Digital Strategies Not Set in Stone

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There's no one-size-fits-all approach when it comes to
marketing digital cable.

And there's certainly no easy answer to the question of
whether cable operators should market digital as mostly movie multiplexes and
pay-per-view, or as larger entertainment packages offering additional basic channels above
and beyond what's available on their analog lineups.

Today's MSOs' digital strategies are all over the map. Some
have yet to begin rollouts in their largest markets, while others have digital available
in all but their tiniest systems.

Some cable operators see digital as a defensive strategy to
keep their premium customers from migrating to direct-broadcast satellite services, while
others integrate digital into their entire video strategies, marketing digital programming
to each potential new customer who calls a customer-service representative.

"We believe the digital platform is the future,"
AT&T Broadband & Internet Services vice president of video-marketing operations
Ellen Lloyd said, "and all we sell is digital. We're really not putting an emphasis
on analog at all."

AT&T Broadband already offers its "TCI Digital
Cable" -- to be renamed "AT&T Digital Cable" once the company migrates
to its new brand -- in all but its smallest markets, Lloyd said.

Bresnan Communications has digital in front of about
one-half of its customer base, and it plans to increase that percentage dramatically by
the end of the year.

"We don't look at digital as a monolithic
product," Bresnan vice president of marketing Joe Lawson said. "It's broken down
into several segments," including the premium and PPV marketplace, the basic-only
customers looking for additional basic channels and an overlap among people also
interested in digital-music and interactive services.

"The ones most interested in digital by far are those
who want additional basic channels," Lawson added. "That leads us down a very
different road than the strategies other MSOs have taken with digital."

"Right now, our focus on digital is very
movie-centric," MediaOne Group Inc. senior vice president of video Judi Allen said.
"We believe the earliest adopters of digital are movie fans; the value is easiest to
explain to premium customers."

MediaOne offers digital in its Detroit-area system, and it
plans to announce additional digital markets "very soon."

Comcast Corp. also takes a more-movies approach to digital.

And it's not just the larger MSOs that do so; some smaller,
rural systems use digital-PPV tiers from TVN Entertainment Corp. to help them compete
against DBS.

"Customers love pay-per-view and the choices available
with near-video-on-demand," TVN senior vice president of sales and marketing David
Sears said.

But Sears also advised operators to look and see what's
missing on their analog lineups. "If you're basic-poor, you may need a new
digital-basic lineup," he said.

TVN affiliate Carnesville Cable TV of Carnesville, Ga.,
plans to add basic cable channels to its digital platform, which now includes 24 PPV
channels, multiplex Home Box Office and Showtime, digital music and an electronic
programming guide.

"The biggest complaint among customers who don't
choose to upgrade to digital is, 'Don't I get any new extra channels?'" Carnesville
Cable owner John Williams Jr. said, adding that early consumer acceptance for digital was
very strong.

As one of its three digital packages, Classic Cable's Fort
Scott, Kan., system offers a digital variety tier, including a mix of family and sports
programming, such as The Golf Channel, ESPN2 and Speedvision.

This gives Classic a way to provide costly new sports
programming to digital subscribers without having to put it in a basic package where all
customers would have to pay for it, Northern regional manager Nita Basgall said.

While operators today do need to consider how to program
their analog and digital lineups, some said they don't need to separate analog and digital
when it comes to their marketing messages.

"You shouldn't market digital as a tier, but as an
integrated product," Cable and Telecommunications Association for Marketing vice
president of marketing Seth Morrison said, adding that the question of whether digital
means more movies or more basic "becomes a moot point when you offer a unified
service."

The Independent Film Channel executive vice president of
affiliate sales and marketing Gregg Hill agreed that consumers don't distinguish between
analog and digital. "If I'm into a movie, I'm into a movie," he said. "I
either like it or I don't. I don't care if it's analog or digital."

Still, a more robust digital package can help to sell the
service, especially to customers who don't yet appreciate the value of premium-multiplex
services.

"Operators selling digital tiers with only plexed
tiers will find it tougher to get penetration," Hill said. "You need to
diversify and expand your content."

Beyond diversified programming, segmented packages targeted
to specific groups can help to drive digital penetration -- but only if operators adopt
such a strategy.

Dove Associates managing director Bob Davis recommended
that operators take advantage of their additional digital bandwidth to create segmented
programming packages of sports, individual movie genres and ethnic channels.

"People will be willing to pay for something they
really want, rather than paying for a package of 10 things when they might only want
one," Davis said.

InterMedia Partners, which offers digital to 72 percent of
its homes passed, offers a single digital-video package with more than 200 audio and video
channels. The company thought about offering different levels of digital packages, but it
decided against doing so for two reasons, executive director of marketing Donna Young
said.

Programming rates are often tied to the percentage of
digital subscribers who take a channel, she said. And InterMedia didn't want to confuse
customers with too many packages, she added. As a bonus, Young said, "We have very
good margins on the service."

In addition to its digital-PPV, music and multiplex
services, Cox Communications Inc.'s Cox Orange County (Calif.) offers a choice of digital
tiers broken down into categories -- more movies; sports and information; and variety.

Cox offers a discount to customers who buy all of the
digital tiers. But among those who buy just one, "the movie tier is the most
popular," vice president of marketing Joe Rooney said.

The Orange County system launched its digital service in
October 1997, with a strong marketing emphasis on movies. But because it's well past its
initial launch phase, Cox is developing segmented marketing messages for selling digital
to nonpremium subscribers and noncustomers.

"In some cases, we talk news and sports," Rooney
said, "but more often than not, it's still about digital as being more robust in
movies."

Operators said they promote "more programming"
above anything else when it comes to marketing digital, whether it's more movies, more
music, more sports or more family entertainment.

But HBO vice president of subscriber marketing and business
development Olivia Smashum said operators should emphasize "better" -- and not
just "more" -- programming. Otherwise, potential digital customers will ask,
"I already have 80 channels: Why do I need more?"

And while content is the most prominent selling feature to
promote today, it's by no means the only one.

Operators should also stress better picture and sound
quality, along with the benefits of the interactive program guide, Horowitz &
Associates Inc. president Howard Horowitz said.

"Feedback from our consumer research indicates that
people who have digital say the guide is one of the best features," Horowitz said.
"That has to be turned into a selling point."

Operators said that while EPGs help with
digital-subscriber-retention efforts, it's somewhat of a tough sell to promote a feature
that many analog-only customers can't identify with.

To help educate the public at large, TV Guide Inc. has
created interactive kiosks that operators can place in local malls to demonstrate the
features of the company's EPG. "We'll launch the kiosk at the NCTA Show,"
president and chief operating officer Pam McKissick said.

"When we do focus groups, the more people played with
this and touched it, the more they couldn't wait to call their cable companies and sign up
for digital," she added.

Morrison recommended that operators educate consumers on
the benefits of the interactive guide through infomercials or breakaway spots surrounding
free previews of digital programming on a basic analog channel.

"The awareness level [for EPGs] is growing steadily,
and it will continue to grow," he said. "In the early days of a launch, you have
to be more detailed in your education. Then, word-of-mouth takes over."

Growing consumer awareness for digital cable will change
the marketing proposition over time and expand the technology's reach to a broader
consumer base. But some said reaching only a limited market at the beginning is not
necessarily a bad thing because it gives MSOs time to address operational issues.

Horowitz said operators with a "more-movies"
digital-positioning strategy limit themselves to premium and PPV fans, but that's not
necessarily bad for the short term. It gives operators a chance to protect against losing
subscribers to DBS without having to overinvest in digital boxes while the technology is
still changing so rapidly.

To reach a broader market, MediaOne may lower prices for
its digital service over time, Allen said, but the company is not prepared to do so right
away.

"Price is a real issue, and it's something operators
need to debate," Allen said. "Do we go for a higher value, or take advantage of
the pent-up demand and see what the market will bear?"

At whatever rates operators price their services, Smashum
recommended that they be upfront about that pricing in all of their marketing messages.
Otherwise, consumers tend to get jaded when hit with the prices later.

Operators surveyed for this story said pricing has not been
a barrier to attracting customers for their digital-cable services, especially in the
early adopter stage.

Some operators are clearly looking beyond the early
adopters. MediaOne, for example, plans to incorporate digital in all of its outbound
telemarketing efforts in Detroit.

"It's top-down selling," Allen said. "It
makes sense to lead with your best product."

At AT&T Broadband, Lloyd said, "Everything is
focused on digital, from the CSRs to direct mail. We tell customers that digital offers
more of what they want for not much more money, right through the cable they already
have."

And today's digital-cable services represent only the tip
of the iceberg compared to what's coming over the next few years.

"I don't think digital in its current state is
static," Young said. "With newer services, there will be more consumer
acceptance."

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