At Cablevision, the Little Things Add Up


They always do things a little differently at Cablevision Systems Corp. Lately, the company is driving Wall Street nuts because of its high-stakes plans for the Voom HDTV direct-broadcast satellite service.

But the company's controlling Dolan family has always relished marching to the beat of their own drummer, and sometimes that beat proves financially sound.

So it is with digital television. Cablevision was the last major MSO to launch a bona fide DTV service in the summer of 2002. The timing perplexed many in the industry, as Cablevision tends to be a leader, not a follower, when it comes to new initiatives.

But the MSO had some very good reasons to wait. When most of the industry launched digital in the mid- to late-1990s, the core product was additional programming networks. Cable was feeling the first true sting from DBS providers that used digital technology to provide more channels, and thus better competition to cable.

Cablevision, however, had rebuilt its plant much earlier than other MSOs. It had enough analog capacity to add the 20 or so new services every operator wanted to offer. But other cable systems needed to go digital to make room for those networks. The switch to "digital" became largely synonymous with more program networks, at least as a marketing proposition.

That served its purpose for a while. Digital penetrations among MSOs rose steadily, to 20% and 30%. But as each year rolled by, digital additions became tougher to come by. Digital churn remained steady at 5% and, in some cases, even higher.

Enter digital late-bloomer Cablevision in the summer of 2002. It launched iO: Interactive Optimum with video-on-demand as it centerpiece.

Eighteen months later, the MSO has 600,000 subscribers across its 3 million basic homes. Third-quarter numbers will be announced tomorrow, and it's expected the MSO will reiterate guidance of close to 30% penetration by year-end.

What took some MSOs 36 months to reach, Cablevision will get there in half the time. True, the MSO has the advantage of having one, giant, contiguous market in greater New York City — a footprint that includes many upscale areas just waiting for VOD, HDTV and other new services.

But the MSO is getting more revenue per home out of its VOD launch than perhaps anyone. VOD buy-rates are at 60%, peaking at 72%. There's no reason that can't be driven higher, perhaps even doubling over the next 18 months.

What's more, Cablevision has no fear of offering subscription VOD, with six packages ranging from $4.95 to $6.95. In our interview with senior vice president of digital product management Kristin Dolan, which appears on the next page, she reports that SVOD packages have penetrated 29% of iO subscribers.

What's more, the MSO is adding 1,500 upgrades a week through its instant-upgrade features on the Sony Corp. box and via the Internet. Digital subscribers are one click away from ordering an SVOD package or a VOD movie.

It's easy to guess that Cablevision could see SVOD-package growth jump from 29% to perhaps 100% in time. Maybe 50% to 60% of the subscribers take one, two or three SVOD packages to achieve 100% unit penetration.

Say 1 million $4.95 SVOD units are sold each month — that's a tidy $60 million a year in revenue.

And if, through time, much of the upgrade activity occurs through the remote, marketing costs are minimized. All in all, it's a pretty appealing proposition.

As word of mouth spreads in the New York market, you can see where the sell-in of digital and SVOD packages might become even more important. Sell-in is becoming a key battleground for MSOs, with so many new products to proffer.

There's probably more of a "move" factor in the New York area, compared to other U.S. markets. Every new homeowner or apartment dweller represents a new opportunity for Cablevision to go beyond video to digital video and SVOD, or high-speed data and now, telephony service.

It may not be the perfect financial storm, but the list of products that MSOs like Cablevision have to offer on the digital platform, like VOD, HDTV and ITV — along with the ability to have top-flight CSRs sell-in the product and to use online and on-TV set tools for subscribers who want to upgrade — will make it easier to generate strong revenue growth.

For Cablevision, it also provides the chance to wring a little more revenue out of a category than most of its MSO brethren.

And that wouldn't be the first time that's ever happened.