Time Warner's Ellis Touts a Service Economy

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As Time Warner Cable's executive vice president and chief marketing officer, Chuck Ellis has a lot on his plate. The company has rolled out video-on-demand and HDTV in nearly all of its systems, and has launched digital video recorders in 14 markets. Those totals mean that Time Warner has rolled out more new products in more markets than any other MSO.

In this interview with Matt Stump, editor of Multichannel News's Broadband Week, Ellis discusses the early results of the three-pronged effort that will serve as the lynchpin of Time Warner's competitive video arsenal going forward. The company plans a wider rollout of "favorites on demand" and DVR, as well as a high-definition television tier. But Ellis reminds his cable colleagues that new products enabled by whiz-bang gadgets and value-added bundles won't win the competitive fight on their own if customer service is lacking. An edited transcript follows.

MCN: Let's start with video-on-demand. You've deployed VOD, SVOD and free on demand widely across your systems. What have they done for you thus far?

Ellis:
We have been very aggressive in testing and deploying all the basic products on the VOD platform: movies on-demand, [subscription] VOD, what we call favorites on-demand that a lot of people call free on-demand. And we've been very proactive with testing the deployment of DVRs.

We are in a really challenging share-of-market struggle with satellite. This provides us with multiple product offering for customers. In our testing and research, these are the things they want. They see real value from them and it gives them a reason to either come to us or stay with us.

If you do the economics, at the end of the day the biggest payback is always in share of market and in acquiring and retaining customers. It isn't as though we don't believe in and aren't seeing some near-term encouraging signs in individual product revenue streams and cash flow, but the primary reason we've been aggressive is that we recognize we are in a real share-of-market battle with satellite. We need to provide customers what it is they want, when they want it.

MCN:
Two things people hope VOD will do for them is reduce digital churn and increase digital pickup rates, because on-demand makes the digital box more valuable. Have you seen any of that in your markets?

Ellis:
Anecdotally, in some of the early divisions that we've launched in like Columbia, S.C., and Cincinnati, those kinds of dynamics have taken place. We have seen actual increases in pay penetration, which has been a real struggle for the industry, in the past few years. HBO On Demand was the initial service that we launched in Columbia, Cincinnati and Austin, Texas. Particularly in Columbia, we've seen a halo affect in retention of digital subscribers, growing the HBO linear base and improving satellite win-back.

MCN:
Is your 'favorites on-demand' doing what you hoped it would do, and what's the next step?

Ellis:
We have 25 divisions that have launched favorites on-demand, with the remaining nine scheduled for the first part of this year. Our strategy was the same as the rest of the product — build value on the digital platform for customers. Frankly, it's too early to tell what the real impact has been.

It's not anything that we have promoted or marketed very aggressively, because we wanted to get it out and deployed. In the latter part of the first quarter and into the second quarter, our plan is to be more visible in promoting the added-value nature of favorites on demand. We believe it's an important piece of the share-of-market strategy — adding value and increasing digital subscriber penetration. A lot of that is going to come from lowering churn.

MCN:
Do you see any lift on revenue on the hit-movie side, compared with PPV?

Ellis:
Yes we do. This really came together towards the tail end of last year. On an anecdotal basis, in the divisions where this has been deployed the longest we have seen real growth in the overall PPV category coming exclusively from movies on demand. And again, this has been accomplished without a lot of specific product and category promotion.

MCN:
You've settled on $6.95 a month pricing for SVOD for HBO and Showtime. How is that working?

Ellis:
We settled on a $6.95 gateway price for the SVOD product, which includes all of HBO and all of Showtime. After experimenting with three different price points in Cincinnati, Austin and Columbia, S.C., we saw as time went on and other services made SVOD available, that $6.95 represented a real value to customers in quality and quantity. Our initial experience has been encouraging in terms of the customers' view of value of that proposition.

MCN:
There are other basic networks pushing an SVOD model. Is there enough value there to make that work?

Ellis:
There is some tremendous programming in the basic-network model. I don't want to rule anything out. We're pretty proactive about testing, experimenting and working with our programming partners to find things that work for them and work for us. We'd be open-minded to listening to what they have in mind, what the value proposition is for the customer and what the business case is.

MCN:
VOD and DVR: Do they cannibalize or complement each other?

Ellis:
We have DVR in 14 divisions on the [Scientific-Atlanta Inc.] platform. And we plan on launching in the second and third quarters a number of other divisions on the Pioneer [New Media Technologies Inc.] platform. This is product that our competition offers and has been promoting very aggressively over the past year.

In our test locations where we first put this in, Rochester, N.Y., and Green Bay, Wisc., we saw really encouraging trends. We've done some in-home consumer research on early-adopters on VOD and DVR and the empowerment methods that come back from them is one of the most compelling things I've seen in customer research, almost back to the high-speed data days.

What they tell us is it really it enhances their video life and the rest of their life. It allows them to be in charge when they get their entertainment and it doesn't interrupt with things that they want to do … go to a soccer game, read their child a book at night, etc. We've found there is a real kind of tension between people wanting to watch video entertainment and being pulled to other things. What this does, to a large extent, is to free them up of that angst.

On a continuum, the DVR offered the most empowerment.

MCN:
Are DVRs and VOD complementary? Do they appeal to two different types of consumers?

Ellis:
We think there are segments of customers who have an interest in each one of them. Time will tell in terms of consumer behavior and revenue lines and penetration. We clearly see a very powerful consumer demand and very high satisfaction levels with both the on-demand platform and DVRs.

MCN:
You've got nearly universal HDTV rollout and 76,000 customers. What are you seeing in your HD rollouts?

Ellis:
We've been very aggressive in providing HD content for our customers and we've done it under the notion that this is an opportunity to provide a competitive advantage versus satellite. We can offer more HD content and programming than satellite can offer now and in the near future. We can create a real viable differentiator between satellite and us.

We're currently investigating some other destination tiers as it relates to HD programming, and we will be testing a number of those in the next 60 to 90 days for some incremental tier price.

With the current existing HD programming on HBO, Showtime and the broadcast networks, we don't charge anything incremental for that. It's just a swap of the HD box.

MCN:
You haven't picked up HDNet, Discovery HD Theater or ESPN yet?

Ellis:
We have not finalized any deals in any of those areas, but we're in active discussions with all three of those.

MCN:
With the spate of new products coming online, how do you sell an increasingly complex set of services for $8 or $10 per month across video, voice and data platforms?

Ellis:
We recognize that the consumer wants and needs simplification and clarity. We also understand that the industry — and we specifically — have not done a great job of meeting that expectation, historically. And frankly, satellite has taken some advantage in that area.

We are in the process of rolling out initiatives to address a packaging and bundling strategy that will provide customers with a limited number of targeted packages and bundles. When I say packages, primarily it's the video and the digital arena and it will package in added-value things like SVOD, and multiple levels of pay service. And then we'll bundle each one of those with our high-speed data services.

Although I can't get into a lot of detail, we think it needs to be simplified from a transactional sales process and from a customer standpoint. As time goes on and more services and products are added, we'll have to find ways in which to bring those into these packages as added-value, with increased savings for customers. That would be our preference.

However, there are going to be some that may not have as broad a marketplace appeal as others that will be incremental sales on top of the packages and bundles. You have to keep those limited. And that probably will also change as our experience with the marketplace changes.

MCN:
Have consumers grown more sophisticated, and are they able to handle more complex offerings and packages, especially newer generations?

Ellis:
You've got to give them value no matter what generation you're talking to. You need to provide value and to a certain extent, there has to be an emphasis on clarity.

We think there is a real advantage in providing simplicity and clarity for customers in all ages and all demographics. That's not only from the standpoint of them being able to make purchase decisions with the least amount of barriers, but also because the world is so complex. It's also important for our employees, in terms of our ability to sell and communicate the services and products we have. It's necessary so we can provide the right experience for customers that we simplify things.

MCN: As cable competes, what's the best thing you've got going forward and what's the biggest thing you have to work on?

Ellis:
We have a platform and an array of applications and products on top of it that are just beginning to get traction in the marketplace. And we are very optimistic that as we do a better job of explaining what those offerings are, and what the ultimate benefit is, that we have a really powerful array of competitive applications that put us in very good stead with satellite. We're seeing some of that already. We've seen some very encouraging trends on satellite growth in markets where we've been deployed the longest.

This is a company that gets the fact that in order to be successful in the super-heated competitive environment that we're in, we need to do a better job of providing customer service. We are devoting a tremendous amount of focus, resources and energy to take the company to another level in terms of customer service and perception. That ranges all the way from capital to training to incentives to culture change to systems and tools to developing a strategic plan that we call customer-value creation. There are tremendous opportunities to improve the experience with the customer in all those areas. At the end of the day, we think that may be the single most important piece of the strategy, in terms of winning and retaining customers.

MCN:
What stat would you like to change the most?

Ellis:
The one I'd like to see on an upward trend is customer satisfaction. If you win the hearts and minds of the customer because of the overall experience, then you're going to be OK in the share-of-market battle.

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