Time Warner Cable, on the hunt to drive profits and give subscribers something with more "stick" than just more channels, has begun deploying Scientific-Atlanta (S-A) 8000 set-top boxes with PVR functionality in 12 markets. It's giving viewers a new way to experience TV viewing and local operators a new way to hook in digital subscribers.
With this and its VOD rollout, Time Warner Cable has a consumer value proposition in place that it believes exceeds that offered by DBS providers. Right now, the service is in 12 divisions with another four or five scheduled in the next couple of months. The markets are Austin and Waco , Texas; Binghamton, N.Y.; Green Bay, Wis.; Greensboro, N.C.; Memphis, Tenn.; Minneapolis; Columbia, S.C.; Portland, Maine; Rochester, N.Y.; San Antonio; Syracuse, N.Y.; and Corpus Christi, Texas. There are 28,000 PVR subscribers signed on.
"I can't imagine why other cable operators wouldn't want to do this also," says Pat Armstrong, Time Warner Cable senior vice president, new product management.
To David B. Davies, Scientific-Atlanta director, strategic marketing, subscriber networks, PVR's most attractive aspect for cable operators is that all the revenues flow straight to the bottom line, unlike VOD revenues, which are split with the studios and the VOD operator. PVR functionality is typically priced around $9.95 à la carte, less if bundled with other digital services. If the typical digital subscriber is paying $9.95 for the digital tier and about $5 for box rental and purchases one PPV movie, that adds up to about $18 a month. PVR functionality brings in another $9.95, driving revenues by 50% and profits by 140%.
"With VOD, cable operators share half with the studios, so the $9.95 a month from PVR is equal to about five VOD movies a month or two more premium channels," Davies explains. "The value they can get is quite significant."
The 8000 box is basically an S-A 2000 set-top box with PVR functionality. It costs about $80 more than the 2000, and Time Warner Cable prices the rental the same as for the 2000.
Davies says the "stickiness" of PVR functionality makes it a solid value proposition with guaranteed payback on the additional cost. "PVRs change the way people watch TV. It's a very sticky product, like going from dial-up to high-speed data."
He says that one of the problems PVRs had early on was that customers perceived it as a smart VCR. They had to know what it was before it had value. But Time Warner Cable's marketing efforts, which include trying it for free for a month, are working.
Time Warner is hopeful that the stickiness will cut down on churn. Basic PVR functionality would probably be enough to help cut churn, but the S-A box has some advantages over the TiVo and Replay TV consumer PVRs that add extra stickiness: The 8000's two tuners allow for the recording of two programs at once or recording one and watching another.
"There is no equipment to buy, and it's in the set-top box," notes Armstrong. "There also isn't a need to connect a phone line, which is incredibly helpful."
The set-top box uses the same guide that already is used by the cable subscriber, cutting down on the learning curve. Fred Pappalardo, Time Warner Cable vice president, new product management, says the main message Time Warner is trying to convey to subscribers is that it lets them watch TV when they want.
"We try not to get too technical and, in a few places, make reference to its being a TiVo-like product," he explains, "but a lot of the average consumers don't know what a TiVo is."