Ops Say Basic Growth Is Still a Top Priority

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Despite heightened competition from newer
multichannel-video providers -- and amid long-term plans for service launches ranging from
video-on-demand and interactive television to high-speed Internet access and telephony --
cable operators still view basic-video-penetration growth as a top priority.

"There's still [nearly] 35 percent of the market
out there that doesn't subscribe to cable television," Cox Communications Inc.
CEO Jim Robbins said. "The upside is terrific."

That message was echoed by other top MSOs, including Time
Warner Cable and AT&T Broadband & Internet Services.

"It's critical for us to keep the incumbent base
and to grow it," AT&T Broadband executive vice president of wireline services
Colleen Abdoulah said, because "that's how we'll have [access to]
households to sell advanced products."

Operators polled for this story projected their internal
subscriber growth at about 2 percent this year, through a combination of marketing
tactics, customer-service improvements, capitalizing on shifting demographics, new-product
launches and anti-theft efforts.

But that message may not have trickled down to all of
cable's partners yet. Some programmers, for example, have seen much of their recent
subscriber growth come from direct-broadcast satellite, and that's where they expect
to find most new customers in the future.

About 11 million U.S. homes take their multichannel service
through DBS or C-band satellite, although many who subscribe to satellite do not
disconnect their cable. Analysts predicted that DBS could reach 20 million homes or more
within the next decade, especially once Congress passes DBS-friendly local-to-local
legislation.

"I don't think cable will have many more
households in the next five to 10 years," Home Box Office U.S. Network Group
president John Billock told attendees at the SkyFORUM DBS conference last month.
"They've got other fish to fry."

The threat of cable-customer erosion to DBS has in some
ways provoked the cable industry to beef up its own strategic efforts.

The fact that growth has continued in both DBS and cable
"gives credence to the argument that with more competition in the marketplace, the
pie will get larger," MediaOne Group Inc. vice president of corporate communications
Rob Stoddard said. "We're continuing to get a pretty healthy piece of that
pie."

Internal subscriber growth at MediaOne lagged behind the
industry, at about 1 percent last year, Stoddard said. "But we have seen some
improvement in subscriber growth in the first quarter." Prospects look "very
good" that the MSO will see continued growth for the next few years, he predicted.

Marketers advised cable operators to devote enough manpower
and financial resources to ensure that they don't lose focus on their core video
services -- the ones that have already attracted 67.7 percent penetration among television
households in the United States -- as they roll out more advanced services.

"It's very challenging to keep momentum going in
the core business when you have everyone in the consumer press and the financial community
focusing on high-speed Internet and video-on-demand," said Lou Borrelli, former chief
operating officer at Marcus Cable and a Cable and Telecommunications Association for
Marketing board member.

NEW SERVICES

RETAIN CUSTOMERS

On the flip side, executives insisted that introducing new
services such as digital cable would be critical to prevent subscriber loss to DBS, and
that nonvideo products such as telephony could help to attract the so-called cable-nevers
to the multichannel fold.

"Penetration is one thing, but new products are the
real story," Bresnan Communications vice president of marketing Joe Lawson said.
"And new products will help to drive penetration."

Time Warner spokesman Mike Luftman agreed. "When we
have someone call us to buy [high-speed-data service] Road Runner or telephone, it will
give us the opportunity to sell television," he said. "Bundling is a very
powerful tool."

Apart from selling new services, cable operators have a
number of other tricks up their sleeves to help win back former customers and attract
first-timers.

In some cases, it's as simple as waiting for older
consumers to move out of the market and targeting the younger families who move in.

"It's pretty well known that cable does not do as
well against older demographics," Luftman explained. "In most cases, older
demographics didn't grow up with television -- they grew up with radio -- and to the
extent that they did grow up with television, they've grown accustomed to
broadcast," and they may be unwilling to pay for programming.

"But if you grew up in the '70s and '80s,
it's the classic 'I Want My MTV' generation," Luftman added.
"They're not going to settle for just being able to get broadcast television off
an antenna, or even just basic cable."

DATABASE MARKETING

ADVOCATED

Cablevision Systems Corp. uses database marketing to
segment nonsubscriber homes, and it then sends targeted-marketing messages accordingly,
senior vice president of strategic-market planning Katherine Lewis said.

"There's a lot of opportunity in the low-income
urban and medium-income urban markets, and we can identify characteristics of such
homes," Lewis added. The urban uptown market, for example, values convenient
installation appointments over discount pricing, while lower-income urban households
prefer in-home sales calls to telephone solicitations.

In tracking the results of promotional offers to
nonsubscribers, Cablevision found response rates higher among formers than cable-nevers,
Lewis said. "We're focusing more efforts there," she added.
"We'll often wait until a household turns over and target them again."

Time Warner plans to take advantage of the recent
cable-regulation sunset to look at whether repackaging its programming will encourage
nonsubscribers to buy it. Luftman predicted that the MSO's systems would begin to
make such changes within the next year.

MediaOne has increased its efforts in signing up
cable-nevers by pitching its broadcast-basic package as an inexpensive alternative to DBS.

TCA Cable TV Inc. has seen some erosion to DBS, and it has
taken steps to bring those customers back, senior vice president of marketing Sue
Saxenmeyer said.

"With PrimeStar [Inc.] going down, we want to be the
provider for a lot of those people," she added.

In some of its more rural markets, TCA already commands 85
percent of the marketplace, Saxenmeyer said.

AT&T TARGETS CITIES

AT&T Broadband will put more marketing resources into
metropolitan markets because the growth potential is better there than in more rural
markets, Abdoulah said.

"We're pretty proud of our performance against
DBS," she added. "We're holding our own against them in most markets,"
with the help of digital rollouts and cable's local-channel advantage.

Charter aggressively pursues all avenues of growth,
including nevers, formers and conversions, through audit work, senior vice president of
marketing Mary Pat Blake said. She added that Charter saw twice the industry growth rate
last year, in part because the MSO buys properties in better-growth areas.

Operators agreed that growth opportunities were greatest in
urban and suburban markets, especially those enjoying population and housing booms of
their own.

Las Vegas and Phoenix are among Cox's fastest-growing
markets, Robbins said.

Prime Cable Chicago recently signed its 140,000th
subscriber through an acquisition campaign that awarded $5,000 and one year's free
service to the lucky customer. Vice president of marketing Michael Woods estimated that
the system has 30 percent penetration of homes passed, and it is steadily climbing.

"We have competition -- both legal and illegal -- in
the city of Chicago," she added, pointing to the ongoing problem of service theft.

Prime is set to begin a plant upgrade shortly, Woods said,
with plans to add more channels and two-way Internet access.

Robbins said the industry must look for growth from both
video and new services, and it will find that growth only through "execution,
execution, execution. We must execute on bundled services and bring integrated marketing
more and more into play."

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