Why is the second-largest cable operator — with double-digit cash-flow
growth, consistent results and a healthy
stock — overhauling its core strategy?
Today, Time Warner Cable is knee-deep in
an initiative to drive future growth by slicing,
dicing and hyper-analyzing its subscriber
base like never before.
While not new, the concept
of segmentation —
targeting products and
services to specific customer
groups, based on
buying patterns and demographics
— is leading
the cable giant to reorganize
the company around
the strategy, reducing itself
into two operating divisions.
And while other multichannel providers
have trod this path, primarily through promotional
offerings, TWC appears to be taking
the concept a step further.
“They are definitely ahead of the pack,” said
Cable & Telecommunications Association for
Marketing CEO Char Beales, adding that companies
like Cox Communications and Charter
Communications have dabbled in segmenting
markets, but on a broader basis.
“Time Warner’s segmentation is deep and
broad,” Beales said. “They have more data,
they can slice it more ways and they’re acting
upon it in different approaches. They are
really maximizing it.”
Time Warner Cable chief operating
officer Landel Hobbs said
the reorganization of the New
York-based company’s operating
units was just one
part of the process.
In May, Time Warner
Cable began reorganizing
its operational structure,
divisions (East, West, Midwest,
Texas and New York
City) into two (East and West),
headed by longtime executive vice presidents
Carol Hevey and William Goetz, respectively.
In an interview last week, Hobbs
said the reorganization was part of a periodic
shifting of its operational structure — at one
time, TWC had as many as 37 divisions — to
fit the company’s and its customers’ needs.
The latest structure is part of a moretargeted
focus for the company, particularly
on the video side of the business, Hobbs said.
Video has historically been the least standardized
aspect of the cable industry, Hobbs
noted: Cable companies were created primarily
by cobbling together different franchises,
and Time Warner Cable is no different.
“The video part of the business is very unstructured
and very non-standard,” Hobbs said.
“One of the benefits [of] going to two [regions]
versus five is, you begin to standardize. As you
standardize, you enable faster cycle times to get
products to market in a quicker fashion.”
That also entails standardizing the physical
plant, mainly by continuing to roll out
switched digital technology, which has freed
up channel capacity for more HD programming,
and by realigning channel lineups. As
of the first quarter, Time Warner Cable systems
averaged about 100 HD channels, with
that number ticking up to 124 HD channels
for New York City.
Hobbs said the new structure will also
build a strong local presence while allowing
for regional marketing and call-center activity,
and centralized branding and common pricing schemes.
“What we’re striving for is a balance to
what should be done in the center, the region
and locally,” Hobbs said.
This new structure, in theory, will make it
easier for Time Warner Cable to move away
from the “one-size-fits-all” mentality that
has pervaded the cable industry since its inception.
Instead, the nation’s second largest
cable operator is developing and targeting
products that are relevant to specific segments
of the customer base.
Already, some of those streamlining moves
have helped the bottom line: In the first quarter,
growth in new services drove its first double-
digit cash flow increase since 2007.
Hobbs wouldn’t reveal the MSO’s specific
segments, but said they are centered on several
factors, including the types of programming
and services the customer already subscribes
to and the amount they spend each month.
“If you break our population of customers
up into five or six major segments, you see a
lot of groupings begin to take place,” Hobbs
said. “Yes, it’s based on ARPU [average revenue
per unit], but it’s
also based on whether
you time-shift or
not. If you use VOD,
Start Over and [digital
video recorders], typically
you buy more
products than if you
“Those are a couple
of things that we
have learned that are
helping us direct our
marketing spend more efficiently and prepare
products for customer segments in a better
way,” he said.
Collins Stewart media analyst Tom Eagan
said the segmented approach is not new in
the entertainment industry, but it does signal
a shift in attitude for Time Warner and
other cable companies.
“They realize they have to become a marketing
company,” Eagan said. “And part of
that is to extract the most revenue from each
That apparently is holding true for the
higher-end customer base, which is expected
to receive heightened attention — and a new
product offering Hobbs declined to identify
— in the coming months.
Tying into that approach is a new tiered
customer service. Hobbs said that in conjunction
with the higher-end product offering,
Time Warner Cable is planning to offer a
“VIP” level of customer service for its higherpaying
According to people familiar with the service,
Time Warner Cable has assembled a
team of customer-care representatives specifically
and dedicated to
the high-end base.
The approach, while
fairly common in
other industries, is
new, at least in execution,
CTAM’s Beales said
has been bandied
about the industry
for years — Harrah’s
Gary Loveman even
spoke at a CTAM conference about it in 2007.
But to date, no cable company has embraced
the concept fully.
“Everybody was really charged up about it,
but it takes a while to be able to implement,”
Beales said. “Now you’re seeing Time Warner
Hobbs added that the new model will entail
a combination of products and services
“that will be different than what people have
seen from us before.”
Miller Tabak media analyst David Joyce
said a similar approach was pioneered by DirecTV,
and even smaller-market MSO Insight
Communications, which early on saw the
benefit of focusing on customer service and
heaping services on high-value customers.
The results have been nothing short of
stellar for those two companies — Insight
has had positive basic subscriber growth for
five consecutive years, and DirecTV has averaged
an annual gain of about 940,000 net
new subscribers over the past five years.
“You can generate good returns by sticking
to your knitting and focusing on the customer,”
Joyce said. “That’s worked for Insight, and it
can work for all the cable companies. They just
need to be smarter about their client base.”
Wunderlich Securities cable and entertainment
analyst Matt Harrigan said that in the
past, most of the segmentation efforts by cable
companies have been centered around taking
channels out of a package that customers don’t
want, like regional sports networks, and offering
“A price segment
at the high end is an
Harrigan said. “It’s
tougher to do in this
Time Warner Cable
has had success with
model, particularly in
its ethnic packaging
— subscriptions to
El Paquetazo tier were up 17% in the first quarter.
But that, too, is undergoing some changes.
Viewing habits of Hispanic households in Los
Angeles are diff erent than those in Dallas or
New York, he said.
“[We’re] taking a card from Procter & Gamble,
home, where you go
in and watch how
people consume and
use our products,”
Hobbs said. “We’re
doing a lot of that at
Time Warner Cable
to create experiences
… We’re already differentiating
depending on what segment you’re in.”
PLAYING CATCHUP ON 3.0
While Time Warner Cable has taken the segmentation
model to the next level, one area
where it has lagged its peers is in the rollout of
DOCSIS 3.0 ultra-high-speed data service.
Hobbs defended TWC’s surgical approach to
DOCSIS 3.0 deployment, adding that its highend
Turbo product — which offers speeds of
up to 15 Megabits per second — appears to be
meeting customer needs at the moment.
High-speed data service was up across the
board for cable operators including in the first
quarter, driven by the higher-speed tiers.
Hobbs said that the company sees a big
opportunity in DOCSIS 3.0, but at the moment
its appeal is to a more select audience.
“There are virtually no applications that
need that kind of speed,” Hobbs said. “You’re liable
us to see us use DOCSIS 3.0 on a segmented
basis. … I want to use a more rifle approach
than a shotgun approach [to the rollout].”