MSOs Tread Carefully Into Retail World

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July 2000 is only two months away, but it's tough to find any industry insiders who believe retailers, cable operators and hardware suppliers are fully prepared for the government-envisioned, mass-market deployment of cable set-top boxes at retail that is slated to begin by then.

A number of MSOs are forging ahead with retail partnerships on a market-by-market basis, however. Initial market launches primarily focus on high-speed cable-modem service. But in a few cases, operators have displayed their digital-cable-television service at retail, too.

"We don't consider these trials any more," MediaOne Road Runner national sales director Paula Giancola said of MSO MediaOne Group Inc.'s cable-modem retail deployment, which launched with 17 Circuit City Stores Inc. locations in the Boston area. The MSO also brought the service to Circuit City stores in Atlanta and Richmond, Va., as well as a RadioShack store in Jacksonville, Fla., last year.

MediaOne has seen about a 10 percent increase in its high-speed-data business in markets with a retail presence, Giancola said. Retail lends credibility to the cable service, which carries over to the MSO's lease business, as well, he added.

Cox Communications Inc. vice president of marketing Joe Rooney predicted that 10 percent to 15 percent of Cox's business could come from retail.

The MSO currently distributes a Cox@Home-in-a-box product through retailers such as CompUSA and Circuit City. The box includes information on the high-speed-data service, as well as discounts toward installation and one free month of service.

When Rooney was interviewed last month, Data Over Cable Service Interface Specification-compatible modems from Thomson Consumer Electronics'RCA Broadband Group were available for sale to Cox customers at a Circuit City store in Fort Walton Beach, Fla., and through Cox's own branded store in New Orleans.

The MSO expected Comp-USA stores in Oklahoma City, New England, Phoenix, New Orleans and northern Virginia to stock Motorola Inc. modems for sale to its high-speed-data customers this month.

At the local level, retail deals can get more creative. Cox displays its cable-modem service through 20 car washes in Southern California, for example.

Comcast Corp. has developed partnerships with local, regional and national retailers in all 15 of its markets, executive vice president of marketing and customer service Dave Watson said.

"These are no longer trials-this is the real deal," said Watson, who considers retail part of Comcast's overall distribution plan.

In addition to working with office superstores and consumer-electronics retailers, Comcast is testing the retail waters on its own. The MSO had previously been involved in retail before it sold off its wireless phone assets.

A few months ago, Comcast set up a kiosk in a mall in Taylor, Mich., to demonstrate and sell both high-speed-data and digital-cable service. The MSO may open kiosks in three or four other markets by the end of the year, Watson said.

AT & T Broadband has enjoyed great success in selling cable-modem service at retail, according to senior vice president of marketing Doug Seserman.

"In some markets, 25 percent to one-third of our @Home sales have come through retail," Seserman said, "and that was even before the modems were available for sale."

AT & T Broadband works with Circuit City to sell the AT & T@Home service. The retailer also carries modems in some markets where DOCSIS compatibility is available.

"We're very bullish on retail as being a major channel for customer acquisitions and upgrades," Seserman said, not just for data, but also eventually for digital cable and local telephony.

SALT LAKE TRIAL ENDS

AT & T Broadband recently ended a retail trial of its digital-cable and cable-modem services through AT & T Wireless stores in Salt Lake City, as well as a digital-cable retail trial with Best Buy Co. Inc. stores in Pittsburgh. The MSO is evaluating the results of both trials before determining how it will proceed with other retail partnerships, Seserman said.

In Rockford, Ill., Insight Communications Co. Inc. struck an ongoing deal last year with local audio/video dealer Columbia Video to display and demonstrate the MSO's digital-cable service.

Insight also sells its high-speed-data service through consumer-electronics retailers. Senior vice president of marketing and programming Pam Euler-Halling has asked Excite@Home Corp. to include coupons for Insight Digital Cable in its retail boxes, and she hopes to convince retailers that carry both computer- and video- related products to demonstrate the digital-cable product.

The MSO has also budgeted this year to renovate all of its walk-in centers to look more like sales centers, Euler-Halling said. The first walk-in center Insight remodeled looks like a home-entertainment environment, with all of the company's products on display. Euler-Halling wants to add popcorn machines to make the walk-in centers more fun for kids and families, "but basically, we want to demonstrate all of the products," she said.

Euler-Halling admitted that cable's traditional approach to locating customer walk-in centers was to build them outside of high-traffic areas so as not to encourage drop-in payments. But the MSO has no plans to relocate its walk-in centers to make them more visible.

"In the suburban markets where we are, almost any location can be convenient," she said.

HELPS TO OWN STORES

Cablevision Systems Corp., which bought regional consumer-electronics retailer The Wiz several years ago, has the benefit of its own retail channel plus the trappings of a traditional retail partnership: high-traffic locations with plenty of cross-promotional opportunities.

The MSO launched its first retail cable-modem-service offer in October in Norwalk, Conn., and now sells cable modems through 10 Wiz stores in Long Island, N.Y., Connecticut and, most recently, New Jersey.

"Retail distribution is at the heart of our product strategies across the board," senior vice president of product management and sales Pat Falese said, adding, "100 percent of our cable-modem sales have been through retail, and that's been true since October '99."

In addition to selling cable-modem hardware, The Wiz can sign new Cablevision video customers and upgrade existing ones in the 10 stores with Cablevision service centers. The company plans to upgrade all 21 Wiz locations that cross Cablevision service territories by the end of this year to be able to offer bundled consumer-electronics products and Cablevision services.

"The success of the retail venue has been heartening," Falese said. "It allows us to give the customer the best experience possible." Today, a typical cable-modem purchase at The Wiz takes about 20 minutes, she said, including 10 minutes with a sales associate and another 10 at the service center within the store, where a new customer picks up an e-mail address. More than 97 percent of new customers install their own cable modems.

Over the next few weeks, Cablevision plans to add a self-provisioning model that would allow new customers to bypass the in-store service center and access new e-mail addresses on their own at home, Falese said.

And late this month, The Wiz will add interactive kiosks for cable-modem customers who prefer to complete their sales transactions without the help of salespeople.

Success can bring growing pains, though. In December, after a holiday retail push helped the MSO to sign up more than 10,000 new cable-modem customers, Cable-vision's "Optimum Online" e-mail service went down for more than one week due to a surge in e-mail volume at the same time as servers were being upgraded.

Like other MSOs, Cable-vision is also planning to give its customers online-ordering capability for cable modems.

Early last month, Cox launched its www.cox.com/cableguy site, where customers can punch in ZIP codes and order services online.

Insight hopes to use its Web site to demonstrate all of the features of its various products, such as the electronic programming guide for digital cable. "Anything you can do to demonstrate the products for customers is beneficial," Euler-Halling said.

"We broadly define retail as alternate channels of distribution," including online ordering and original-equipment-manufacturer relationships with computer manufacturers, Seserman said.

"Traditionally in cable, operators waited for customers to find them," Seserman added. "We're really going to turn that around, to sell our products wherever our customers are."

The move to retail should ultimately help all parties involved. Consumers will have opportunities to interact with new products and choose the ones that most interest them. Increased competition from multiple product suppliers should lower hardware costs, and many MSOs offer service discounts to customers who buy their own cable modems.

Retail gives cable operators more exposure for their products and a chance to go head-to-head with competitors such as direct-broadcast satellite or digital-subscriber-line services from telephone companies.

Consumer awareness for interactive services will heighten quickly as retailers start to market cable products, Motorola Broadband Communications Sector director of market development Dwight Sakuma said. "When you see the repetition of ads in the Sunday circulars from the consumer-electronics stores week after week, it starts to hit home," he added.

"Every cable operator I talk to would love to have his box sit next to the DirecTV [Inc.] box at retail," Scientific-Atlanta Inc. vice president and general manager of marketing and business development Ken Klaer said.

AIDS RETAILERS, TOO

Retailers also gain by displaying the new products because cable gives them a new source of revenue, increased foot traffic and the opportunity to sell pricey consumer electronics and computer products that connect to cable's broadband pipe.

Cablevision, for example, is looking at ways to bundle its high-speed-data service with digital cameras, or to package high-definition televisions with digital cable after the MSO launches that service.

"We see opportunities to create high-value packages that will give our customers exposure to exciting consumer-electronics products just because they've elected to be Cable-vision customers," Falese said.

Executives at Thomson Multimedia's RCA Broadband hope the focus on cross-promoting cable modems along with products that take advantage of broadband will help to take the focus off revenue sharing. That business model is a divisive topic with the potential to slow talks between some retailers and MSOs.

"Part of our value-added is not only in putting the parties together, but in changing the business paradigm so that people don't get overfixated on residuals but look at other things, like cross-promotions," RCA Broadband general manager Carl Bruhn said.

Some product vendors believe it's up to the cable operator to woo the retailer because selling cable products entails a lot of effort with little promise of hefty financial returns.

"For retailers, this is totally a mess," Samsung Telecommunications America Inc. director of Internet-service-provider and retail sales Rene Buhay said. "But they realize they have to be in broadband."

A few large national retailers hope to hold out for a share of ongoing service revenues before they'll market cable modems or digital-cable boxes.

In today's retail landscape, business deals are often done on a case-by-case basis. Cable operators have traditionally been reluctant to share the wealth with retailers, although many have agreed to pay retailers one-time bounties for each qualified sales lead or new subscriber.

"If you're going to work with retailers that are investing their own resources and time, they should be rewarded for that," Euler-Halling said. Insight pays Columbia Video for sales leads. The cost per lead was kept down somewhat through a trade deal whereby the retailer takes advantage of cross-channel spots on the local cable system.

UNFORESEEN PROBLEMS

When MSOs work with retailers for the first time, all sorts of details need to be arranged, not the least of which is delivering a live feed to the store's floor display. In some cases, the cost is prohibitive.

"An MSO or retailer is not likely to spend $300,000 or even $10,000 to put a live feed in," Buhay said.

Complications can arise if an operator has to wire a store by first crossing a huge parking lot, Comcast Online Communications Inc. director of marketing Suzanne McFadden said.

When a live feed is not possible, Comcast, like other MSOs, provides a CD-ROM demo that retailers can use to demonstrate the features of a high-speed connection. "When there is a live demo, sales are better," McFadden admitted, "but we're seeing sales either way."

Retailers can also be challenged if their stores are located in markets served by more than one cable operator.

"A lot of merchandising issues have to be worked out," Sakuma said. This includes determining which EPG or programming tiers a retailer would choose to demonstrate if the store is served by three cable providers, for example.

But with all of the recent clustering, that's much less of an issue than ever, Seserman said.

Whether a retailer sells service for one MSO or many, operators will need to provide the sales staff with product information and training if they want their services to stand out on a crowded sales floor.

"We learned that you can't be successful with retail unless you have people in the street-'detailers'-and have people disciplined about it," Giancola said. Detailers not only make sure the store displays are kept clean and up to date, she added, "but it's also about being in the face of the retailer-keeping things top-of-mind for the sales rep."

The move to self-installation should also help retailers and their customers to embrace cable-product purchases, some executives said.

"The last thing a retailer likes to do is sell a product and find out the installation may be two weeks away," RCA Broadband marketing manager Tony Watters said. "The longer you give a consumer time to think about something like that, the greater the risk [he'll change his mind], especially when there are competing technologies like DSL."

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