FiOS a cable threat, Rattner says

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NEW YORK -- Verizon's FiOS TV video service is a major emerging threat to cable operators, and TV networks are among the most challenged media businesses in the digital age, industry investor Steven Rattner said Thursday at the Media and Money conference.

The managing principal of media investment firm Quadrangle Group said though that he still sees cable as "a pretty damn good business," especially amid the current roll-out of telephony services.

Discussing the credit crunch, Rattner said he feels the debt markets are in the "early stages of the repricing of risk," or in the third inning of recovery.

He also predicted that there will be at least some defaults of private equity-owned companies, including potentially in the media and entertainment industry, as they are highly leveraged with debt.

The U.S. economy will also be a challenge for the media sector as "the economic cycle is clearly slowing down," Rattner predicted.

The Media and Money conference was organized by Dow Jones and The Nielsen Company, the corporate parent of The Hollywood Reporter.

Quadrangle currently has investments in Bresnan Communications and other cable operators.

Asked about the state of the cable industry, which has seen slower high-speed Internet subscriber growth and some basic cable user losses as of late, Rattner said the sector is "at one of its many inflection points."

While cable overall is still "an unbelievably robust pipe," FiOS TV and AT&T's U-Verse are "something to worry about," he said.

FiOS in particular is a very strong product, while U-Verse is "OK," Rattner said.

Asked about cable wireless services, which the industry has touted as the next big thing for a while, he predicted it will be "a very powerful product," but will likely take "a few more years" to be rolled out.

Asked about Cablevision Systems and the latest failed attempt by the Dolan family to take it private, Rattner said if he was a shareholder, he would have voted for the deal.

Rattner also heard the old question about whether content or distribution companies are in a stronger position in the media and entertainment space.

"It's tough to say who is who" in the digital age, he replied. "The question is what is content."

Rattner argued that networks and other packagers of content are in a tougher position as consumers can increasingly get what they want from different sources, and content creators can use digital technology to self-distribute.

In the future, creators could say "why not put up a site, get ads" and promote content that way, Rattner suggested. "We have seen bits of that in recorded music."

While Viacom Inc. chairman Sumner Redstone earlier in the day had said his firm is well positioned to prosper as it offers its content on various platforms, Rattner named The Weather Channel and Viacom's Nickelodeon as examples of networks that could come under more pressure.

He called Viacom "a great company," but mentioned ratings weakness at its networks earlier this year as proof of the challenges of the digital age.

"Those franchises are not necessarily as impervious as they once were," Rattner said.

Asked about MGM, a Quadrangle investment, Rattner said it is "doing fine" with DVD business having been weaker-than-thought amid an industry slowdown, but TV business making up for that. The DVD trends are "not quite as robust as hope," he said. "But TV content in particular is where money can be made.
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