Cable Operators

Embracing San Diego

6/10/2005 8:00 PM Eastern

The numbers are staggering. Each year, nearly 400 million people, 128 million cars and over 11 million trucks pour over the border between the United States and Mexico. No entry point is busier than San Ysidro, near San Diego, where more than 14 million vehicles and 40 million people flow between the two countries, making it the world’s busiest border crossing.

But San Ysidro is more than just a pipeline for people and products. In 2000, Cox Communications Inc.’s San Diego system completed the first fiber-optic connection between the U.S. and Mexico, creating a broadband link from Cox San Diego to the Cablemás system in Tijuana, Mexico. The two operators now pump programming and high-speed data back and forth over the border.

San Diego Metropolitan Area
2003 2002 2001 2000
Total population 2,828,365 2,813,678 2,765,808 2,716,820
Median age (years) 34.4 33.7 33.1 33.6
Hispanic 29.06% 28.76% 28.13% 26.98%
Mexican 25.60% 25.96% 25.52% 24.27%
Puerto Rican 0.64% 0.51% 0.59% 0.64%
Cuban 0.20% 0.11% 0.09% 0.06%
Other Hispanic 2.61% 2.19% 1.94% 2.01%
Source: U.S. Census Bureau. Estimates for 2003, 2002 and 2001 are from American Community Survey.
City of San Diego
San Diego is the 13th largest Hispanic market in the U.S. with 215,980 Hispanic Households, or 21.1% of the city’s total TV households, which number 1,025,730. About 41.6% of the Hispanic households in San Diego are Spanish dominant. Here is a breakdown of the number of individual Hispanics by age and sex.
Source: Nielsen Hispanic Television Index. Jan. 1, 2005.
Hispanics 2+ 806,000
Hispanics 18+ 539,000
Hispanics 18-34 255,000
Hispanics 18-49 416,000
Hispanics 25-54 343,000
Hispanics 35+ 284,000
Hispanics 50+ 123,000
Hispanic Women 18+ 280,000
Hispanic Women 18-49 210,000
Hispanic Women 25-54 176,000
Hispanic Men 18+ 259,000
Hispanic Men 18-49 206,000
Hispanic Men 25-54 167,000

This June, cable subscribers in Tijuana will be able to watch San Diego Padres Major League Baseball games from Cox’s Channel 4 in San Diego. And on an ongoing basis, viewers in San Diego will be able to watch the feeds of several Spanish-language stations in Mexico, thanks to the link.

Such alliances illustrate the close cultural, technological and demographic ties between Mexico and San Diego. Those dynamics have made San Diego a testing ground for cable operators hoping to better target the Hispanic community.

Cox’s San Diego operations are informed by a larger corporate agenda from the company’s Atlanta headquarters. The MSO has been working overtime to revamp its Hispanic packages. It rolled out a new video offering last fall and more recently set up Hispanic-targeted video and phone bundles, says Cesar Cruz, Cox director of multicultural marketing.

“Nationwide, we are on target to double the number of subscribers” to the Paquete Latino video package, Cruz says, with about 60% of the subscribers representing new customers. But one of the most successful efforts, he adds, can be found in San Diego, which serves about 532,000 basic subscribers. “They have really hit a home run,” he says.

Art Reynolds, vice president of marketing at Cox San Diego, says the system revamped its Hispanic tier in early 2004, much earlier than most Cox systems, and it is now reaping the rewards.

“In 2004 we saw subscribers [to the Hispanic package] increase by 100%,” Reynolds says. By the end of this year, he expects “to see another 70% increase” in the number of Paquete Latino subscribers.

While the new package has played a crucial role in this growth, the system is not a newcomer to the effort to attract Hispanic consumers. Now around 40 years old, it has built long-standing ties to the Hispanic community, according to Reynolds.

In 1988, Cox San Diego began customizing its marketing efforts to better target the Hispanic community, and in 1992 Cox applied for the regulatory permission with U.S. and Mexican authorities to build the fiber-optic link.

It took until the turn of the century to get the necessary regulatory approvals, says Steve Gauteureaux, vice president of network operations at the system. Now the link relays not only Padres games and local Mexican TV stations, but it also allows businesses and schools on both sides of border to communicate via high-speed data services.

And further expansion is in the works. Amado Sanchez, the regional director for Cablemás — which serves about 500,000 video subscribers and 100,000 Internet subscribers in 45 Mexican cities — notes that the two companies are currently seeking regulatory approval for a second fiber-optic link across the border at Otay Mesa near San Diego. That pipe would allow the operators to expand the services they provide to the factories, business and schools along the border.

Cox has also been revamping its Hispanic-targeted packages. Currently, its Paquete Latino video offering costs $26 for 20 Spanish-language channels and 17 English-language services. Many buy the $36 package that includes HBO Latino and eight English-language Home Box Office feeds, Reynolds explains.

Bundles are also a big part of Cox’s strategy. For as little as $39.99, subscribers can get the Paquete Latino package and phone services that include 60 minutes of free long-distance minutes to Mexico.

Triple-play bundles begin with a $69 offering that includes video, a 256 Kbps Internet service and phone services. A $99 package offers digital cable, a 4Mbps high-speed data service and the phone service with 120 minutes of free long-distance calling to Mexico each month. “People love the bundle in any language,” Reynolds quips.

Time Warner Challenge

The local Time Warner Cable system, however, is working with a different set of variables, when it comes to Latino consumers in the market, notes Ernie Villicana, vice president of marketing and programming at Time Warner Cable San Diego Division, which serves about 200,000 basic subs in San Diego and 145,000 in the Desert Cities area 150 miles east of San Diego.

He points out that the San Diego systems serve affluent areas of the city, where only 11% of the homes are Hispanic — far below the rest of the DMA. What’s more, the Hispanics in their service areas tend to be more acculturated, making packages of Spanish-language services less compelling. Despite extensive marketing, the operator has managed to sign up only 1,000 subscribers to a $49.95 package that includes 14 Spanish-language services as part of its digital TV services.

If Time Warner Cable’s deal to acquire Adelphia Communications Corp. is completed, Time Warner would add Adelphia systems covering about 6% of the San Diego DMA. But that won’t change the Latino picture much. Even with the Adelphia systems, the percentage of Hispanic households — particularly Spanish-dominant homes — in its footprint would remain relatively low.

Currently, the Adelphia en Español package has a lower price point and offers fewer channels than Time Warner San Diego. For $32.50, subscribers get a digital set-top box, basic cable service and nine Spanish-language networks.

Time Warner’s system has considered a lower-priced alternative: the Nuestra Tele package that a number of Time Warner systems recently announced plans to debut. But that’s not in the cards for San Diego.

“Given the demographics of our service area, it doesn’t make sense,” Villicana says.

But the operator’s Desert Cities area 150 miles from San Diego will take advantage of Nuestra Tele, premiering the package in the third or fourth quarter of this year.

Alliances between operators and broadcasters have already proved important for Time Warner and Cox in San Diego. Many viewers have a plethora of broadcast options, ranging from local Spanish-language stations to stations imported from Mexico and Los Angeles.

Currently, the biggest player in Hispanic broadcast TV in San Diego is Entravision Communications Corp. It splits its allegiance between the U.S.’s two most powerful broadcast network groups. Entravision owns Univision affiliate KBNT and KDTF, a Telefutura affiliate. On the other side of the fence, it operates XHAS, the Telemundo affiliate.

In addition, there are several stations from Tijuana that spill into the market. The Televisa station XEWT is widely available, and some viewers also receive XHUK, XHUA and XHBJ, also from Tijuana.

Finally, XHTT from Mexico City is available. And subscribers to cable or direct-broadcast satellite services can also access some Spanish-language Los Angles stations.

NBC’s New Station

The newest broadcast entry, Mí San Diego — an independent Spanish-language station launched by NBC’s KNSD in April — illustrates just how important the alliances between Spanish-language broadcasters and cable operators have become.

Phyllis Schwartz, the president and general manager of KNSD and Mí San Diego, notes that the English-language NBC station was already reaching large Hispanic audiences and had longstanding ties to the community, but it wanted to find a way to reach the 10% of the DMA that is Spanish dominant.

Because KNSD’s corporate sibling, Telemundo, has an affiliate agreement with Entravision to serve the market, the NBC station decided to create its own independent Spanish-language outlet. Low-power station KBOP-CA agreed to carry the broadcast signal, which relies heavily on programming from an independent Spanish-language station that NBC owns in Los Angeles, KWHY.

To help assure the station’s success, Schwartz and her team also cut a wide-ranging deal with Cox San Diego. As part of that deal, Cox agreed to give the station carriage on its digital tier and allowed the station to carry Padres games in Spanish on Friday and Saturday nights. Cox’s Channel 4 has rights to over 150 Padres games each year.

In exchange, NBC give Cox promotional spots on Mí San Diego and the NBC station to promote the operator’s Paquete Latino package.

“The alliance has really bumped up the profile of Mí San Diego and helped Cox promote its digital offerings,” says Schwartz.

The alliance has also helped Cablemás, which carries both Channel 4 and Mí San Diego on its Tijuana systems, notes Sanchez.

Mí San Diego has been so successful that NBC has decided to move up its plans to launch a local newscast on the channel. Originally the program was set to debut at the end of the year, but it’s now expected to debut in July, says Penny Martin, KNSD and Mí San Diego vice president of programming and creative services.

Not everyone is a fan of the channel. Philip Wilkinson, the president and chief operating officer of Entravision, questions the wisdom of giving Mí San Diego carriage on Cox when Entravision’s Telefutura affiliate doesn’t have a Cox carriage deal. He says Telefutura will air a number of World Cup soccer matches in 2006. “If I were a cable subscriber and couldn’t see all those matches, I’d be pretty upset,” says Wilkinson.

Wilkinson believes operators have more work to do on the broadcast front in general. “One-third of the population is Hispanic in San Diego,” he notes. “Over 55% are Spanish-dominant, but they only have three or four Spanish-language stations on the analog tier, not the dozen or so they should have.”

Broadening Broadcasting

Wilkinson stresses that alliances between broadcasters and local operators help both parties. “We view them as partners in the business,” he says of cable systems. “They provide us with distribution, and we provide them with very valuable programming that can help grow their business.”

There are still alliances to be built between DBS and broadcasters in the market. Neither DirecTV Inc. nor EchoStar Communications Corp.’s Dish Network currently carry the local Univision or Telefutura affiliates in the market, though they do carry Univision and Telefutura’s national programming, Wilkinson says. DirecTV carries the Telefutura station from Los Angeles, and Wilkinson is currently working with DirecTV to replace the Los Angeles affiliate with their San Diego Telefutura affiliate.

Currently, satellite penetration in San Diego stands at around 9%, below the national average, according to Cox’s Reynolds.

DBS carriage may still be a work in progress, but Entravision is already well ahead in another area: advertising. Because it offers a wide variety of programming across its three stations, it is appealing to advertisers — particularly those targeting younger viewers. In San Diego, the average Hispanic is 26 years old, versus 39 years for non-Hispanics, says Alberto Mier y Teran, the vice president and general manager of KBNT and KDTF. He says about 65% of people ages 2 to 35 in San Diego are Hispanic, and that Hispanics make up about 40% of the kids in school.

Because of their appeal to this younger demo and its diverse programming, the Entravision stations have increased in their ad sales this year even though other stations have seen declines, Wilkinson says.

March