Bundling at CTAM - Broadcasting & Cable

Bundling at CTAM

One-stop shopping seen as the panacea for attracting consumers while confounding competitors
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Bundling is the theme, the marketing magic that will supposedly draw customers and repel rivals.

So said panelist after panelist at this year's CTAM convention in Boston, themed Digital Gold Rush, where, as it turned out, very few words could be heard about the industry's old core businesses, basic cable, pay channels, even pay-per-view.

Industry executives have practically given up on pushing basic growth further than the rate of housing growth in their markets. They see the advanced digital set-top converter as almost a magic bullet, enabling not just fat packages of new networks but a cable modem for both TV Web surfing and a PC connection, interactive programming and advertising, movies and TV shows on demand, and ultimately telephone service.

The technology allows consumers to one-stop shop, receive one bill (a big one) for cable, Internet, phone and, most critical, discounts for buying multiple services.

While one researcher said that 84% of consumers indicate that they want telephone service in a bundle, operators see the idea as a competitive issue. Telephone companies can offer high-speed data, and DBS companies can offer video and some data, but cable operators can do it all.

"The reason bundling is so important is that we face competition in all three areas but there is no one else who can provide all three at once," said Kim Kelly, CFO of Insight Communications.

"I would hope that the people here would take away the bundling message," said Cox Communications Chairman James Robbins, who heads the most aggressive MSO in deploying cable telephone services. But the new product packages also hold Robbins' biggest fear. What keeps him awake at night is "our continued execution of the new services."

Former FOX Family Channel President Rich Cronin cautioned that the fear is well founded. "Remember it's not bungling or bumbling. It's bundling," he told a panel session.

America Online President Bob Pittman pressed cable executives not to get distracted by the high-tech hardware and networks they're deploying. "It's about the consumer, it's not about technology," Pittman said, adding that "yes, we need the technology to enable it, but this is not about the box."

Media and Internet executives can't force the melding of TV and the Internet, he emphasized. "It's getting very blurry because the consumer wants it to blur, not because we want it to blur."

AT & T Broadband Chairman Daniel Somers took delight in snags developing at DBS service DirecTV, saying that that the time is getting ripe to reclaim some of the subscribers DBS has taken away. DirecTV disclosed that it's becoming tougher to find new customers, with subscriber-acquisition costs surging up to 25% this year and cash flow coming in far lower than once expected.

Somers attributes that in part to the deployment of digital cable and its fat packages of video services that are finally comparable to the slate offered by DBS services.

"I think that's because we're pushing back a little harder," Somers said. While the industry so far has just 6 million digital subscribers, further rollouts will help. "I think we can win them back from satellite," Somers said. "I think it will be an interesting battle over the next two years."

Somers said AT & T is working on a couple of moves to boost digital cable. One is creating a fairly uniform digital package on its systems across the country. Although local systems will get some discretion to accommodate the ethnic makeup of their customer base, Somers wants a uniform programming slate at a uniform price across the country.

But operators' minds were also on an emerging sector of competitors: overbuilders, whose wired networks can also bundle all three cable services.

Rocco Commisso, chairman of rural MSO Mediacom, accused cable programmers of charging far higher rates for his rural and medium-size markets than MSOs in bigger markets, and even overbuilders, have to pay.

Panel moderator Cronin suggested to Turner Broadcasting System Entertainment Network President Brad Siegel that Turner networks must welcome the presence of cable overbuilders.

"I love'em," Siegel responded. "For our newer services like Turner South or Turner Classic Movies, which isn't so new but is not fully distributed, overbuilders and satellites [DBS providers] provide the kind of catalyst that larger systems need to launch our services. They [overbuilders and DBS providers] are more aggressive.

"We're pitching Boomerang and all of our services to anyone who will take them. That's our job. ... If an overbuilder or a satellite wants to take them, we're more than happy to sell.''

Commisso groused that the reason $5 billion has been invested in various overbuilders such as RCN Corp. and Digital Access was that "no one knows what the hell they're doing" and suggested that many of the companies are led by former cable executives who have $500 million in investors money given to them, so they "take it and play."

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