Four years after the company first launched digital, AT & T Broadband plans the largest overhaul yet of its digital-cable strategy, sources said last week.
The revamped marketing strategy, which the MSO will begin to implement as early as August, will see the company move from an a la carte digital-programming strategy to a "price-point packaging" lineup.
AT & T Broadband will split digital-cable channels into "genre tiers" such as "News and Information," "Movies and Music" and "Family and Kids," sources said.
The operator also plans to launch new digital channels from a 13th transponder on its Headend in the Sky digital platform during the third quarter, sources said.
The company is still closing carriage deals for the transponder, but it is expected to include Fox Family Worldwide Inc.'s new kids' services, boyzChannel and girlzChannel; Majority Broadcasting Corp. Network, a new channel targeting African-American families; and Fanfare: The Classical Music Channel, among other channels, sources said.
AT & T Broadband's core digital strategy had been to charge digital-cable subscribers in most markets $9.95 per month on top of their standard basic service for several digital-cable channels, and to offer premium-movie packages in separate a la carte packages.
The new strategy will include packages combining digital-basic channels, "genre tiers" and premium-movie multiplexes in packages ranging from $35 to $80 per month, sources said.
AT & T Broadband executive vice president of marketing Doug Seserman confirmed that the company will revamp its digital-cable-marketing strategy, but he said the MSO wasn't ready to discuss how many genre tiers will be formed, how they will be branded and the specific channels they will include, noting that those decisions are still being finalized.
"We're trying to create a uniform packaging strategy across our markets to simplify the selling process for our [customer-service representatives] and our customers, to add choice to consumers in the competitive environment we're in and to have a range of prices to meet different people's budgets," Seserman said.
AT & T Broadband expects the program to boost digital-cable penetration, to slow direct-broadcast satellite growth and to decrease subscriber churn, he added.
The majority of channels from the HITS "Three Pack" will be included in a digital-basic lineup in the new offering. Several other channels will be kicked into the genre tiers.
AT & T's new digital package-which will be rolled out first to systems that have been upgraded to 750 megahertz-will be marketed in "Bronze," "Silver," "Gold" and "Platinum" packages.
Sources said the Bronze package will include a digital-basic package and Starz Encore Media Group LLC's "Super Pak" of movie channels. Silver will include digital basic, Super Pak, one of the genre tiers and one premium-movie multiplex. Gold will include the digital-basic package, Super Pak, two genre tiers and two premium multiplexes. And Platinum will include all of the genre tiers, three premium multiplexes, the digital-basic package and Super Pak.
Although they noted that AT & T Broadband is still tweaking the lineup, sources said the Movies and Music genre tier will include music-video channels from The Suite from MTV Networks, MuchMusic USA, Sundance Channel, Lifetime Movie Network and Trio, which USA Networks Inc. recently acquired.
Family and Kids will include Toon Disney, Nick Games and Sports, Ovation - The Arts Network, GoodLife Television Network and religion channel Trinity Broadcasting Network.
The Sports and Information tier will include CNN/SI, several regional sports networks and Newsworld International, which USA also acquired in the Trio deal.
By moving some channels from the Three Pack into the genre tiers, AT & T Broadband will be able to reduce its license-fee costs and not force subscribers to pay for networks they don't want.
Some networks may see less distribution, but Seserman said this would actually benefit advertisers that could target ads according to which tier a subscriber has ordered. "Just because you're carried on 50 million households, if nobody's watching, then that's not important to the advertisers. But if you're carried on 30 million households and one-half of the customers are watching, that's a very powerful story," he said.
Fox Cable Networks executive vice president of affiliate sales and distribution Lindsay Gardner said he wasn't aware of AT & T Broadband's new plan or what tier the company's channels may be distributed on.
But since the company has deals for networks such as National Geographic Channel and WebMD TV that guarantee distribution to 75 percent of AT & T Broadband subscribers within five years, he's not concerned about losing distribution under the new structure.
"We will devote considerable marketing resources to help them upsell their customers into these tiers. But at the end of the day, AT & T will be in two-thirds distribution across their entire MSO for both of these channels," Gardner said.
An affiliate-sales chief from another network said the new strategy would benefit programmers, noting, "They have to do something to drive distribution beyond the Three Pack. Outside of the Three Pack, the numbers are abysmal."
Seserman dismissed that claim, noting that the majority of AT & T Broadband's digital subscribers take channels outside of the Three Pack.
Several industry observers said AT & T Broadband's strategy appears to be a melding of digital-cable packages marketed by Time Warner Cable and Cox Communications Inc. Time Warner's package includes a fat digital-basic package, while Cox's offering includes genre tiers.
Even though it's restructuring its digital-cable strategy, AT & T Broadband executives emphasized that the current strategy has been successful. Last week, the company reported that it surpassed the 2 million digital-cable-subscriber mark, penetrating 20 percent of all subscribers.
Seserman said he expects the company to reach 2.5 million to 3 million digital-cable subscribers by the end of the year. He predicted that AT & T Broadband will eventually penetrate 50 percent of all of its subscribers with the new digital-cable package.
Linda Moss and R. Thomas Umstead contributed to this report.