Ops Try to Trim Churn While Spurring Growth

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As cable operators continue to report strong growth in digital-cable acquisitions and upgrades, they're also taking a closer look at what at least some analysts call the "digital dark side"-subscriber churn.

Marketing executives acknowledge that aggressive promotions such as free installs and months-long programming giveaways can lead to spikes in churn once customers are asked to put up their own money.

But industry insiders are also reluctant to back away from such offers because the overall subscriber growth they spark is just too good to give up.

Cable One Inc. last week said it would extend its offer of 12 months of free digital cable to any new subscribers who install a digital box themselves. The company reported that it's been activating between 5,000 and 6,000 digital-cable customers each week.

"It would be foolish to assume we won't see what some would call heavy churn on this," said Cable One director of marketing for digital video and Internet services Marc Tobolski. But once people sample the product in their homes, he added, a large number want to keep it.

Cable One introduced the free digital upgrade program last September. In order to keep churn from the earliest customers to a minimum, the MSO may add incremental digital channels late this summer, either as part of the overall package or on an à la carte basis, Tobolski said.

To be eligible for the free year of digital-cable service-which includes one digital set-top box, expanded premium and PPV movie access, plus digital music and an interactive programming guide-Cable One customers must pick up the digital box themselves and take an orientation class.

Otherwise, the monthly fee for digital is $8.95. Each additional outlet costs $4.95 per month.

In addition to installation tips, the orientation exposes new customers to the features of digital that they might otherwise overlook.

When new customers aren't familiar with digital-cable features, they can churn away from the product out of frustration. That's less likely to happen when digital cable subscribers are coming from direct-broadcast satellite, where they've become familiar with digital features such as IPGs, Dove Consulting managing director Bob Davis said.

Digital cable's move to retail could also help reduce churn.

"The more points of presence we have to help consumers understand the value of the product, the better," said Cox Communications Inc. vice president of video product management Lynne Elander.

Digital-cable churn is highest in the first few months in which a customer has the product, Elander said. She added that digital churn rates are higher than those for basic, because customers don't tend to experiment with basic as much as with digital.

"Churn in mature markets is 20 to 30 percent lower than the company average" of about 6 percent per month, Elander noted.

By comparison, average monthly churn at Cox is 2.5 percent for basic and 8 to 10 percent for premium, although it can vary greatly from market to market.

Digital-cable leader AT&T Broadband earlier this month reported it was the first MSO to hit the 3 million digital-cable customer milestone.

Through a series of customer-retention initiatives, the MSO has also cut digital churn from as high as 9 percent in its earliest days to just below 5 percent a month, according to executive director of video marketing Steve Apodaca.

About half of AT&T's digital churn comes from downgrades to analog, while the other half of consumers disconnect altogether, spokeswoman Tracy Baumgartner said.

At Insight Communications Inc. systems that offer interactive digital cable-with features that include Source Media Inc.'s local interactive content and, in some cases, video-on-demand-about 1 percent to 1.5 percent of digital cable customers downgrade to analog-only service each month, senior vice president of marketing and programming Pam Euler Halling said.

She added that digital churn for the product has remained steady since its launch two years ago.

On occasion, digital churn spikes after particularly aggressive promotions, Euler Halling admitted. But it's worth the risk to get customers to sample the product, she added.

Some of Insight's systems reach 30 percent digital penetration within the first year of a launch, Euler Halling said, adding, "Our goal is to reach 75 percent [sell-through] of new connects with digital."

Insight systems acquired from other MSOs see digital downgrades closer to 4 or 5 percent before a rebuild can be completed and the new services can be launched. Euler Halling added that 95 percent of system rebuilds for the company should be completed by mid-2002.

Some cable marketers expect DBS churn to increase, due to better digital-cable offers, bundled services and enticing dish buy-back programs.

But DBS companies insist that they're not seeing hefty subscriber losses.

"We were able to be very consistent with churn throughout the year," EchoStar Communications Corp. chairman Charlie Ergen said in a fourth-quarter 2000 earnings call last week. "That means we're getting good subscribers, and we're able to hold onto them better than any industry standard out there."

While he would not give specific figures, Ergen said monthly churn numbers were within the company's previous guidance of about 1.5 percent per month.

Although a slowing economy could bring a modest uptick in subscriber churn, Ergen admitted, "We're so far below where the industry average is, we feel pretty good."

In an earnings call in January, DirecTV Inc. global chairman Eddy Hartenstein said that DirecTV churn averaged about 1.5 percent per month in the fourth quarter of last year.

Cable executives contend that it's unfair to compare digital churn rates directly with DBS churn numbers.

"A better comparison is our overall churn vs. DBS," Apodaca said.

Cox vice president of marketing Joe Rooney agreed: "We believe it's more important to look at customer churn than single-product churn."

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