For Britt, Innovation's Just Like 'Starting Over'

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Glenn Britt doesn't want his cable customers to fast-forward through ads. Instead, he wants them to start over.

The 'Start Over' service introduced on a test basis in South Carolina by Time Warner Cable this year is an example of chairman and CEO Britt's adherence to pragmatic advances in TV services. With Start Over, viewers who get home late can push a button and get back to the start of a favorite show that is already in progress.

The way that 'Start Over' recording of the show is structured, viewers can't skip commercials.

It's a balance that has meant Britt's own career has not had to be restarted at any point. He began with Time Inc. in 1972, right out of the Amos Tuck School of Business Administration at Dartmouth University and became senior vice president of finance for American Television and Communications Corp., Time Inc.'s cable business, in 1981.

At the time, ATC was the second-largest cable operator in the country behind TeleCommunications Inc. Now, Time Warner Cable is again No. 2 with 11 million subscribers, behind Comcast Corp., which has 14 million.

In the interim, Britt has been behind the development of the Road Runner high-speed Internet service, Time Warner's introduction of digital phone service and the expansion of the operator's business services.

As telephone companies that are larger than the entire cable industry enter the business, Britt says there is no such thing as a sustainable long-term competitive advantage.

He sat down with Multichannel News editor in chief Tom Steinert-Threlkeld at his office in Stamford, Conn., to discuss how cable companies have to constantly hit the 'Start Over' button and become serial innovators, as more competition arrives.

MCN: How do you see cable owning the customer down the pike against people who want to take customers away?

Glenn Britt: Well, I don't like the phrase owning the customer, because I think nobody really owns the customer. Customers choose to buy things from us because they find the good match of value. And what we really have to focus on is understanding why consumers buy our products and services, what needs they have that we're meeting. And what needs they have that we can meet using technology to invent new things?

MCN: What kind of products and services do you think will really make a difference over the next three to five years?

GB: First, of all, there's multichannel video which, on the surface, is mature. But we can keep growing that by making it better. So all of the on-demand features and time shifting, DVRs and digital high-definition TV, all those things make that better and we can keep making more money doing that. The broadband business I don't think any of us know how big that's going to be. It's growing very rapidly.

The residential voice business is huge. And the cable industry is just starting to compete in that.

And then there's the enterprise space, which is bigger than the whole residential space. And I think, again, our industry is just starting to dabble in that.

MCN: What specific products or services hold promise?

GB: Caller ID on TV. A simple idea that really resonates with consumers.

Polling; we do that now. Top Chef [on Food Network] was one recent example. You could register which chef you liked and which recipe and so forth. That was two weeks ago.

We have something that we're rolling out called 'Quick Clips.' If you're watching [Cable News Network], you'll be able to access a pull-down menu and let's say you're watching a show on Iraq and you want to know more.

You'll be able to pull down a menu to look at short clips that CNN has done on that subject.

Then my very favorite is called Start Over. We've been testing it at Columbia, South Carolina, for a few months now and I believe it's in 6,500 digital homes.

On a monthly, basis roughly 70% of the homes have been using it. That's compared to 50% for normal [video-on-demand, services] so this is pretty extraordinary. And they're using it on average eight to 10 times a month.

MCN: Those kinds of services you develop on your own.

GB: Yeah, so those we're talking about innovation, those are just some of the ideas. And obviously as you know we're part of the Sprint Nextel [Corp.] joint venture [with Comcast Corp., Cox Communications Inc. and Advance/Newhouse Communications, to develop a cellular-phone offering for cable]. There is a lot of work going on behind the scenes.

MCN: To produce services like using your mobile phone to start your DVR?

GB: That's one of the ideas, yeah.

MCN: Does the prospect of competition from the Internet worry you?

GB: I don't think you're going to see so-called over-the-top delivery of the hundreds of cable channels that exist today anytime soon. That's for several reasons.

No. 1, the broader Internet is not technically capable of that. Just the whole thing would come to a screeching halt.

But No. 2, and more importantly, cable operators and satellite operators and soon phone operators provide two functions. And one of those is we have a physical distribution system.

But we provide another function. We are retailers and we gather an audience. And so we sell these packages of video, television. And we assemble the packages, we buy the programming at retail and we assemble the audience. And then we pay the programmers money.

That is a very powerful and efficient economic mechanism.

The notion of over-the-top is that somehow there is some unfair amount of money being collected by cable, satellite, phone companies that can be bypassed. The economic reality is quite different

Now having said that, that doesn't mean that there won't be video on the internet, there clearly is and there will be. There will be new forms of video. I happen to think the most robust thing that's happening on the Internet is not big entertainment companies providing content, it's people providing content. It's blogs and it's that whole set of phenomena. It's really the content of the Internet more than mainstream entertainment as we know it today.

These things are additive, not that they're replacements or that they subtract.

MCN: But you could see people that start to do original high-quality programming on the Web.

GB: I don't think there's many shows that could be financed with today's production values created and sold successfully on a standalone basis.

MCN: Out of the major competitors, which worries you the most? Satellite, which already has a national footprint, or the telcos that want to have one?

GB: We should take all of our competitors very seriously. They all have different strengths and weaknesses, we have different strengths and weaknesses than they have. We have very tough competition with two satellite providers for video right now.

So we can't stand still, we have to be doing new things, make our products better, try to do things our competitors can't do. And they'll be doing the same thing. That's what this competition is all about.

MCN: It doesn't to mean there has to be some kind of death match.

GB: It's not, that's exactly what it's not.

It's more about market share, of mind share. In the '60s, of course, broadcasting [had] almost a monopoly on viewership in the evening. And then cable came along and for 20-25 years now. They haven't died, they are not going to die, the big three networks.

But their share of attention has steadily declined. And I think we just see the same natural thing happen the more platforms you have competing and then the more networks you have competing within those platforms, the more producers you have competing within those platforms.

MCN: Cable companies historically has been regional operators with urban clusters. Is it important to be national?

GB: I think there are some advantages to being national. Obviously you can market more efficiently. That's the biggest advantage. I think that in the physical business of providing these services over wires, which both we and the phone companies do, I'm not sure that there's a particular advantage to being national in the residential marketplace.

And if people get too large and operate in too centralized a way that can be even a disadvantage. Because I think that the business, the service part of our business is fundamentally very local. And consumers need to be dealt with locally. And to some extent consumer purchases and viewership is local too. And by being focused locally you can meet those needs.

MCN: The 15% test. Do you think that it's fair to to have a competitor come in with a new national franchise and existing companies — existing cable franchisees — not be able to change their contracts while their markets are in the process of being taken away by a competitor?

GB: No, not at all. I think that clearly what has been going on in Washington is the attempt of the much larger telephone industry to use the legislative mechanism to tilt the playing field in their favor.

I would point out that AT&T is larger than the entire cable industry put together. So these are not small start-ups that need favors. It may well be appropriate for franchising to be done differently than it is today, I think that's a matter that's certainly something [[to]] debate. But whatever is decided should apply equally to everybody.

MCN: What do you think the right way to do a national franchise would be?

GB: [Sens. Conrad] Burns [R-Mont.] and [Daniel] Inouye [D-Hawaii] have issued a set of principles that also are quite close to what we've been advocating. And that still is local franchising, because we think there should be local control over rights of way.

There's the notion of in the sports world of a shot clock. So that just in case people do see this as some sort of deterrent somebody could apply for franchise within a certain time period, they get a franchise.

The [bigger] question is where they do have phone plant, is it reasonable over some time if they're going to start upgrading, to ask them to upgrade it [everywhere]? Or should they be allowed to just upgrade the good neighborhoods? I think that's the matter of valid debate and there's plusses and minuses. I'm not sure whether the cable industry is the right one to advocate that requirement. That's a social issue.

MCN: Ninety-five percent or more of the programming is the same across cable, satellite and, prospectively, the new competition. How do you differentiate yourself?

GB: I think the way we're going to compete is in feature services like video-on-demand, caller ID on TV and that sort of thing

MCN: Why not exclusive programming?

GB: Because you get into a war you can't win of sort of mutual assured destruction. The only way it's economic for a programmer to sell something exclusive to somebody is if they get paid as much or more money than they get paid if they sold to everybody.

Otherwise why would a programmer do that? So all you do is result in escalating what the programming costs are.

MCN: Isn't the question on a la carte pricing of cable channels a tempest in a teapot? Can't you price a la carte channels in the way that it still makes more sense for people to buy tiers?

GB: A la carte doesn't work if the goal is to have lower prices.

We [also] have to have a much more complicated billing system, because we can't bill for all that today. We have to have sales reps who explain all this, which means much longer phone calls which means a lot more cost.

So you've just introduced a whole lot of extra cost into the system that has been very efficient.

MCN: In competing with now with the telephone companies and the Internet, you have to be good at creating infinite channel program guide, a better video search engine. A Google will be a competitor.

GB: I think those things are features, not the core thing. So the way you navigate around an ever more complicated world is clearly an important attribute that service providers need to have.

Whether we need to have all those skills in-house, or whether we assemble things and partner with people, I think that will evolve and there's no easy answer.

But I don't personally believe that our whole life is going to be organized by search going forward. It isn't going to be something that organizes all human activities going forward. And maybe not even video.

MCN: Why not?

GB: I think for the foreseeable future that most people are going to watch TV the way they do today which is it's entertainment, it's fairly passive, they channel-surf. The reason they want all these hundreds of channels is they like to surf. Search implies a much more proactive approach — I want to go see something.

MCN: So looking down five, six years, what do you see as cable's long-term sustainable advantage?

GB: It is very difficult to acquire and have long-term, sustainable advantages. I think even searching for that is maybe not what we should be focused on. I think that we need to keep focusing for short-term advantages and that's why we're so focused on innovation.

We want to have good products that people buy, people want to buy. And we want to keep doing new things, we want to keep people interested in us. And those things may have shorter product lives than we used to, or than cable was used to several years ago. I think that's the world we're in. And I think if we keep moving, keep innovating we'll do very, very well.

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