From bundling to VOD to broadband gaming, cable operators are trying to build enough value to keep subscribers from leaving their digital islands

In the land of primetime television, "Survivor" is but a game in which contestants attempt to outwit, outplay and outlast each other and win a cool $1 million. But when it comes to broadband cable, surviving the vicious vortex that is digital churn is a much more serious business, with multiple millions of dollars at stake.

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Figure 1: Contrary to “myth,” Cox has found that digital churn and analog churn run a similar course after about nine months
into the customer lifecycle.
In the beginning, cable tried to match its DBS foils by offering programming by the ton and interactive programming guides that tied everything together with a pretty bow. But despite the addition of niche networks and ethnic programming, that wasn't always enough to keep some customers from regressing to analog or picking up their bags and moving to DirecTV and EchoStar. Still, the U.S. cable industry did sign up a total of 16.8 million digital subs by the end of the second quarter of 2002, according to National Cable & Telecommunications Association (NCTA) figures.

"We've got digital out there in a very basic form with more television channels," says Char Beales, president and CEO of the Cable and Telecommunications Association for Marketing (CTAM). But one of the biggest contributors to digital churn is "some consumers don't find that compelling enough," she adds.

The winds are changing, though, as operators continue to toss out digital life rafts in the form of new advanced services and applications such as video-on-demand, digital video recorders and high-definition television. Others are aggressively pursuing the virtues of bundled services, perhaps realizing that convenience and simplicity can sometimes outweigh the bells and whistles.

But consider this conundrum: Cable operators have access to enough digital weapons to fill a war chest, yet they can't wield all of them at once because Wall Street is encouraging them to cut capital spending.

"Cable wants to bring in new advanced services, but, at the same time, how can they do that effectively if they're trying to cut down on costs as well?," asks Sean Badding, vice president and senior analyst at The Carmel Group. "Those are the questions operators have been faced with in 2002. They need to make some smart decisions and make some calculated bets to deploy [new services] effectively."


Cox Communications has become the poster child for bundled services, and the MSO's strategy to combine video, voice and data in one tidy package has won it points on Wall Street and with its customers.

Cox spelled out the "myths" of analog and digital churn last month at a Goldman Sachs conference in New York City. Cox officials tried to debunk the myth that digital churn will not come down.

Cox Vice President of Marketing Joe Rooney outlined the average monthly churn for all products in 2002 (see chart, p. 26). Not surprisingly, digital churn led the way at 5.5 percent.

Conversely, though, Cox has discovered that selling-in product during basic installs provides a nice sales opportunity. Of those opportunities, 45 percent of new basic connects opted for the digital upgrade, compared to 22 percent for telephony and 18 percent for high-speed Internet.

Rooney also pointed out that digital churn and analog churn aren't all that different as the customer lifecycle reaches about nine months. Though digital churn approaches seven percent in the first three months of service and analog churn hits about six percent during the same time period, the two figures literally intersect at about three percent after only nine months of service being activated.

The reason for the discrepancy in the early part of the customer lifecycle, Rooney said, is that digital cable isn't perfect for everyone, and even the ones who take the digital upgrade trial the service initially.

Although the "myth" is that digital churn won't come down, Rooney, to the contrary, noted that Cox has seen digital churn drop in three markets where the MSO has offered digital the longest (San Diego, Orange County and Omaha). In the second quarter of 2002, Cox saw digital churn drop to 4.5 percent from 4.9 percent in 2Q 2001, and from 5.8 percent in 2Q 2000.


On the cusp of finalizing a merger that will make Comcast the nation's largest and perhaps most formidable cable operator, saving those customers who have opted for digital service is quickly becoming an important focus at the MSO.

Despite some fairly strong growth–in the first half of 2002 Comcast added more than 400,000 digital subscriptions, for an overall penetration rate of 23.4 percent–keeping those new digital customers will be a key factor in maintaining a positive, profitable outlook at the company.

"[Reducing churn] is a fairly high priority," acknowledges Andy Addis, Comcast's vice president of marketing and new products. "We think that a lot of what we are doing is starting to get some traction and have an impact. Things are taking hold."

That activity has taken the form of some fairly aggressive programs Comcast has put into motion over the first half of this year. Addis points to a recent measurement of customer loss from the digital tier; Comcast estimates that through the first eight months of 2002, versus the same period in 2001, the MSO has seen a nine percent decrease in digital churn. In other words, the lifelines Comcast has tossed to troubled customers seem to be working.

According to Addis, much of Comcast's energies have been aimed at better educating new digital customers about the services that are now available to them.

The Comcast education strategy can be further broken down into two categories: proactive and reactive. Proactively, it starts with the information a customer gets when he or she first signs up for digital service. Comcast has beefed up its "National Welcome Kits," which summarize the new services users will be interacting with, and provide tips on how to better navigate the digital tier.

Another proactive step Comcast has taken focuses on the installer's role in educating customers about their new service. As it stands, the installer plays a key role in walking new customers through the basics of digital service, sometimes spending as much as 15 minutes with new customers going over platform details. Additionally, Comcast reserves a series of channels in the 900 range to run three-minute customer education loops, with details about how to use the new remote, navigate the interactive guide, and order pay-per-view movies. Comcast complements those with "digital tune-in" spots that run across 24 of the networks on the digital tier between 6 p.m. and 8 p.m. each night, with recommendations about programming choices available on channels deeper in the digital lineup.

On the reactive side, much of Comcast's efforts are in customer service and response. Over the past couple of years, Comcast has put "save teams" in every one of its call centers. Whereas historically these save teams were brought in to "save" customers who are disconnecting, the teams have evolved to address customers who are downgrading their service as well.

And all of these strategies come together in the creation of goal and incentive programs set up to track Comcast's regular progress in combating digital churn. Every month, each system is given a churn goal that is some number lower than the previous year's number. This "scorecard" approach is published company-wide every month so systems can measure their progress.

But Comcast's strategy goes beyond customer education programs, and includes adding applications to the digital service to make it "stickier." Adding more on-demand content is an active part of the strategy. In January, Comcast plans to offer an aggressive new platform of content-on-demand in Philadelphia, featuring hundreds of hours of on-demand fare, including basic cable programs to news and sports.

Movies-on-demand, already part of the strategy, is available to more than 3 million Comcast homes, and that number is projected to rise to 6 million by year's end. Add to that Comcast's initial foray into high-definition television in its Philadelphia, New Jersey and Delaware systems, and Comcast is quickly building a digital tier that is intended to keep customers excited and compelled to stay digital.


Video-on-demand is being touted as one of the most prolific churn-busters that cable has in its arsenal. It's also been well established that VOD can't live on first-run movies alone. Offering what amounts to pay-per-view on steroids just hasn't been enough to drive demand for the platform.

Furthering proof that content is still king, cable operators have already started to deploy a number of on-demand variants, ranging from subscription-VOD from basic networks and premium programmers such as HBO, Starz and Showtime, to free-on-demand services like MagRack and hybrid free/subscription packages from programmers like Discovery.

MagRack, which plans to fatten its on-demand vaults with up to 40 programming categories by the end of 2002, is being offered as a value-add to a cable operator's digital package. Because MagRack's fare is considered unique rather than re-purposed, the company has positioned itself as a weapon cable can use to gain and retain digital subscribers.

MagRack has yet to disclose any study results that prove that claim, but it's also arguably too early on in the game. Regardless, MagRack's popularity among Cablevision Systems Corp.'s iO-Interactive Optimum digital subs has grown impressively since its launch. About 47 percent of those customers who had access to MagRack in February viewed it once a month, but that figure grew to 87 percent by August. By that time, MagRack also comprised just north of 10 percent of the total VOD usage on iO.

Besides corporate cousin Cablevision Systems Corp., two other MSOs–Insight Communications and Charter Communi-cations–have signed affiliation deals with MagRack.

Cox's system in San Diego also jumped into the game in August with the launch of FreeZone, an ad-supported on-demand content service featuring short independent films, action sports vignettes and interviews with local celebrities.

SVOD is another option that operators can wield in their battle with digital churn, though there hasn't been any quantitative evidence available yet to suggest exactly how effective it is.

Greg DePrez
"Most of the anecdotal evidence we've heard is for the entire category of all VOD services," says Greg DePrez, vice president of subscription VOD for Starz Encore Group, noting that some second-hand evidence has shown that systems with VOD availabilities have seen a measurable impact on reducing digital churn.

In addition to its effect on digital churn, SVOD can also protect a cable operator's pay TV penetration, DePrez says. Interestingly, the programmer has seen some early data from a Starz affiliate suggesting that customers who have access to Starz On Demand tend to stay with the flagship Starz Super Pak service.

Cable-based digital video recording services are still in their early stages, but some MSOs have already stepped up their strategies. Time Warner Cable, for example, is deploying Scientific-Atlanta's Explorer 8000, which sports an on-board DVR. Cox also has committed to buying a few models, as well.

Charter Communications, meanwhile, has started to test Motorola Broadband's BMC8000, a "companion" box with DVR capabilities designed to sync up with legacy DCT-2000 digital set-tops. Charter has deployed that box to an undisclosed number of "friendlies," but has not said when it expects to deploy the BMC8000 commercially.

Badding sees DVR and VOD as an "and" solution for cable operators, not "either/or," in its continuing battle with digital churn. "These are complementary solutions that only cable can provide," he says. "Satellite is only DVR friendly. With that in mind, cable providers can offer the best of both worlds."


In addition to retaining digital subs, operators such as AT&T Broadband are trying out new tactics to lure new ones.
Although VOD and DVR seem to get the most attention, gaming applications aren't slouches either when it comes to reducing digital churn. In fact, gaming is the central piece of the digital churn strategy at Susquehanna Communications, a York, Pa.-based operator.

As a mid-sized MSO that's fending off much larger DBS competitors, SusCom knows that offering an innovative digital platform is essential to its future survival. The bottom line is that local operators like SusCom can't rely solely on digital programming to survive against satellite.

"We can't compete in that arena, so we're looking to differentiate ourselves on the digital side from being just another extension of passive video services, to really using the platform's full capacity on the interactive side," explains Dan Templin, SusCom's vice president of marketing and programming.

Last November, SusCom launched S-A's gaming suite, a series of single-player games like video poker and checkers. Within six months of adding those classic games to its digital platform, SusCom's digital churn rate dropped from about eight percent to five percent, Templin says.

Motorola’s DCT-1700
That would be quite a story if it ended there, but SusCom took the gaming approach to a new level in June, when it launched a multi-player gaming application called Buzztime, from developer NTN. Buzztime is an interactive trivia game, where people compete against one another from all corners of the network–an application that originally cut its teeth in bars and restaurants around the country.

In just three months, more than 42 percent of SusCom's digital customers in York have registered and play Buzztime fairly frequently. Overall churn in that market has dropped below five percent, and in homes where users have registered to play Buzztime, churn is down to an impressive three percent.

"It's frankly well beyond our expectations," Templin says.


While gaming appears to be contributing to digital cable's stickiness, making digital programming available to multiple TVs takes some financial doing. The problem? Some customers want multiple boxes so that they can enjoy digital on several TVs, but operators have to bear the financial brunt of that without getting much else in return.

One product that has been ballyhooed as a possible whole-home entertainment savior for cable is the broadband media center, an ultra-thick client digital set-top that can share applications and services with other screens in the house via home networking technologies.

Figure 2: According to Cox, digital churn
has been a step ahead of other
cable products so far in 2002.
So far, Charter, which is collaborating with corporate cousin Digeo Inc. and Motorola Broadband on such a device, is the only U.S. MSO to discuss a specific media center strategy publicly. S-A has also formed a similar partnership with Digeo to create media centers, but hasn't announced any deployment deals.

Although some cable operators will need some more convincing before they move on a media center strategy, set-top vendors are in the process of creating cheaper, no-frills boxes that just might do the job until prices on the more advanced boxes drop to palatable levels.

The most recent example of this is the DCT-1700 from Motorola Broadband. Introduced last month, Motorola's new thin-client box will provide essentially the same functions as the widely deployed DCT-2000, but at a lower cost.

S-A, CED has learned, is developing a cheaper thin-client box called the Explorer 1800. S-A has not released the specs, price and release date of that particular model, however.


Many MSOs have deployed HDTV services in their markets. Time Warner Cable, in fact, has rolled it out to all of its divisions. Although HD support will help cable operators hold on to their top-tier customers, it isn't seen as a short-term competitive weapon against digital churn. Instead, it's viewed as a way to retain cable's most desirable premium customers

"It's a nice feature that needs to be available and should be available, but is it going to pull most of the consumer market? No," Badding says. By the same token, offering HD can help prevent operators from isolating their high-end customers, and therefore, help keep them, he adds.