Two years after a very public — and messy — retransmission consent dispute with ABC Broadcast parent The Walt Disney Co., executives from Time Warner Cable of Houston assert they're winning the battle against competition from direct-broadcast satellite.
Before the local ABC broadcast station was temporarily pulled in early 2000, the cable operator didn't feel much pressure from DBS, Time Warner Houston division president Ron McMillan said. But since then, DBS has been a huge challenge.
He called the elements that converged in 2000 to help drive cable customers to DBS "a perfect storm," one that resulted in the division losing 26,000 customers, largely to satellite.
First, Disney chose Houston as the focus of its retransmission consent dispute with Time Warner. When the operator pulled the ABC feed from its cable lineup, Disney bought local ads urging consumers to switch to DBS competitors DirecTV Inc. and EchoStar Communications Corp.'s Dish Network.
DirecTV and Dish followed with ads of their own. McMillan estimated that over a three-and-a-half-month period, the three entities spent $6 million in local advertising in their attempt to drive Time Warner customers to DBS.
At the same time, the DBS companies had just introduced their first broadcast network feeds in Houston. "That was a powerful competitive issue," McMillan said.
Rather than throwing in the towel, the developments served as a wake-up call. Today, the division is considered among the most advanced in the country, offering new services like high-definition television. Two weeks ago it launched video-on-demand and it is scheduled to introduce subscription VOD and a digital cable box with a built-in digital video recorder later this year.
Through April, Time Warner Houston had added 16,000 new subscribers this year, McMillan said, with satellite netting just a small fraction of that in Houston's fully-passed zip codes during that span.
Time Warner Houston's comprehensive anti-DBS strategy has driven those gains. Instituted in October 2000, the plan incorporates marketing, customer service, programming, new products, pricing and plant upgrades.
In some instances, Time Warner Houston executives have taken pages directly out of the competition's playbook: advertising more aggressively, moving to more uniform pricing and programming lineups and forging relationships with local consumer electronics retailers.
A few weeks ago, local Best Buy stores began marketing Time Warner digital cable, expanding the longstanding relationship between the two companies for Road Runner high-speed data sales.
"One reason we wanted to do HDTV was to attract retail partners," McMillan said. In Houston, Time Warner customers can receive nine channels of HDTV programming, including five local digital broadcast stations, plus two feeds each from Home Box Office and Showtime Networks Inc.
The division also has been successful positioning digital cable as an alternative to DBS, offering a package that includes broadcast and basic channels along with a comprehensive digital tier for $39.95.
Heavy cross-channel promotion on basic channels has encouraged many customers to upgrade to digital. Of late, 60 percent of inbound connections each month are digital connections, McMillan said.
In order to compete across its footprint, the division had to upgrade the former TeleCommunications Inc. systems it acquired. A large percentage of the division's losses to DBS came from the older TCI areas, where the plant was still 330 to 450 megahertz. To date, 90 percent of the upgrades are complete and McMillan said the division expects to finish the upgrades this fall.
The Houston division also has made strides with its customer service department, which took a severe hit during the dispute with ABC in early 2000. McMillan admitted the call centers had trouble answering the phones during the crisis.
Time Warner Houston has hired more customer service representatives and has found additional ways of informing new digital-cable subscribers about the more comprehensive and complex programming and product features so they wouldn't need to tie up the call center lines.
The division also set up a separate toll-free number for customers who want to converse in Spanish, and tags all its Hispanic advertising with the phone number. Time Warner Houston has a separate Hispanic programming package that sells for $39.95 and includes digital Hispanic networks along with basic cable and local broadcast stations.
Like other cable operators, Time Warner Houston has created a series of humorous anti-DBS ads, highlighting some of the competitive advantages of cable.
"We tried to make sure we broke through the noise with our key messages," McMillan said. He said the division spends $1.6 million per quarter in advertising, in addition to its own cross-channel media, an estimated 30 percent to 40 percent increase in ad spending compared to pre-2000 days.
To compete with DBS, the operator works both to retain current customers and win back those who have defected.
Although it doesn't publicize it to the masses, Time Warner Houston has a dish win-back program that its sales representatives can use as needed, offering a discount on programming for a limited number of months. At last count, the win-back program has attracted more than 20,000 former satellite dish owners, McMillan said. He estimated that 80 percent of those keep digital cable after their programming discounts run out.
McMillan conceded that if the proposed merger between EchoStar and DirecTV parent Hughes Electronics Corp. goes through, it would give the combined company additional satellite bandwidth, "and that certainly helps them be competitive."
But he also said that cable's two-way interactive plant gives the Houston system the ability to offer services that DBS can't.
"We've been fortunate to have the support of Time Warner [corporate] to do all these things," McMillan said.