Digital Divide Can Equal Market Opportunity

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At the same time that the Society for Cable Telecommunications Engineers conference was convened to show off the latest digital technologies, a smaller gathering in New York concentrated on ways to get those technologies into more U.S. households.

Specifically, the New York meeting focused on the potential for digital cable, Internet access and interactive-TV services in urban markets.

The occasion was the second annual State of Broadband Urban Markets Forum, organized by Horowitz Associates Inc. The event is unique in that it focuses on a particular market segment.

It also provides fresh perspective on urban markets, which can offer many riches to those who understand the complexities and dynamics of their diverse population.

Veteran cable researcher Howard Horowitz unveiled eye-opening survey results that show the potential for digital-cable and interactive-TV penetration to be higher in black, Hispanic and Asian urban households than white homes.

The survey also says ethnic households, on average, own more sets, watch more TV, have dramatically higher premium-subscription rates and are more likely to buy pay-per-view events than white households in urban markets.

The survey was conducted among 2,000 households in communities with 50,000 people or more, so the suburbs were also represented.

Horowitz said operators that neglect urban areas in their digital rollouts are leaving money on the table.

Operators also have an opportunity to bridge the "digital divide" — the gap between Internet-connected haves and have-nots — while simultaneously generating revenue, he said.

"The flip side of the digital divide is a market opportunity," Horowitz said.

The digital divide is a sensitive issue for cable. While some government officials acknowledge cable's ability to help bridge the gap, those same officials could end up putting public pressure on operators if rollouts are slowed by technological issues.

Some operators are haunted by the issue of redlining, or accusations of avoiding builds in low-income areas. Urban builds proved to be difficult and time-consuming, but most operators discovered strong customer bases in low-income areas.

"They're going to find out the same thing with digital and interactive TV," Horowitz said. That's largely because ethnic urban households are young, children-oriented and "TV-centric."

AT&T Broadband executive vice president of programming Matt Bond told the forum audience that cable needs to improve its marketing to diverse audiences, because the long-coveted 18-to-34 white, male demographic "never really was the face of America."

The Horowitz findings suggest many consumers who are perceived as "have nots" — and often treated as charity cases — actually comprise a consumer base that's ready and willing to pay for new services.

Premium subscriptions — which are regarded as an indicator of a market's willingness to spend on new services — are much higher among black, Hispanic and Asian urban households: about 80 percent, versus 64 percent for white households.

Bridging the digital divide does not require an expensive rollout of high-speed Internet access, which generated interest from only about one-quarter of total survey respondents.

But ethnic respondents show great interest in basic Internet access, particularly Web access through the TV. Internet-over-TV services, which are less capital intensive, provide more affordable access.

Also, black, Hispanic and Asian urban households show a much higher interest than white households in interactive TV features such as interactive program guides and video-on-demand.

The findings undermine the notion that ITV should first be targeted to "early adopters" — which usually imply techno-savvy, upper-income homes. ITV will be successful only if it serves a mass market.

The data confirm that there is a gap in Internet connectivity. Internet access is lower among blacks (39 percent with access) and Hispanics (54 percent) than whites (64 percent).

Also, black households own fewer PCs (48 percent) than Hispanic (59 percent), white (69 percent) or Asian (79 percent) households, the survey says.

During the forum, marketers from AT&T Broadband, Comcast Corp., MTV Networks, ESPN, Starz Encore Group and New Urban Entertainment advocated steps to effectively tap urban markets.

MSO consolidation has led certain companies to saturate major markets. The survey says 42 percent of urban households have service from AT&T Broadband, Time Warner Cable, Cox Communications Inc. or Comcast.

Bond said AT&T Broadband, through its purchase of MediaOne Group Inc. and other acquisitions, serves about a dozen major urban markets — and is now in a different situation than back when it was Tele-Communications Inc., with a largely rural subscriber base.

Comcast regional vice president of marketing and sales Michael Snyder said the MSO's consolidation in the Philadelphia market had led to the standardization of 80 to 85 percent of its channel lineups. The remaining slots can be used to carry ethnic services tailored to specific neighborhoods, he said.

While major-market consolidation may provide operational scale, Horowitz says, "Competition — instead of rate increases — is very important to realizing this market, not so much because it leads to lower rates, but because it can lead to repackaging and better access to the products people want."

Craig Leddy was once part of the 18-34 demo. You can reach him at LeddyColumn@aol.com.

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