Digital-cable services started out as a promise to our customers and to Wall Street. Today, digital TV, on-demand services and high-definition television are real, and industry players are coming together in unprecedented ways to build the promise into a profitable business. Digital cable has been deployed in most U.S. markets, and MSOs are bullish about expanding digital penetration even further.
At the same time, programming networks and studios are working closely with cable operators to develop business models, including video-on-demand, subscription VOD and basic VOD. The mix of on-demand programming includes recent releases, time-shifted, original, off-broadcast and library material. Hardware and software vendors, aggregators and user interface and guide suppliers all have a stake in making the digital-cable business thrive.
As a result of these efforts, today's customers enjoy increased programming choices, enhanced picture quality, finer audio and a more secure signal. Now it's time for digital to pay off.
Thus, industry leaders will have a new focus when we gather at the Cable & Telecommunications Association for Marketing Digital Conference in New Orleans in early April. This year's theme —GO. Real Products. Real Profits. Right Now —
indicates our shift from product development to product rollout.
One part of the job ahead is to address the challenges of the digital world. While on-demand services and HDTV are on the move, there remain a number of roadblocks to a profitable business. Our challenges include continued customer confusion, price-value perceptions, expensive set-top boxes and clunky navigation experiences.
Clearly, we need to change our approaches to marketing. We need competitive marketing strategies, new customer metrics and an understanding of how new services affect consumer behavior.
We need to really listen to the customer. We need to develop needs-based consumer choice and control, along with a more compelling value proposition. We need to continue diligent training of all customer-contact employees. We need to educate consumers about how the digital environment is changing the television experience, and communicate the benefits of the digital world.
Another of our challenges stems from the unknowns in the digital space for every segment of our business. Here are some of the questions we see:
Everyone: What do consumers really want? How do we educate consumers and reduce customer confusion? How much are they willing to spend and how do they want to spend it? How do we solve digital rights management issues?
Operators: How can we utilize digital cable as a win-back tool? What's the right mix of content? What's the best business model? How can we improve cable's presence at retail?
Basic Programmers: What is the impact of on-demand on linear viewing and traditional advertising models? How can we continue to drive viewers to scheduled programs?
Premium Programmers: How can we take advantage of new digital formats to generate more revenue for the premium category and cable operators? What are the best programming and packaging models for subscription on-demand and HDTV?
Studios: How do we balance the huge home-video revenue stream with a new product, like on-demand? Are there opportunities to partner on promotion?
Hardware Vendors: How do we satisfy our need for an open architecture and integration with multiple hardware and software vendors?
User Interface/Guide Suppliers: How do we create user-friendly solutions to sorting through all the content quickly and easily?
On-demand is obviously a competitive differentiator — an advantage that is ours to embrace and exploit, or to lose. Since our satellite competitors do not have true on-demand capability, it behooves us to launch on-demand in every market in which we launch digital cable.
In turn, digital cable raises consumers' expectations of their TV viewing experience, and the unparalleled quality of HDTV and Dolby Digital 5.1 fulfills those expectations with superior picture resolution and enhanced audio. Cable has an advantage over direct-broadcast satellite in that cable can provide HDTV in the most consumer-friendly way, and has the adequate bandwidth and the best technology to provide both national feeds of cable HD programming along with local broadcast channels. By delivering HDTV, we can more effectively compete with DBS for the high-value consumer.