Staying The Course

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As part of this special series, Multichannel News editor Kent Gibbons and national editor Steve Donohue met with some Mediacom Communications Corp. senior executives at company headquarters in Middletown, N.Y.: chairman and CEO Rocco Commisso; executive vice president of operations John Pascarelli; senior vice president of programming and human resources Italia Commisso Weinand; and executive vice president and chief financial officer Mark Stephan. Here are edited excerpts of that conversation; a longer version will appear on Multichannel.com.

MCN: Let’s start with a basic question. How does a 1.5 million-basic-subscriber, publicly owned cable company survive in this environment? What’s your game plan?

Rocco Commisso: I think the game plan is not any different, and the same question was posed to us when we were buying U.S. Cable back in 1997 from Cablevision Systems [Corp.]. I remember being at a CNBC interview, they asked me exactly the same question.

[The answer is]: just keep on doing what we’ve been doing. And that is, focus, as we have in the last two years, on operations.

Within our markets, we have the largest market share. The one unique thing about our business is that at the local level, we do have the largest market share on the video side of the business.

Even today, with our penetration being in the 57% level, we’re at least twice the penetration that DBS has.

Two, we created an infrastructure that we could, on all sides — media, data, and we’ll talk a little bit about telephony — affect our strategy by delivering to our customers the triple play that everybody, the rest of the cable industry, is planning to do.

We have a loyal, devoted, hard-working, committed team, both at the national level and all the way down the line. From the get-go, we have expressed to our people we are not here to lay off, we’re not here to fire people. We assumed pretty much everyone that used to work for the prior companies that we acquired — we brought them into the fold ...

We created a different environment for them. We gave them a new lease on life.

MCN: Are there alarm bells that go off when you see figures like 3% of your basic sub base lost in 2003 and 10,000 digital subs lost in the fourth quarter? Why did you lose those digital subscribers? Where do you think they’re going?

John Pascarelli: The digital-sub [loss] has a lot to do with how we focused our digital packaging. Our digital packaging was primarily driven from premium television, premium services. And we all know what’s happened with the premium product itself, over the last eight to 10 months, because a lot of it was driven on the [Home Box Office] made-for-HBO shows, like [The] Sopranos and other things.

We are now undertaking a strategy to expand that product offering beyond the premium base. We just expanded our digital tier to include more diginets. We’re looking at DVRs to drive digital into the marketplace. Our VOD strategy of having multiple service levels and different types of packages targeted to get to basic-only segment will help drive it. HD will help drive our digital penetration.

Our goal will be to provide a better product [than satellite TV] — all-around product, taking everything into consideration, not just video services — interactivity, local HD. And most of all, some proprietary local content that we’re developing, and then local service.

And I think that’s how we’re going to win the battle, especially when we add in the choices of all the other services like voice-over IP, our high-speed Internet business that we just increased our speeds on. And then ultimately the whole bundle as it comes together.

MCN: What kind of projections do you have for voice-over-IP or cable phone? Is it going to be hot as high-speed data?

Commisso: Achieving a 20% penetration for a product that’s already been around for at least 80 to 100 years is not — if you can provide the consumer value and service at or better than what they’re already getting — reaching a 20% penetration on those homes passed is not out of the realm. In a relatively short period of time. So you’re talking about, 500,000, 600,000 customers, where today on the high-speed data side, we only have [280,000].

So there is an incredible potential here. It’s part of answering your question, how we’re going to survive.

MCN: A few years ago, you guys declared yourself basically out of contract with the programmers, after the AT&T [Broadband systems] acquisition, and wanted to redo a lot of those deals. Give us a progress report on how well that strategy has worked.

Italia Commisso Weinand: I’m happy to announce that after our six-month goal of getting it done, two and a half years later, 90% of our agreements have been renewed and renegotiated, which encompasses in many cases retransmission, the whole high definition piece of the game. And we’re very proud of that.

Our goal was not just reducing programming costs but also to be able to be competitive with our competitors in terms of giving our local consumers everything and anything that the competition has.

MCN: Mediacom in the past has floated the idea of universal license fees for MSOs, no matter what their size. You’ve also suggested that if one particular network’s fee is more than double the average rate of others that operators should be able to offer those a la carte. Do you still believe in those two arguments?

Commisso: Yes, let me answer that. Yes, yes, yes.

Once again we have the largest market share in our markets. But the way volume discounts have become in our business [is] related to size of company as opposed to market share in a specific market.

So today we find that DBS — has because of volume discounts — potentially lower rates than ours, which makes us at the margin less competitive on the programming side. Likewise with the larger cable companies.

So we feel very strongly that for products that are generic — [such as] MTV or CNN or Fox News or an ESPN — everybody should pay the same price at the end of the day.

With respect to a la carte — I want to distinguish between our proposal and what’s been talked about in Congress and so on.

First of all, we were never a proponent of going to Congress to resolve our issues. But we were adamant about having, as an operator, the option, not the obligation, the ability of being able to offer products that get way beyond our ability to deliver our customers a fair and reasonable price — to be able to offer those products on a tiered slash a la carte basis. So let the consumer make the choice as to whether they want to pay those offers or not.

Now clearly I don’t know if that’s ever going to happen. But that’s the ideal scenario to rein in those services that have gotten too expensive.

MCN: Everybody thinks of you as a longtime operator, cable guy who wants to be in the business to stay in the business, would you consider selling?

Commisso: Well, you guys wouldn’t have anything to talk about if I sell. Not too many people have the loud mouth that I have. So unfortunately, it would not be good for Multichannel News.

It would also not be good for the programming friends because, guess what, the day that Comcast [Corp.] or Time Warner [Cable] or any other big ones buys us, their programming costs are going to go down in the same set of assets. So I don’t think any of my programming friends will want us to sell.

I don’t think that any of our stockholders will want to sell, because they all recognize that we have gone, frankly, at least me, and I own a big chunk, I also control the stock here, our other investors, you know, pretty much recognize that we have done a pretty good job here.

As a public company, I can’t go out and say never, never. But I think right now, we’re the best manager for the assets that we have.

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