest studio mantra – franchising – the film companies may be onto something.

Harry Potter, The Lord of the Rings, Spider-Man – these franchises look to rule the movie and home video roost for some years to come -– not to mention older properties, such as Star Wars and James Bond, which are still vital and churning out new entries annually.

Luckily, on the home video front, we've got the perfect product for this new era in sellthrough-priced DVD. Franchises are made to be collected and DVD is a great video medium for collectors. It packages neatly (a seven-disc set of Harry Potter movies would be quite unwieldy in cassette form). Its extras can pump up future and past installments in the franchise. In addition to collecting the feature films, consumers can collect previous incarnations, such as old Spider-Man or Lord of the Rings cartoons.

Movie and, indeed, video release slates are planned for many years to come, ostensibly smoothing out the erratic ups and downs of one-off productions. This should help the rental business as well, which, like theaters, depends on a steady stream of new release hits to power it.

Yet, this Pollyanna can't help but point out a few possible pitfalls. J.K. Rowling, author of the famed Harry Potter series, is behind on the latest book installment, according to The New York Times. After turning out four books, one a year, she won't deliver Harry Potter and the Order of the Phoenix this July and it could come out after the next movie, due in the fall. That means – horror of horrors – no new Potter installment between the video (May 28) and fall movie. Will the Potter momentum slow?

Also, what's to say a franchise won't fade? The last few Batman movies lost their luster. Indeed, a colleague noted his teenage son and his friends would likely see the next Star Wars installment, but weren't nearly as excited about it as they were about Spider-Man. And what ever happened to the year of E.T.? That endearing Steven Spielberg film didn't seem to have enough gas to run a yearlong promotion. Now, that's what I would have called a sure thing.


6 May, 2002

THE MORNING BUZZ: DVD's Extras May Save the Day Again

We've heard a lot of talk over the years about how video-on-demand will eventually kill home video.

Has anyone ever considered that DVD might kill video-on-demand?

The wave of VOD trials and rollouts going on in markets all over the country have this in common: customers can click and watch any movie from a “virtual library” of titles for 24 hours, with full pause, rewind and fast-forward features, at a cost of about $3.95 for new releases and $1.95 for older films.

I can see where this might be a tantalizing proposition for renters, although the key variables, in my mind, are the size of the selection and how much the consumer values the shopping experience.

But considering the plummeting street price of DVDs – catalog titles are selling for as little as $5 or $6 at chains like Wal-Mart and Best Buy – and prices coming down on DVD jukeboxes, an argument might be made that an affordable and equally convenient alternative to pay-as-you-go VOD might be a home library tailored to your specific tastes, with all your discs inserted into a changer capable of holding, say, 300 movies (Sony already has a CD changer with that capacity).

It's the same concept—hundreds of movies at your fingertips—but it won't cost you every time you want to watch something. And let's face it, some movies – particularly those geared toward kids, but also some of those complex grownup movies like The Matrix and Memento – do warrant repeat viewing.

The same goes for older movies—I happened to watch the DVD of an old Western epic called How the West Was Won, and I was so enamored that over the subsequent nights I watched it again with my wife and then let my parents borrow the disc so they could watch it as well. Now my kids are into it and that film has probably been seen 10 or 12 times—which would have cost a fortune on VOD.

And then there's all the special features that come with DVDs, that VOD will most likely never be able to approach, much less replicate. The behind-the-scenes interviews, the “making of” documentaries, the deleted scenes and commentaries – dismiss it as much as you like, a lot of this stuff does get watched.

What's more, thanks to DVD, the American public is getting acclimated to “movies and more.” Rent or buy a DVD and you typically get four to six hours of entertainment, instead of the 90 minutes to two hours from the movie alone.

When VOD finally rolls out nationally, will Americans still have an appetite for vanilla?


3 May, 2002

WORKING WEEKEND: Digital Hollywood's Analogjam

If the movie studios want to slowly but surely typecast themselves as out of touch with the digital generation, they should continue their practice of forcing preview attractions on DVD viewers.

Late one Saturday night, I started watching MGM's screener of No Such Thing, directed by Hal Hartley. It's an off-center, stylized monster tale that also satirizes the banality of mass media. I was paying enough attention to the trailers to maintain my professional – as well as neighborhood – standing as well informed about coming attractions. I had no good reason to skip past them. Good trailers can serve as entertaining shorts … in small doses. A lengthy string of them can end up looking like trailer trash.

About 60 minutes into No Such Thing, I decided I had to get some shuteye. So, I stopped the DVD, looking forward to resuming it the next day. When I did, and the same trailers started playing, I impulsively pushed the remote's MENU to get back to the movie. Alas, that little open-faced hand, the universal symbol of “Oh, no, you don't!,” popped up in the screen's upper left corner.

I finally figured out the FAST SCAN function would at least speed up the trailers to 8X normal speed play, so finally I was on my merry way back to watching the movie itself. But by then, I had felt as though my free will had been co-opted by an inability to skip commercials I already had seen once, thank you.

I'm not singling out MGM by any means. Other studios have tried the same thing. And I say tried because there's no confirmation that this is yet considered standard policy. They must be testing it, right? We're investigating the answer to that question at this writing. (The MENU-disabled trailer fixation also was present on Hart's War, another MGM screener, yet on previous MGM movies for public consumption, the viewer was not trapped in a trailer park.)

The lengths to which a rightsholder goes in the name of controlling intellectual property is understandable – in theory. I'm not one of those “content is freeniks” who think once I take somebody else's IP into my legal embrace I can do anything I want with it. But, the studios' insidious insistence on turning trailers into unstoppable forces of nature makes even this longtime studio sympathizer also sympathize with those who resent Hollywood's more ham-handed, control-freak tendencies.

This intrusive approach to digital ergonomics – disabling a DVD's menu option just long enough to peddle product – also betrays Hollywood's one-track thinking. Since tinseltown specializes virtually exclusively in feature-length (film) and episodic (TV) narrative entertainment, it has not shown affinity for a digital media mosaic in which shorter form and even freeform entertainment will emerge to challenge the allure of popular arts from another century.

In the contexts of short form and freeform – which may or may not be linear and are enabled by digital devices such as DVD and other digital players – the digital generation consumes content in bits and pieces, the very cell structure that differentiates digital media from the irreducible wholeness of analog media.

Nobody intimate with the inner workings of Big Entertainment Inc. is silly enough to think it is about to abruptly wax magnanimous and hoist the flag of freedom of choice. Just ask any AOL subscriber who thinks (s)he has logged off the service, only to find AOL blocking the exit – like a rude host or a bully – with yet another sales pitch it's rubbing in your face. In another act of seeming desperation, AOL doesn't let you go directly to e-mail or wherever you're headed when you first log on either, employing the same kind of overly pushy salesperson ploy as “The Attack of the Tiresome Trailers.” Considering the checkpoints encountered when visitors are both entering and exiting its fortress, AOL's new slogan should be, “You've Got Jail!”


2 May, 2002

THE MORNING BUZZ: New Line's Infinifilm Pushes DVD's Potential

On the drive home earlier this week I heard an NPR news story about legislators and regulators looking for a way of developing some system of compensation for persons who are willing and able to donate bodily organs. (Stick with me here, there is a home video angle.) There is a huge demand for transplant donors and not nearly enough organs to go around. It is against the law to sell one's bodily parts to be harvested either while you're alive or at death, and other than the altruistic satisfaction of voluntarily providing a non-life-sustaining organ to a relative or friend in great need, or simply offering your bodily parts at death, our society has no way of encouraging people to donate them. Our national transplant system right now is win-win-lose. The patient wins, the doctor performing (and being paid for) the surgery wins, and the donor, well, loses an organ. Our society needs to find some way to reward or compensate donors, short of hard cash, and those options are being explored.

Made sense to me.

I hadn't given this issue much more thought until I saw a press release announcing New Line Home Entertainment's July 18 release of John Q. on VHS and in the company's unique Infinifilm DVD (prebook June 18) format. John Q. is the story of a hardworking family man whose health insurance does not cover the heart transplant his dying son needs. Needless to say, the father cannot afford the likely six-figure surgery either, so he takes desperate measures to do what it takes to save his son's life.

I believe that DVD will continue to evolve into an art and media form all its own, and the New Line's Infinifilm approach is a terrific example of this evolution, especially as it relates to filmed entertainment whose plot and themes revolve around a social issue or historical moment. The result is a richer, more deeply layered entertainment experience.

If you have not had a chance to sample one of the four films New Line has put out under this brand, Infinifilm essentially marries the linear storyline format of a film with the nonlinear infotainment format of a CD-ROM or Web site and lets viewers elegantly and fairly seamlessly pause the entertainment to access supporting information related to a particular moment in the film. Each time there is an Infinifilm element to access, a low-key menu appears at the bottom as the film plays (including how much time each element lasts, which I found very helpful) and if none is selected, the menu soon disappears.

For John Q., for instance, New Line has created several Infinifilm documentaries on the organ donor system in our country, elements of which viewers can access during key and related moments in the film. Now, I have not seen the John Q. DVD yet, so I cannot vouch for the quality of the documentaries. But if they are similar to several Infinifilm DVDs I have seen, like Thirteen Days or Blow, both of which tackled historical and social issues that New Line explored with interesting and credible infobytes, then I think the Infinifilm application here will lend more meaning to this film.

The future of home entertainment will likely see Internet-enabled set-top boxes that also include DVD players, which will usher in a new generation of DVD/Web interactivity that will allow for all sorts of exciting integration between filmed entertainment and infotainment. Meanwhile, my hat's off to New Line and others who are pushing the envelope a bit and exploring DVD's potential as a new art form.


30 Apr, 2002

THE MORNING BUZZ: It's All About the Merchandising

I wasn't really going to write this column. Stephanie Prange, our executive editor, made me do it.

About a month ago I finally got on eBay as a seller, something I had long intended to do. My strategy was to start very onesy-twosy, so I put up two items for $1 each. I sold one for the minimum bid.

Then I decided to go for it. Put up six items the next weekend. Sold two. The next weekend I put up 14 items. I sold 11 and put up nine more; sold six. By now I was feeling pretty comfortable with the overall workings of it. I've become a regular trader. I'm hooked.

And it's so liberating. I have been cleaning through stuff for a few months, stacking in the garage for a yard sale. I had one a couple of weeks ago with almost no traffic (though thankfully I sold the biggest items, which would have been hard to ship). But as I sat waiting for customers I started to see my stuff in a whole new way.

I had a box of pinback buttons at the yard sale with an index card marked "10 cents each." Nobody even looked at them. But I saw them differently this time – I grabbed a handful of Ziploc bags and separated them into categories: political, bands, movies, advertising, miscellaneous. I put each bag on eBay for 99 cents minimum bid.

I was pretty pleased with myself for thinking up this little merchandising strategy. I'm altogether insufferable now that I sold all the bags and got $20.50 for one of them. (At the yard sale the buyer would have paid $1.50 and no shipping for the same goods.)

This is a testament to the reach of the Internet. EBay succeeds because it lets people like me connect with a market we would not otherwise reach.

But what Steph wanted me to tell our readers is that even a lowly journalist can rub two brain cells together and come up with some kind of strategy to make an otherwise neglected item appealing to some buyer.

I'm sure this particular strategy – packaging similar but otherwise nonproductive items (like catalog war movies, for instance) by theme – is an old trick to you, but the trick is not the point.

It's all about the merchandising and merchandising is about looking at the same stuff you live with day after day in a new, different way. Sometimes the results are surprising.


29 Apr, 2002

THE MORNING BUZZ: The Distribution Pipeline Continues to Be Squeezed: Do Retailers Care?

Since reporting Columbia TriStar Home Entertainment's decision this month to streamline distribution to Ingram and VPD by the end of the summer, we've heard precious little outrage.

In last week's story, a few retailers voiced opposition to the move, noting it may make it more difficult to quickly reorder surprise hits and that it severs long-term relationships with other distributors.

Still, compared to other industry topics, such as street date violations, we've heard nary a peep.

It could be retailers are so used to these kinds of studio-imposed contractions that they are resigned to it. But I'm beginning to wonder if retailers really care.

In a Video Store Magazine survey of 200 independent retailers conducted last June (Video Store Magazine, July 22-28), the majority of retailers (71 percent) reported they felt distributor customer service had not suffered. At the time, distribution had been hit with two major blows: Warner Home Video had gone rental direct, with fulfillment through Ingram (September 2000); and Universal Studios Home Video had streamlined distribution through Ingram and VPD for rental product, plus Valley Media for sellthrough (October 2000). Still, 74 percent of retailers in that June survey ranked their distributor's customer service as an eight or higher on a scale of one to 10, and only 34 percent reported that buying product was more difficult than a year ago. Twenty-two percent said it was easier and 45 percent felt things were about the same. At the time, the distributor most respondents reported using was Ingram (41 percent). Second was VPD (25 percent).

In the survey, one-fourth of respondents said their distributor had changed in the last year; yet they didn't seem to care much based on their responses. I know if I were forced to change even my favorite ice cream (Haagen Dazs) I'd put up more of a fuss.

Perhaps now that Columbia TriStar had further squeezed the pipeline, retailers will begin to feel the pinch, too. I'd be curious to hear from our readers.


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28 Apr, 2002

THE MORNING BUZZ: Who's going off half-cocked?

For the nation's beleaguered video distributors, the other shoe keeps dropping – and as you read this, the survivors are likely looking at each other and wondering, “Who's going to be next to go out of business?”

Two of the six major studios are restricting distribution of their product to two wholesalers, Ingram and VPD. (I guess if it was just one, the government antitrust guns would come a-huntin'.)

Flash, WaxWorks and Baker and Taylor, shut out by a third of Hollywood, take solace in the fact that Warner Home Video, the first studio to effectively declare war on distribution by selling rental cassettes directly to retailers, is no longer in the business of producing rental cassettes – so they're back in the fold, in a practical sense.

Still, the loss of Columbia TriStar is doubtless sending shivers of fear up the spines of Steve Scavelli, Noel Clayton and Jim Ulsamer. Video is unique in that a supplier's products can't easily be replaced; a likely power-hit like Spider-Man or Stuart Little 2 constitutes what's known as a “unique market,” meaning that if you're not able to carry Spider-Man or Stuart Little 2, there's nothing else you can carry to make up for it.

The perception problem among retail clients is potentially more damaging. I can think of all sorts of cliches that apply here, including, “It's hard to fire a gun that's half-cocked.”

Well, without Universal or Columbia TriStar, the three smaller distributors are indeed going about their business in a half-cocked fashion, through no fault of their own. They will be forced to secure Universal or Columbia TriStar product through other channels, and while they may succeed it's certainly going to be a much bigger hassle than if they could buy the product outright, like Ingram and VPD.

Retailers like things quick, easy and cheap. Flash, WaxWorks and Baker and Taylor will be hard pressed to offer them one, much less all three, in regard to Universal and Columbia TriStar product.

Still, it isn't surprising that in the steady shrinkage of video wholesalers, these three are left.

Flash's Steve Scavelli is a scrapper. He'll get by no matter what, even if he has to distribute car parts. And Flash has an incredibly loyal clientele, in large part because Scavelli believes in treating his retailer customers like royalty. He takes care of them, and you don't find that too often in business.

Baker & Taylor has two things going for it. The distributor has wisely chosen to get involved in the Three Pillars of Modern Media, video, music and books. If one's down, the other two can still hold it up (although in this case, music sales are slumping, and that could pose a challenge). B&T is also known for its wide and deep catalog; even a decade ago, retailers would go to Baker and Taylor for titles they couldn't find anywhere else, and retailers tend to have long memories.

WaxWorks, like Flash, has an intensely loyal clientele. And for good reason: in many cases, the Owensboro, Kentucky-based wholesaler's clients are the retailers no one else wants to deal with, tiny mom-and-pops in the rural hills and dales of Kentucky, Tennessee, West Virginia, Indiana and beyond, who often run their little video rental operations in tandem with tanning salons or even gas stations.

They're below the radar of the other distributors, but the folks at WaxWorks know each and every one of them by name. They work together as partners, suggesting buys, sharing tips and merchandising strategies, and in general hanging in there together. These little mom-and-pops might not amount to much, but together they're enough to keep WaxWorks interested in the business and studios (most of them, at least) interested in WaxWorks.

Noel and his crew aren't as brash as Scavelli, who boldly promises to get the product he needs however, wherever he can. But I have a feeling Noel and the boys have a trick or two up their sleeves as well.

In this business, you've got to.


25 Apr, 2002

WORKING WEEKEND: Studio marketers seek synergy and synchronicity

Synergy's typically gotten a bad rap, especially where entertainment goliaths are concerned. Just ask anyone who works at either of the companies masquerading as the singular AOL Time Warner.

But drill down a little and you discover that at major studio's divisions such as home entertainment and consumer products either are working hand-in-glove to forge a unified front with major retailers, or in fact report to the same executive.

In Hollywood more and more these days, video (as always, in this space that includes VHS and DVD, and even video games) plays an integral role in the marketing of other goods and services. That's because home video itself has become a commodity consumer good that essentially is a licensed product, even if it is released by the same studio that produced and/or distributed its theatrical parent.

As the studios' home entertainment units have grown into multibillion-dollar revenue streams, they have been increasingly synchronized with the marketing strategies and operations of the entire company, from theatrical to consumer products.

At 20th Century Fox, Pat Wyatt ran the consumer products group – which encompasses studiowide licensing, promotion and interactive games -- before adding home entertainment to her portfolio several years ago. Conversely, there's a generation of homegrown video executives who have inherited sizable and strategically vital consumer products units at their studios.

These include Ben Feingold, president of Business and Operations of Columbia TriStar Motion Picture Group, MGM Home Entertainment Group COO and president David Bishop, and the latest addition to the club, Louis Feola. The former president of Universal Studios Home Video recently was named president of Universal Pictures Franchise Development. That's a new division that includes consumer products, two specialty production units and all Vivendi Universal franchise properties.

The effect at retail is that the studios today are working more closely than ever with the A-list merchants, including Wal-Mart, Toys ‘R' Us, Target and what the licensing and promotions people call QSRs – quick service restaurants – such as McDonald's and Pizza Hut, among many others. Wal-Mart can command its own proprietary packaging for titles such as Warner Home Video's Harry Potter DVD.

In the business of licensed movie merchandise and promotions, the lesson learned in recent years is that less is more. Licensors -- the studios – and the consumer goods marketers of apparel, books, plush toys and other items that are their licensees would rather focus on fewer categories of merchandise moving through fewer channels of distribution, and know that the SKUs are being heavily promoted, receiving prime shelf space and selling through with minimum returns. That's why you'll see less Star Wars merchandise for Episode 2: Attack of the Clonesthan for The Phantom Menace.

Customized and exclusive retail promotions on event titles have become the industry standard.

Universal Studios Consumer Products Group signed what it calls “an unprecedented and exclusive three-year worldwide merchandising program in more than 20 countries with Toys'R' Us, Inc., the world's largest specialty retailer, to develop a full range of exclusive E.T. product.”

At Sony Pictures, Consumer Products SVP Al Ovadia notes his group works closely with home entertainment in calling on chains like Wal-Mart. On an inevitable blockbuster release like Spider-Man, he explains, the sister studio divisions can be in the same meeting with the account and lay out the movie's marketing program “from pre-theatrical through to video. It's pretty convenient.”

At MGM Consumer Products, Lisa Westfield Avent, VP worldwide licensing and retail development, says her group works closely with home entertainment, in part to keep tabs on which genres of catalog product are popular.

Having tracked historical data showing that, for example, horror cult favorite Army of Darkness was a big seller, the consumer products group decided to target its fans by signing five licensees to market a line of tie-in merchandise. So if you know someone who collects bobblehead dolls, tell them there's an army of ‘em waiting to be conscripted.


25 Apr, 2002

THE MORNING BUZZ: Video Game Rental Opportunity Will Continue to Grow

With some 400 to 500 video game titles coming out a year across three competing game platforms, it would seem to me that the rental model opportunity (and previously viewed sales) is only going to get better. The issue is, are the game manufacturers interested in going along for the ride?

This week's quarterly financial reports from Blockbuster and Hollywood Entertainment both highlighted the video game business as being an integral part of their strategies for growth.

The 66 Hollywood stores with a 1000 square-foot Game Crazy store-within-a-store section average $400,000 more in revenues per year than Hollywood stores without a Game Crazy. It's no wonder the chain plans to add another 100 to 200 Game Crazy sections in the next year, according to CEO Mark Wattles.

“In my opinion, games could become an even bigger benefit to our industry than DVD has been,” he said. That's quite a statement.

Blockbuster this week also highlighted games as a major growth area, noting that it would be remerchandising its game products into platform clusters (PlayStation, Xbox, GameCube, et al) combining all sales, rental, hardware and accessories. It also said it was going to extend its rental subscription concept to video games as it is for video, whereby for $59.90 gamers can check out and play up to three video games for an extended period of time without paying late fees, a la the NetFlix model.

In talking to game industry analysts, it seems that suppliers have an ambivalent attitude to the concept of rental. They grudgingly recognize that trials do, ultimately, drive sales. There is no indication that rentals degrade sellthrough, at least on hit product, since every strong rental title has also been a strong seller. However, there does seem to be concern that on less than stellar titles, rental, in fact, may replace sellthrough, since obviously gamers would try a game and, having played it once, go on to something else. But price also has a factor to play here. With most every title, hit or not, coming out at $49.99, this may explain some of the concern on second-tier games. There is some movement toward a $39.99 price point this year. I can sense this palpable tension building between what seems to be a growing opportunity for video game rental (and previously played sellthrough) and the lack of interest by the video game manufacturers to want to recognize or support it. Seems like the early 80s in home video all over again, doesn't it?

On the specialty video retail side, the main challenge seems to be managing inventory. What games do you get and how deep do you go? If it's just a hits business for you now, then in Xbox, for instance, it's arguable you'd have Halo, Project Gotham Racing and maybe Rallisports Challenge and that would pretty much be it. That's not much of an Xbox section, so then you go deeper, but into less predictable waters. That means either a knowledgeable staffer to help you with the buying, or a good distributor. The home video and video game industries have not been kind to distribution in the past several years, so your options there are limited.

Specialty stores also have a real opportunity in the “previously-played” arena, with most new product retailing at $49.95. If rentailers can turn enough rentals on a product quickly enough before moving it into the used sales rack, seems to me gamers' threshold on buying second-tier product is lowered.

All in all, this a major category to continue to build and one that fits fairly neatly into the current home video rental business.


23 Apr, 2002

THE MORNING BUZZ: Why The Killer App May Be A Suicide Victim

VOD is the killer app. Everyone in cable and satellite knows it. The studios and their pirate nemeses know it. Video dealers know it, too, they just aren't scared of it for the same reasons I am coming to doubt whether it will happen, at least any time soon.

The technology is there and so is the demand. All the elements are already in play, as the illegal file traders prove at a rate some put in the hundreds of thousands of downloads per month.

The real obstacles to VOD are that 1) all the folks who have to get together to provide it can't play nice together, and 2) the ones in position to deliver the goods are smarting now because they put all their respective resources into capital upgrades and loss leader bids for subscribers.

Most just don't get it and the rest appear to have been playing fast and loose with the books. The biggest threat to VOD that I see on the immediate horizon is signs that the cable and satellite providers are on the brink of an implosion like the ones we've seen in the telecommunications industry.

I recently related my experience with DirecTV (recap/update: the $140 installation rebate I sent for Jan. 4 was supposed to go out March 18, but customer service – and I use the term loosely – says it has been rescheduled for May 10 payment). The company is in hot water in Los Angeles court for allegedly failing to pay $300 million in rebates and commissions to installers for the last year or more.

Those are just a couple of warning signs that a company may be counting money in column A that should probably be in column B.

DirecTV's admission Monday that for years it counted chickens that never hatched – potential subscribers who put down a pittance and never got the service or paid a bill – support that notion. An executive's assurance that “four out of five” of those people actually did subscribe is little comfort. What other business gets away with padding its figures by 20 percent? Oh yeah, Internet providers.

Now the Securities and Exchange Commission is rooting around Adelphia's books and shareholders have sued, claiming the cable company “understated” $2.3 billion in debt for last year. That's some understatement. Within the last week the company's stock hit its lowest level in a year.

“Potential accounting issues and off-balance sheet issues is what sparked the downside for these cable stocks,” Jeffries & Co. analyst Frederick Moran said. While he called the market overly cautious, that caution seems prudent in light of recent events.

AOL's stock price dropped below $20, its lowest level since the Time Warner merger, and investment bankers are backing out. AOL is hemorrhaging subscribers as its dial-up customers defect to high-speed services and – surprise surprise! – can't see the reason to pay AOL's $23.90 monthly fee on top of $40 a month for high-speed access.

Several others are wrestling with saturation points, flagging stock prices and “concerns over accounting issues” that have become ubiquitous in the wake of Enron's collapse. These companies have been debt financing their buildouts, creating more infrastructure than the public will ever pay to use.

So why is anyone surprised to see this happening? For the last few years most observers and investors have been following the Internet players. Cable and satellite companies fed the frenzy with their own infrastructure to support that rising star they thought would never dim.

Now anyone who wants and can afford home Internet service has it. Their kids and pets have their own mailboxes and Web pages.

The thing that constantly amazes me is not that cable and satellite companies keep following the suicidal telco business model like lemmings, but that bankers who should know better keep extending them credit to pursue it.

Any MBA candidate who put forth a business plan that looked like that would get laughed right out of B-school.