The House that Newhouse Built

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It could be said that a family dynasty was born when Advance/Newhouse Communications Inc. created the MSO Bright House Networks by taking over management control of some 2.1 million customers that had been part of its longstanding partnership with Time Warner Entertainment LP. An expanded family dynasty, that is.

A/N chairman and CEO Bob Miron, who has been a fixture in the cable industry for decades, is the nephew of S.I. Newhouse, the eminence gris whose family controls not only the cable systems, but such venerable companies as the Condé Nast publishing group, Parade magazine, Golf Digest Cos., Fairchild Publications and daily newspapers serving some 26 cities.

The family empire’s name has also branded one of the most well-respected schools of journalism in the country, at Syracuse University in Advance/Newhouse’s upstate New York hometown.

But two years ago — when the company exercised its right to unwind its partnership with TWE and renegotiate terms that gave it control of systems in five states — Miron hired his son Steve as president of A/N and his daughter Nomi Bergman as executive vice president of strategy and development. Those appointments, made in July 2002, rounded out a team that also includes longtime Newhouse confidant Bill Futera, A/N’s executive vice president and chief financial officer.

Prior to joining A/N, Steve Miron spent 15 years at Time Warner Cable, most recently as vice president and general manager of its central New York cluster. And Nomi had a 20-year career at Time Warner Cable, most recently as a manager in the Charlotte, N.C., operation.

“What’s neat is, my sister and myself have both worked in our family’s companies for a number of years, but it’s the first time the three of us have ever worked together,” says Steve Miron, sitting down for a chat with the rest of the team at last month’s National Show in New Orleans. He jokes that family members always finish each other’s sentences — a practice that was employed several times over the course of the interview.

“When we sit in a meeting, for the most part we all know what each other are thinking generally without opening our mouths,” he adds.

Apparently the telepathy is bidirectional. Speaking of his daughter, Bob Miron relates: “She just went to a lunch and says, 'You wouldn’t believe what happened,’ and I told her what happened, and I was correct. [Steve] does that to me all the time.

“It’s a good relationship. I’m a very proud and lucky father. And we’ve half-adopted Bill [Futera].”

Quips Steve Miron: “We all know what each other is thinking — and then we all do what Nomi thinks.”

DECENTRALIZED DECISIONS

All kidding aside, Futera says no one person dominates the decision-making process.

Futera notes, “A lot of time, you’re in a family organization where the decisions are always made at the top. Steve’s making a lot of decisions; Nomi is making a lot of decisions.

“It’s a great atmosphere to work in because it really is a team of people working together and sharing ideas. We don’t always agree. But it really has been something that is unique.”

Although headquartered in Syracuse, the MSO is in the process of decentralizing management of its systems, renamed Bright House Networks in April 2003.

“Most of our strength is going to be in the field,” Bob Miron says. “We’ll look a little differently than your average MSO.”

Bright House comprises systems in central Florida (including Orlando) and Tampa, Fla.; as well as Detroit; Bakersfield, Calif.; Indianapolis, Ind.; and Birmingham, Ala. Those properties made up one of the strongest clusters in the Time Warner Cable fold.

And because TWE still owns a minority stake, the A/N team can take advantage of programming deals struck by the larger MSO (with 10.9 million subscribers).

As part of the deal, TWE-A/N’s 6.7 million subscribers were split into three equal baskets — one in the Houston area, one in upstate New York and the Florida cluster. Advance/Newhouse chose the Florida cluster.

“I don’t think we could have picked a bad division from Time Warner that we would have had a major problem with,” Bob Miron says. “I think we knew we had a good company and good people. All we had to focus on was how we were going to continue to operate it, to continue to provide that best service and products, how we could tell the story to the customers. That’s what we tried to do.”

Despite the lapse in time when Advance/Newhouse let TWE take the driver’s seat in running its systems holdings — a period that began in 1995 — Miron contends the company never left the cable business.

After all, he was chairman of the National Cable & Telecommunications Association in 1997 and a member of the organization’s executive committee. He also took an active role in Cable Television Laboratories Inc.

He notes that the company’s publishing businesses are very similar to cable, because “we’re all providing a product to customers, and we’re trying to provide value and we’re trying to provide good customer service.”

But one of the most important challenges comes down to two words: “maintain momentum.”

The former Time Warner Cable systems are fully upgraded — they’re currently at 750 Megahertz capacity — and were aggressively rolling out new services before the transfer.

And compared to other large MSOs, Bright House’s performance is nothing short of stellar.

STATISTIC DELIGHT

Its basic-subscriber growth is tops in the industry, at 1.5% in 2003. Cox Communications Inc. had 1% growth in this year’s first quarter; Comcast Corp. and Time Warner Cable each garnered under 0.5%; and Charter Communications Inc. and Cablevision Systems Corp. lost subscribers.

Bright House increased its digital-subscriber count by 93,400 last year — to a total of 858,000 — giving it digital penetration of 40%. By comparison, Time Warner Cable has a 41% penetration rate and Charter has 43%.

But Cox, Comcast and Cablevision had between 35% and 37%.

Bright House leads all of those MSOs in high-speed data penetration — at 30%. And the company has added a strong array of additional services, including HDTV, digital video recorders, video-on-demand and subscription VOD. In April, Bright House added between 12,000 and 13,000 digital video recorder customers and about 5,000 HD customers, Steve Miron says. Total DVR and HDTV customers are 92,000 and 87,000, respectively.

“Any place where we didn’t have bundling, we have since introduced it,” Bergman says. “That has been a focus for us in the last year.

“We were early to on-demand. We have VOD in all of our systems except one — we’re launching VOD in Detroit in the next several months. We were early with HD: 4.5% of our entire subscriber base has HD; 10% of our digital subs have HD.

“DVRs, we’re seeing nice growth, and continue to drive DVRs to the rest of our subscriber base.”

To increase HDTV usage, Bright House offers its digital subscribers a free high-definition tier in all markets. The HDTV set-top box is supplied to customers at no extra charge. In addition to the freebie tier — which includes Discovery HD and local broadcast stations — Bright House offers premium HD services from Home Box Office and Showtime.

And it has a paid HD tier, including INHD and INHD2, as well as HDNet and HDNetMovies.

“If you add HD and DVRs together, one out of five of our digital customers has one of those advanced products, and that number is on the rise,” says Steve Miron.

All that activity has meant a windfall for vendors who supply customer premises equipment to Bright House. The company buys its set-tops from Scientific-Atlanta Inc., Motorola Inc., Pace Micro Technologies plc and Pioneer Electronics. DVRs come from Scientific-Atlanta, and HDTV boxes are supplied by S-A and Pace.

VOD equipment suppliers include Concurrent Computer Corp., SeaChange International Inc., and nCUBE Corp. For high-speed data, Bright House gets its cable-modem tereminiation system equipment from Cisco Systems Inc. and its modems from Cisco, Motorola Inc. and Terayon Communication Systems Inc. Transport is provided by Fujitsu America Inc., Cisco and Marconi Corp.

Tampa was one of the first VOD launches for Bright House, and “we’re facing a major upgrade of transport and VOD architecture in that market,” Bergman says. “We’re building it with great depth and capability. We have really terrific engineering depth in all markets, but in particular our Florida divisions.”

For now, Bright House is taking a cautious approach to telephone service. Time Warner Cable announced late last year plans to roll out voice-over-Internet protocol telephone service across all of its markets.

While Bright House still has a relationship with Time Warner, Bob Miron says a Bright House VoIP product won’t necessarily come from an agreement with the media giant.

“It’s not a question of partnering,” Bob Miron says. “Our platform is similar to Time Warner. We do have the same association with Road Runner. We do know what they are doing.

“Part of our learning is being done through them. We’re not ready to announce a time frame at this point.”

However, Miron stresses that Bright House is not disregarding VoIP all together.

“We’re not in the group that is backing away [from IP telephony],” he says. “We’re in the group that wants to look at it very carefully and make the decision as to how and when. But we’re not ready to pull the trigger.”

GROWING THE CLUSTERS

While organic growth has been strong — and new housing starts especially in Florida should help drive that growth for awhile — Advance/Newhouse has not been averse to making acquisitions to boost scale.

Last year, A/N purchased systems in Florida with about 44,000 subscribers from the Canadian MSO Shaw Communications Inc.

Bob Miron prefers to play his cards close to his chest regarding future acquisitions, including the possibility of purchasing a piece of Adelphia Communications Corp. He claims the company’s focus remains on its existing clusters.

“If we were to grow, we would want to grow within the clusters,” Bob Miron says. “We bought Shaw last year, and we would continue to look at things that make sense to us.

“I wouldn’t buy a system in another state where we weren’t. We want to stay clustered and we want to manage the business.”

And he’s apparently not interested in gaining scale through a large purchase.

“We’re not looking to be highly leveraged in any way, shape or form. We’re not looking to change the direction,” Bob Miron says. “We’re not looking to do anything that would harm our ability to provide that good customer service and good value where we’re worried that we can’t afford to do something. We’ll grow within ourselves.”

As a private company, Bright House and Advance/Newhouse have the luxury of not being forced into a position they don’t think they’re ready for.

“One of the interesting things about running a private company, you don’t need to have short-term goals or long-term goals,” Bob Miron says. “We don’t answer to Wall Street. There’s no quarter-to-quarter trying to figure out that, 'I’ve got to have this goal to hit in order to hold my price up.’ ”

But there still are operational challenges, notes Steve Miron. “When you’re trying to provide great service 24 hours a day, seven days a week, 52 weeks a year, that is a tremendous challenge in the face of rolling out new products — products that are more complex.”

Certainly, an enviable track record, freedom from Wall Street — and a strong dose of family telepathy — will help with all of that.

<p>A/N at a Glance</p><p>As of April 30, 2004</p>

Homes Passed

3,741,000

Basic Subs

2,167,000

Digital Subs

858,000

Residential HSD

661,000

Digital Video Recorders

92,000

HDTV

87,000

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