Andrew King is in a quandary.
The 45-year-old airplane mechanic watches off-air television in Culpeper, Va., 70 miles from Washington, D.C.
King is satisfied with his free TV experience. He picks up broadcast stations from two markets, Charlottesville, Va., and the nation’s capital. He is unenthusiastic about the prospect of paying a cable, satellite or telephone company for television.
“I’m kind of a cheapskate,” he said wryly, adding he’d sign up for subscription television and then the “rates will shoot sky high.”
King’s objections echo responses cable researchers have long heard from TV viewers they classify as “nevers” or “formers.” This audience of 14 million to 19 million households are viewers who have steadfastly refused to take, or keep, pay television programming. Winning the hearts, minds and pocketbooks of such consumers is a top priority for cable, satellite and telco TV providers during the next year.
“Frankly, this may be the last big chance to gain market share,” said Cox Communications vice president of product marketing David Pugliese.
Because the federal government has mandated that analog over-the-air television cease on Feb. 17, 2009, consumers who want to keep watching broadcasters like the Big Four — CBS, ABC, NBC and Fox — must buy a set with a digital tuner, a converter box at retail or subscribe to pay TV.
To gain the business of broadcast-only consumers, cable marketers may offer months of free service or tout the ease of buying a basic package for $10 to $15, piped directly to TVs without a converter box.
Telephone providers will tout their TV service as having been anointed as superior by independent arbiters, such as quality judge J.D. Power and Associates. Also, the telcos will argue that their products come with more technological tools than those offered by cable, such as on-screen searching for local business services.
Cable operators also see potential in basic-tier-only sign-ups for additional outlets in direct-broadcast satellite homes. Cable executives believe those DBS consumers will be interested in hooking up many rooms in their houses without installing tuners or another rooftop dish.
The two main U.S. direct-broadcast satellite-TV providers, DirecTV and Dish Network, were contacted to participate in this story; they declined. Both are conducting educational efforts to assure consumers that DBS service will continue without any need for subscribers to act. DirecTV said that it has not finalized its strategy for pulling in over-the-air customers in advance of the deadline.
Consumers’ plans for unconnected TV sets:
1. Don’t know
2. Abandon the TV
3. Use it only for DVDs
4. Buy a converter box
5. Get a rebate coupon from the government
6. Connect it to basic cable
7. Upgrade it to digital cable
8. Upgrade it to service from a telephone company
9. Upgrade to satellite service
10. Use it for video games
$4 BILLION QUESTION
A recent report on the transition by Sanford C. Bernstein & Co. estimated that consumers would spend $4 billion over the next year to equip their homes to receive digital TV broadcasts.
Consumers like King, who watch only off-air television, must decide on one of the four options to capture the digitized signals: buy a set-top box to convert over-the-air signal; buy a new TV set with a digital tuner; subscribe to a digital direct-broadcast satellite service; or sign on with a cable company or telco-TV provider.
Then there are consumers who do subscribe to cable or satellite service — but not on every TV set they own. The Bernstein Media research estimates this accounts for 30 million TV sets. That raises the number of sets in need of a transition option to an estimated 51 million, according to Bernstein.
About 6 million, or 20%, of such sets will wind up attached to set-tops that can convert the digital broadcast signals to analog, Bernstein estimates.
The business of adapting the rest, an estimated 40.8 million sets in different rooms of the house, is up for grabs by TV sellers and content distributors.
The transition means competitors who are aggressive can gain ground. Verizon Communications vice president of video solutions Shawn Strickland turns to the wisdom of the late University of Michigan football coach Bo Shembechler: “Change creates an opportunity for winners and losers.”
“Our biggest barrier is getting their attention,” he said of telco Verizon’s attempts to woo broadcast-only viewers to its FiOS TV service. Verizon’s product is delivered via fiber-to-the home, which the telco says provides more pristine pictures and faster Internet connectivity than cable’s fiber-to-the-curb or fiber-to-the-node alternatives.
The Portland, Ore., market may have the highest concentration of off-the-air users, according to research by Sanford C. Bernstein & Co. LLC
Verizon will put its video message in front of consumers by cross-promotion in telephone bills, Strickland said. It will focus on why FiOS delivers a better video and Internet product, he said, emphasizing the service’s positive rankings from J.D. Power and Associates, as well as reviews by Consumer Reports and computer magazines.
Just because consumers watch TV over the air now doesn’t mean they can’t be sold on other Verizon products and advanced features, he said. And FiOS has local packages available for those who are only interested in replicating what they’re currently getting over the air. Such an offering includes broadcast stations and video-on-demand programs, with a $14 price point that “plays well” to viewers who have been satisfied with free TV in the past, he said.
But that product requires a set-top box to translate the digital signals into analog ones, cable providers note. Cable’s trump card? Its broadcast-basic service can be delivered without extra hardware or a new remote to learn, marketers said.
Because the analog conversion takes place in a cable headend, and is then fed out through the network to all homes, a consumer needs only to plug a coaxial cable into the back of their analog TV set, at least for the next three years. That provides potential new subscribers with a pretty simple option for getting local digital TV programs, cable executives said.
The over-the-air viewer is resistant to adopting new technology, said Comcast senior vice president and general manager of video services Derek Harrar. They’re not going to want converters or a satellite dish on the roof, he predicted.
But that doesn’t mean Comcast won’t pitch them on a bundle of products. The Philadelphia-based operator will have a $14 to $15 basic-cable offer, but will note that consumers can save some money by adding Comcast’s phone service to their new video connection, he said.
Asked whether it would offer a low-cost ($10 to $15) broadcast-only package to consumers like King, AT&T media director Jenny Parker said via e-mail, “We believe customers will find we provide a variety of offers at a great value.”
DINT OF HARD WORK
AT&T’s marketing message will highlight packages that start as low as $44, equipment included, but the telco also has several introductory offers with free installation to lower the barrier to entry.
Marketing will stress the features unique to AT&T U-verse, “features [customers] will find useful even if they don’t watch that much TV,” she added, such as YellowPages.com TV, which searches local businesses via the TV screen. Other unique attributes include a huge lineup of high-definition TV channels and an advanced digital video recorder with mobile remote access, Parker said.
Advertising about bundled products has made a dent in the awareness of some potential new AT&T consumers. Helen Vitt, a recently retired small business owner in St. Louis, recalls seeing ads for AT&T’s advanced TV. She was receptive, through experience with its telephony. “I have their landline” service, Vitt said.
But that doesn’t mean she’s made up her mind. Vitt was asked what she thought of an offer of a converter-free package of broadcast signals for a $10 to $15 price point. She said it sounded “very reasonable” because she doesn’t want or need 100 channels, she said.
She said she might apply to the government for a converter-box rebate coupon to give her time to decide what to do. “I haven’t made up my mind, really,” she said.
Cable operators are in the midst of research projects to determine the best way to address different types of broadcast-only viewers. For instance, Comcast has been working with the American Association of Retired Persons for nine months, helping that group create information on the transition for seniors.
Charter Communications is also deep in research mode. The St. Louis-based cable operator has convened a consumer panel, seeking feedback on possible offers and marketing communications. It’s also participating in Cable & Telecommunications Association for Marketing research to identify potential customers and target demographics.
Additionally, Charter is buying predictive modeling software that will analyze data to determine the most likely-to-buy targets for the DTV marketing campaigns it designs. All of this is to help Charter craft the most effective message, said vice president of marketing science Tim Doolittle.
The operator will start testing its initial marketing materials in April, using outbound calling and direct mail to potential customers. Doolittle doesn’t expect substantive results until June, he said. Once the company starts interacting with prospects, Charter will have a better feel then for when people will be making their choices on how to pull in digital signals.
But will that be too late? And are operators taking into consideration their long-time reputations as purveyors of poor service? A new video provider, such as AT&T, doesn’t bring such baggage to the fight for market share.
Ann Simons, an 84-year-old widow in Whittier, Calif., has a long memory for past interactions with cable and would not consider it as a DTV option.
“I wouldn’t have cable in the house,” she sniffed. “I’ve had it before. It kept going out; I’d get nothing but salt and pepper on the screen. You call the company: Busy, busy, busy. Meanwhile hours went by without TV … I enjoy [broadcast] programs on my TV. I’m not interested in that [other] stuff.”
She already has her solution: She recently bought a new digital tuner.
Providers appear to be banking on the majority of consumers delaying their decision until the fourth quarter this year, giving marketers time to make “rather aggressive offers,” in Doolittle’s words, and refine those offers over time to maximize take rates.
FRIEND IN TIME
One of the more aggressive marketers may be Cox.
Pugliese estimates that 3 million to 4 million homes in the Atlanta-based operator’s footprint are not buying services from his company. Cox’s message to customers and non-subscribers alike has been that it is “your friend in the digital age,” an image Cox will rely on throughout the run up to the transition.
Beginning last December, the company issued a brochure to all its employees, explaining transition issues and answers to make sure each staffer is “singing off the same song sheet,” Pugliese said. The information stressed that current Cox customers won’t have to take any action to continue receiving their TV signals, and reiterating the four options for continued TV reception.
Cox is already testing offers via direct mail, including one in its Kansas market that offered six free months of basic video, including local broadcast stations and public, educational and government channels, to woo free TV customers. Several other offers will be tested in the next several months, Pugliese said.
Currently, the bulk of marketing spending on the effort is concentrated in fourth-quarter 2007 and first-quarter 2008. But if early marketing gains a good response rate in, say, May, the company is ready to redouble its efforts, he said.
The key message, Pugliese said, is “analog cable is easy.” Consumers may even have problems plugging store-bought converters into older sets, and rooftop antennas may be necessary to achieve pristine service, he said.
“It’s not as simple as it may seem,” he said.
That may be true, but consumers may see it as the most cost-effective option. King said he’s inclined to buy a digital over-the-air signal converter box, even though he fears he may be beyond the point at which he will be able to receive any off-air signals, even with a converter.
While visiting friends or staying in hotels, he’s seen channels he likes, like History, Discovery Channel and ESPN. But he compared most cable programming packages to Cadillacs — big and full of features you may not want — adding he’d rather buy a Volkswagen.
But he conceded that an offer of a package of broadcast stations, priced at $10 to $15, could bring him into the pay TV tent.