Cable Operators

Marcus Helps Set WOW’s Winning Strategy

Veteran cable investor cites a customer-service focus as key to success 7/25/2016 8:00 AM Eastern
WOW chairman on the MSO's management: "They understood that ... they not only have to build a better mousetrap, they have to service it better."
TakeAway

A strong customer-service track record and the ability to tailor video packages have fueled WOW’s success, says chairman Jeffrey Marcus.

WideOpenWest chairman Jeffrey Marcus doesn’t think he has to build a better mousetrap to take the overbuilder to the next level in the ever-changing pay TV and broadband landscape. He believes he already has one.

 

Marcus, a cable pioneer who built Marcus Cable from scratch in the 1980s before selling it to Microsoft co-founder Paul Allen in 1998, re-entered the domestic pay TV space in a larger way in December after his Crestview Partners invested $125 million in WOW for a 35% interest in the overbuilder. As part of the investment, Marcus, who has been with Crestview since 2004 and helped manage its stakes in several cable operators over the years, agreed to become chairman.

 

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Becoming WOW chairman — he replaced Colleen Abdoulah, who retired but remains on the company’s board — is Marcus’s highest-profile position in the cable business since he sold Marcus Cable to Allen (it later became part of Charter Communications). He hasn’t really been away, though.

 

Through Crestview, Marcus has helped in its investments in Insight Communications, sold to Time Warner Cable in 2012, and Charter: Crestview was at one point the third-largest Charter shareholder and cashed out of most of that investment when Liberty Media John Malone bought a 27% stake in the cable operator in 2013. Marcus also was part of Crestview’s 2005 acquisition of Adelphia Communications’s OneLink cable operation in San Juan, Puerto Rico, which it sold to Liberty Global in 2012.

 

SEASONED TEAM

Marcus was named chairman in January after Crestview made its investment. Topping the management team are CEO Steve Cochran, a 14-year veteran of WOW, and chief operating officer Cathy Kuo, another seasoned executive who formerly ran marketing for the overbuilder for nearly 15 years.

 

“They’ve got a very good track record and good operational experience,” MoffettNathanson principal and senior analyst Craig Moffett said. “The management roster has to give you some confidence that they will be able to execute a compelling strategy.”

 

Marcus said in an interview that WOW first came up on his radar screen in the late 1970s and early 1980s, when he and cable pioneer Rick Michaels were partners in cable broker Communications Equity Associates.

 

The company re-emerged during the sales process for Insight Communications. WOW operated in Illinois and competed in several markets there against Insight and at one point considered bidding on Insight. When WOW’s biggest shareholder, Avista Capital Partners, decided to monetize a portion of its stake in the overbuilder, Crestview jumped.

 

“The thing that impressed me about WOW was their customer service,” Marcus said in an interview related to WOW’s selection as a Multichannel News Independent Operator of the Year. “Their J.D. Power scores are among the highest in the industry for years on end. That’s how they are able to garner a significant subscriber base and loyalty among their subscribers. They provide something the incumbent cable operators don’t and that is really good cable service. They understood that in order to get traction in a competitive situation, they not only have to build a better mousetrap, they have to service it better.”

 

WOW still ranks high on the J.D. Power list for pay TV and Internet service. It was fourth in the 2015 survey of the North Central region of the country with a score of 721, behind AT&T’s U-verse TV, DirecTV and Dish Network but still well ahead cable competitors like Comcast (689) and Charter Communications (688).

 

That customer service edge is key to WOW’s growth, Marcus said.

 

While Moffett added that focusing on better service is a potential strategy for small operators, “the bigger question is, do they continue to measure themselves as video providers at all,” adding that Wave Broadband and Cable One have taken a “broadband-first” stance in their respective markets.

 

While data is important — high-speed Internet subscribers outnumber video customers — WOW still sees benefits in offering a TV product.

 

Revenue in the first quarter was down 3% to $302.1 million, cash flow rose 3% to $112.9 million and WOW also continued to reduce video customer declines. Video losses were about 10,000 in the first quarter, compared to a loss of 17,000 in the fourth quarter. It was the fifth consecutive quarter of reduced losses on the video side. High-speed Internet customers grew by about 10,000 to 722,200 subscribers in the period.

 

Marcus said that WOW will continue to gain scale both through organic growth, including an edge-out program to extend its network within its existing footprint, and by acquisition.

 

“WOW, in order to win, has to not only provide the best customer service, but also to have state-of-the-art services and have them delivered in a way that customers want to buy them, not forcing big packages on people,” Marcus said.

 

That means looking into ways to offer skinny bundles, the current rage in the distribution industry. While Marcus realizes that the ability to do that is limited to the terms of programming contracts, he believes that is the direction the industry is ultimately moving toward.

 

“That’s where the evolution is going,” Marcus said. “I think the content providers are going to have to figure out where they want to play, where their bread is buttered and how they want to provide their programming. I think that HBO Now and CBS and others that provide OTT programming are doing it in a way where they are putting their toe in the water, and it’s good for the cable operators to provide for their customers.”

 

BUYING JUST WHAT FITS

On the acquisition front, Marcus said the company will keep an eye on systems that come on the market as they fit into the WOW strategy. “We will be interested in other acquisitions as they come about and as they make sense for us geographically,” he said.

 

But he sees no burning need to gain scale quickly.

 

“It’s all opportunistic,” Marcus said. “When I started Marcus Cable with 18,000 subscribers, I had no idea that it would get to 1.3 million. One thing led to another and we took advantage of opportunities as they presented themselves. I think that’s what is going to happen here.“

 

Time Warner Inc. launched its standalone HBO service, HBO Now, last April, and premium channels Showtime and Starz followed with their own versions of a standalone product. While Custom TV, Verizon’s skinny-bundle experiment, looks different than it has in the past — it now includes sports channels in the basic bundle — Marcus said that WOW is looking for ways to meet customer needs.

 

“Ours is more of a video-agnostic approach,” Marcus said. “If somebody wants a skinnier bundle, we’ll put it together for them within the constraints of the contracts. If they want to use broadband for over-the-top, we’ll deliver a package or give them increased broadband speeds to do that. And we’ll tailor our product offerings to what people want.”

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