Attention Hispanic program networks. Here's what Cesar Cruz has to say about your services: “Frankly, the programmers that are out there are not good at all.”
Cruz, director of multicultural marketing for Cox Communications Inc., offered that assessment during a conversation at the National Show in New Orleans in May — about half a year after joining the MSO, one of the largest programming gatekeepers in the country.
Was the reporter's tape recorder infected with some strange audio virus? Of the 60 or so Hispanic services currently targeting the U.S., none of them are any good? “They need to be smarter,” says Cruz in a phone conversation a few weeks later. “They can't come to Cox thinking it's the same old Cox.”
If that sounds a bit like a drill sergeant in a Latino media boot camp — or somebody positioning himself for a slew of tough contract negotiations — consider that the MSO's barracks itself is being besieged by similar criticism. “Our [Hispanic] product is basically no good. That's what it is — no good, as it stands today,” Cruz says.
Working with a few other players at the MSO — including Andy Albert, vice president of programming — Cruz is ripping up the Hispanic strategy that Cox rolled out a few years ago, called TeleLatina, and starting from scratch. A new cable TV offer is expected to roll out in the third quarter, with a Hispanic telephony package to follow in the first quarter of 2005 and a high-speed Internet offer later that same year.
Cruz hails from a battle zone that is much older and more fiercely fought than that of today's multichannel business. He's been a top marketer for high-profile packaged-goods companies, selling their wares to Latin America and the U.S. Hispanic community — first at The Clorox Co., then Unilever and finally Sara Lee Corp. Packaged-goods companies “fight every day for half a market share point,” Cruz notes.
Cruz began his career in Puerto Rico, where he was raised, and eventually held positions based in California and Mexico, and spent time in about 15 Latin American countries.
“I've been [targeting] U.S. Hispanics for 20 years, when no one wanted to listen. And today, some of those companies' budgets are like $30 million” for U.S. Hispanic marketing, Cruz explains. He notes that multichannel Latino initiatives are “basically starting. To be honest, DBS is ahead.”
Cruz's boss, Joe Rooney, Cox's senior vice president of marketing, admits the MSO's churn level has been affected by a defection of Hispanic consumers. And direct-broadcast satellite services — most significantly EchoStar Communication Corp.'s Dish Network — has become public enemy No. 1 among cable systems because of an aggressive strategy to lure Latinos with robust packages of Hispanic channels.
Cox's monthly churn rate of 2.6%, as of the first quarter ended March 31, is rock steady compared with results during the same period last year, according to the company's earnings statements. “They do fairly well,” says Bruce Leichtman, president and principal analyst for the Leichtman Research Group, which monitors the performance of cable and DBS companies. “And if you look at basic penetration, after Cablevision [Systems] they have the highest basic penetration of any MSO.”
Cox's basic penetration was 60.8% of almost 10.5 million homes passed — about 6.4 million customers — at the end of the first quarter. That's down a tad from the 61.5% level same time last year.
While that's certainly commendable, the penetration of Hispanic homes passed is not. What exactly is it? “That's a very sensitive number,” Cruz says. “It's a small customer base. But the Hispanic homes passed is significant, a couple of million out of the whole base.”
“I can tell you our objective is to do over 50% growth in penetration in about a year,” Cruz says. “This is among Hispanics. That's a firm number.”
He believes that's a conservative benchmark. “We feel we're going to beat it. And the beauty of this whole thing is we have senior management commitment all the way from Jim Kennedy [chairman of Cox Communications and president and CEO of its parent company, Cox Enterprises Inc.] and Jim Robbins [president and CEO of Cox Communications],” Cruz adds. “It's the right thing to do for the business, and coincidentally, it's the right thing to do anyway.”
Indeed, this year — for the first time ever — one of the criteria for Cox's senior-management's bonus incentive is how well the company reaches out to the ethnic communities that their systems serve — and the diversity of their own staff.
“Cox has really embraced this idea from the top. It's not just 'Let's put one guy in and see what he can do,'” says Jorge Fiterre, a principal in the company Condista, which distributes several Latin American channels.
In creating a new programming plan, Cruz and his “right-hand man” Albert are taking some calculated risks. While programmers report Cox did a soft launch of some Latino services in Phoenix last month, there won't be any test marketing of the new Hispanic package. “The systems are so hungry for it. … We're just going to offer it,” Cruz says.
Cox is also focusing on Mexican-oriented services, as the top Hispanic markets that Cox serves — including parts of Texas, Southern California and Oklahoma, as well as Phoenix and Las Vegas — largely are home to Latinos of Mexican origin. Many are first-generation immigrants. While he does not say so directly, programming sources report that Cruz is not that interested in Hispanic channels that are bilingual or English-language, unless they're targeted to very young viewers.
Cruz does indicate that reruns from countries like Peru or Chile — or Spanish-language tracks of American network brands — won't be acceptable any longer unless the programming has direct relevance to Hispanics in Cox's markets.
The MSO also is looking to strike agreements only on a short-term basis, probably around two years. Cruz explains: “We're going to ensure that we have optimal customer acceptance of that product. Therefore, our agreements will be made in a way that we can get out of them” if a given channel isn't garnering an acceptable viewer level.
At least at the start, Cruz envisions offering Hispanic consumers a basic package of channels that will include both services for audiences in general and some that are specifically Latino for about $29. More expanded lineups and premium services will apparently be offered at higher price points.
What's the right number of Latino services? Cruz remains vague. “But if the competition has 30, you have to make sure you're close to that.”
Thirty Hispanic channels would be a huge improvement. Just take a look at Cox's channel lineup for San Diego, which research firm Synovate designates as the nation's 11th largest Hispanic market, with almost a million Hispanics in the population base. Cox's Web site for San Diego shows a “limited basic” package for $12 that includes just three Latino services — Univision and Telemundo's local stations as well as a Televisa station from across the Mexican border.
Even if you want more Latino channels in San Diego, the only one listed on the higher tiers is Galavision. However, Cox does program blocks of Hispanic programming on some San Diego channels. The system also has Spanish-language telecasts of Padres Major League Baseball games.
In Phoenix — the ninth largest Hispanic market according to Synovate — the Latino program offerings are richer, and Cox has created a local Hispanic channel called Mas Notas, which is described by officials there as MTV meets CNN. It is a joint venture between Cox and the Belo Corp.'s station KTVK-TV. The Phoenix system also offers invoices in Spanish and free phone-call minutes to Mexico. Those kinds of incentives are now in the planning stages for national rollout — as are other local channels.
The recent decision by Cox to name Dallas-based Cultura Advertising as its Hispanic agency of record, is likely to drive those efforts as well as the improved video tiers.
Unlike another MSO with a new Hispanic strategy, Comcast Corp., Cruz is apparently not going to dabble in on-demand Hispanic programming. That comes as a relief to some programmers who contend that Latinos — particularly those who are newcomers to the U.S. — aren't ready for such relatively complex ways of accessing shows.
ENDORSEMENTS & ADVANCES
Given the vast improvement ahead, there's no wonder that Latino programmers are largely enthusiastic about what's planned, no matter how harshly Cruz may assess their offerings today.
“I give them a lot of credit for realizing that [Cox's current Hispanic package] is ineffective — for going in and blowing it all up and putting it together again,” says Sterritt Berry, vice president of affiliate sales for LATV, a bilingual music and entertainment channel that is presently available in Los Angeles and positioning itself for national rollout.
That view is echoed by Michael Fletcher, president of Firestone Communications, which owns the kids channel Sorpresa. But he notes that the short-term-contract strategy comes with some risks. He says Sorpresa is locked into a long-term contract with Cox, so he isn't concerned on his own channel's account. But “it's hard to justify investing in a channel in a large way in a local market if you think it's going to be pulled away in a year.” What's more, MSOs can actually save money if they lock down long-term deals with channels. If a network has a breakout hit, it has more leverage in renegotiating MSO deals, he notes.
Cruz contends that it won't be a problem “even if our rates are a little higher — which will not be the case because we have outstanding program negotiating people here. It's better for us.” He reasons that it's only by having “innovation-type programming” rather than “stagnant-type” programming that Cox will be able to attract the Hispanic audience it's seeking.
As for the Mexican-leaning, Spanish-language bent, “it totally makes sense,” in the opinion of Cathy Rasenberger, whose New York-based consultancy Rasenberger Media currently represents the English-language lifestyle and entertainment outlet Voy. But she questions whether an avoidance of English services is warranted, given the vast number of second- and third-generation Hispanics who are comfortable with bilingual and English-language TV.
For example, recent figures from Horowitz Associates Inc. show that cable has a 67% penetration of English-oriented Latinos, and 84% prefer their programming in English. Spanish-dominant penetration is lower, at 48%, but 18% of that group prefers their programming in English. (See charts page 28.)
Cruz is “on a steep learning curve. He doesn't understand cable,” says another programming source. But then again, the source has to admit just about everyone is on a big learning curve. Even operators who are on the frontline of creating Hispanic tiers are still so new to the game that the jury's out on how successful their tiers will be. So far, “penetration of Hispanic tiers is very thin, for almost any operator,” the source says.
But Cruz's outsider background gives him certain advantages. “He brings a professionalism and an unbiased view of the market that he's been asked to succeed in,” says Horowitz Associates president Howard Horowitz.
“Cesar has a unique ability to understand the dynamics and the pace at which corporate America works and help companies understand how to navigate in emerging markets,” says Jorge Ortega, managing director and chairman of Burson-Marsteller's U.S. Hispanic practice, who has known Cruz for several years and worked with him on the Sara Lee account years ago.
And as for the target audience: “Nobody can tell me, 'This is the way Hispanics watch TV,'” says Cruz, who grew up on Univision and Telemundo shows. “I have 44 years of experience. When I come to U.S. [industry] events, I get perspective on how the U.S. thinks. But I never get perspective on the way to do it. I provide the way to do it.”
Some may read that kind of self-assuredness as overly cocky. Then again, maybe that's what cable needs to effectively combat DBS's Hispanic invasion. Cruz promises that with the short-term contract strategy the DBS enemy will never know what he's up to next.
“He'll always have to be following me,” says Cruz of DBS, “because I'm not going to be following anyone.”
|<p>Cox at a Glance</p>||<p>All numbers are as of the first quarter ended March 31, 2004, except for fiscal year 2003 total revenues.</p>|
Total Revenues, Fiscal 2003:
Basic Cable Subscribers:
Video Homes Passed:
Hispanic Homes Passed*:
about 2 million
Average Monthly Churn:
High-Speed Internet Customers:
Top Hispanic Markets Served**:
Phoenix; Tucson; San Diego; Santa Barbara, Calif.; Las Vegas; Cleveland; Oklahoma City; Lubbock, Tex.; Amarillo, Tex.