Los Angeles is a tough cable market. A lot of factors contribute to the challenge: great weather year round, generally clear over-the-air reception with a plethora of channels (some systems have 30 or more must-carry stations), a large ethnic population craving native-language programming and stiff competition from direct-broadcast satellite providers.
All these market forces have kept cable penetration in the city to 42%, according to 2003 statistics from the city's Information Technology Agency.
The growth strategy of operators in the city has been to tweak product and pricing and upgrade service.
In the case of Adelphia Communications Corp., it meant the local operation had to complete an upgrade that encompasses a total of 1.2 million homes in Southern California, including about 250,000 cable homes within Los Angeles' boundaries. Adelphia was the last local operator to upgrade, and it had the biggest hill to climb. When it acquired its Los Angeles-area systems from Century Communications Corp. about a decade ago, Adelphia inherited a decrepit plant that still utilized traps, rather than addressable equipment.
The company has been dogged with reports of poor customer service. Though statistics are trending downward, Adelphia's systems had the most consumer complaints per 1,000 customers in the 2003 city report.
Lee Perron, Adelphia senior vice president for the California region, concedes the systems are carrying some baggage. “I think we're making great strides but we're not at our goal,” he says.
To attract and retain new customers, the company has introduced high-speed data throughout the cluster. High-definition signals and digital video recorders should be universally available by the end of this year. Video on demand, with a mix of free and pay services, has proven popular, Perron says, adding it's a technology “the competition can't duplicate.” The company has experimented with local content, such as a recent partnership with the neighboring city of Santa Monica, posting on-demand videos of local candidates.
The upgrades and improvements are aiding the local system's bottom line. Comcast Corp., Time Warner Cable, Cox Communications Inc. and Charter Communications Inc. all have franchises in the city, but according to the ITA report, only Adelphia and Time Warner showed subscriber gains in 2003, and that growth was less than 3% combined. By comparison, DBS grew 29% between May 2002 and 2003, according to Nielsen Media Research statistics cited by Mariann Belmonte, vice president of marketing and sales for Adelphia's California division. What's more, at the end of 2003, there wasn't a cable system in Los Angeles that could top its basic subscriber count in 2001.
The city report did not detail penetration of new products, and Adelphia officials declined to supply exact numbers, citing the company's pending sale. Perron says the operator has experienced high demand for DVR set-top boxes powered by the Moxi Digeo platform.
Customer feedback has been good on the HDTV dual tuner DVR, adds Jeffrey Kapner, regional director of marketing and strategy for the California division. The DVR rents for $7.95, which is $4 more than a digital set-top and can record two HD programs at the same time. The guide separates content by genres (kids, sports, drama, etc.) for quick surfing, and features an intuitive favorite channel list, Kapner says.
The tuner enables HD reception of NBC, CBS, ABC, Fox and PBS, plus Discovery HD Theater, for no extra charge. Home Box Office and Showtime subscribers get those premiums in HD, but Adelphia charges $1.50 to receive ESPN HD. Sell-in runs as high as five DVRs in some homes, Kapner says.
Though new products are sexy, Adelphia is also focused on growing basic cable in Los Angeles through strategies that include ethnic-targeted packaging. The Hispanic market holds promise, but can be elusive. The ITA report stated that Adelphia's most heavily Hispanic franchise, Area L in East Los Angeles, had just 4,601 subs at the end of 2003. That's 22% penetration — and it has been falling for three years. Statistics show 45% of Adelphia's non-customer base is Hispanic.
Kapner says the company repackaged its Adelphia Español last October, creating two more affordable products. “Basico” includes about 10 channels of kids, news and sports programming for $5.95. Those customers must first buy basic cable, which averages $18 in Los Angeles. Another tier, Especiale, includes six music and sports channels and eight Latino music audio channels for $4. Consumers can buy both tiers at a discounted rate of $8.95, in addition to basic-cable charges.
Hispanic content has been added in the free on-demand space, including music, sports and telenovelas.
Kapner says the changes have been dramatic. He expects that year-end figures will show that subscription rates have more than doubled in Hispanic homes.
Asian homes are also targeted for growth. Adelphia offers a tier of international premiums in languages for Koreans, Japanese, Chinese and Filipinos. Each premium is $10.
While Adelphia's former boss, John Rigas, had steered away from providing controversial or adult-themed content, the Los Angeles system is now reaching out to the gay community. It recently added Here! TV and other content relevant to that group. Targeted advertising includes images of same-sex couples kissing over breakfast. Adelphia participates in local gay pride festivals and AIDS walks.
The MSO's next challenge will be refranchising. All Los Angeles systems are operating under one-year contract extensions. The city council has shown no signs of launching negotiations on new pacts.