Ops Confront Churn, the Digital Downside

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With the excitement over early digital-cable sales,
it's easy to overlook retention.

But in the face of increasing competition, MSOs are
starting to eye customer-service efforts, loyalty programs and move plans to make sure new
digital subscribers stick.

AT&T Broadband & Internet Services has reduced its
digital churn from 7 percent per month to 5 percent, "which we think is a pretty
manageable number," vice president of marketing Doug Seserman said.

"Digital churn is more comparable to premium churn
than to overall basic churn," MediaOne Group Inc. senior vice president of video Judi
Allen said, "and that makes sense because today our digital is positioned as a
premium product."

Digital churn at AT&T Broadband is in the range of
premium churn, which is normally 5 percent to 9 percent per month, but higher than
expanded basic, which is 3 percent to 4 percent a month, Seserman said.

He added that he doesn't expect digital churn to drop
much lower than premium churn because "any time you ask a customer to pay more, some
churn is to be expected."

The reasons people give for churning out of digital mimic
the ones for leaving premium, Allen noted: too much programming repetition and not enough
value for the money. The value of digital cable -- more choices, more channels --
resonates with some customers but not with others, she added.

The Yankee Group analyst Bruce Leichtman said current
premium customers who upgrade to digital are accustomed to paying more for cable and are
less inclined to suffer sticker shock than new customers. He added that pay-per-view users
are also a good bet because they're used to volatile monthly bills.

Marketing analyst Howard Horowitz, president of Horowitz
& Associates Inc., recommended that operators experiencing digital churn pay closer
attention to signal quality.

A Denver-area AT&T Broadband subscriber told Multichannel
News
last week that he recently downgraded from digital cable to analog because he was
disappointed that his most frequently watched channels were delivered in analog.

When he called to disconnect, he expected an offer of free
PPV movies or a $2 discount off his monthly bill, but instead, he was told where to drop
off his digital box.

"I was shocked at the lack of resistance," the
AT&T Broadband customer said. "They didn't even ask why I was getting rid of
my digital box after only two months."

Cox Communications Inc. earlier this month launched a
VIP-retention program that targets the top 20 percent of spenders in nine of its systems.

"It's totally one-to-one marketing," Cox
director of direct-response and database marketing Margaret Ross said. "We interview
them as we bring them into the program, and each communication is tailored around
them." Digital subscribers are notified of upcoming programming that matches their
interests.

InterMedia Partners executive director of marketing Donna Young admitted that her company
was just starting to get better about finding out why customers drop any of their cable
services. "Competition is forcing you to do that right now," she said.

Young added that because there's so much growth left
in digital cable, InterMedia has put more of its focus on selling digital and less on
retention.

"It's not anything we're overly concerned
about except in making sure we get the boxes back, because it is an expensive piece of
equipment," she said.

InterMedia's monthly digital churn averages between 6
percent and 8 percent, depending on the system, Young estimated, adding that the
company's monthly premium churn is in the double-digits.

She suggested that InterMedia's digital churn was
lower than its premium churn because the digital package includes basic channels, and not
just expanded premium and PPV.

If cost is a factor when a customer calls to drop digital
cable, InterMedia tries to get them to downgrade from multiple premiums to a single pay.
With so many multiplex feeds on digital, it's often a better value for the subscriber
than multiple analog pays, Young said.

Seserman said AT&T Broadband's strategy of
bundling digital as part of a larger package, rather than selling it as a $10 add-on, has
helped to reduce digital churn.

"We want to make digital packages as equally
unattractive to leave as they are attractive to join," he said. "Customers are
saving money to be in a package."

To help control churn, analysts and operators warned
against overpromising the benefits of digital cable.

"We try to make sure that we're selling it
appropriately upfront, and that we're not overselling the potential behind it,"
Comcast Cable Communications Inc. executive vice president of sales and marketing and
customer service Dave Watson said.

"It's a simple value proposition," he added.
"For $9.95, you get a lot more of what customers have told us they want. You get more
movies."

Allen said MediaOne is trying to better identify those
customers who really want digital cable in order to get the product in the hands of those
who are most likely to keep it.

"So much of the churn is related to pushing something
on people who never wanted it in the first place," she admitted.

During promotions created to drive sales volume of a new
product, customer-service representatives can become too aggressive in selling without
qualifying the customer.

Young cautioned that income levels alone won't
determine good digital-cable prospects. "For some lower-income households, cable is
their primary means of entertainment," she added.

While MSOs are aware of elevated digital churn,
they're not obsessed by it.

"The net gain is a better story for digital than it is
for basic cable, with both connects and upgrades," Seserman said. "We're
gaining 80,000 to 100,000 digital customers per month. Almost one-third of our new
customers sign up for digital."

When customers churn out of digital, they're doing it
either because they're moving or they want to pay less for cable, he said.

AT&T Broadband and other operators are beefing up their
internal move programs, especially for customers who move within a system. But
they're also addressing cross-country moves within a single MSO's territories.

And ultimately, marketing executives long for an
industrywide move program, although there are still some logistical issues to address
before that's possible.

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