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Cable Competition Depends on Options

7 May, 2002 By: Hive News

Cable operators must expand their video-on-demand (VOD) content, improve programming interfaces and offer entertainment gateways that deliver entertainment throughout the home if they hope to stop customer defections to cable, a Forrester Research analyst says.

“Nearly two-thirds of new satellite subscribers had cable last year and 22 percent report that they had digital cable before shifting to the dish. Digital cable isn't sticking," said Josh Bernoff, principal analyst at Forrester. "But in the next five years, we believe that cable will take three tries at winning back satellite subscribers and ultimately will triumph."

Meanwhile, a Starz Encore executive counseled his peers to offer more attractive programming packages to help stanch defections.

"Tier the dogs and give consumers what they really want from digital TV -- movies and sports," said Mike Hale, Starz Encore's EVP and chief marketing officer. "As Aesop's Fables taught us in 'The Fox and the Grapes,' it's easy to despise what you cannot get," said Hale. "Premium movie channels and sports are the things people really want from digital TV, but they're discouraged by a thicket of basic channel packages that ramp up the price. Let's lower the grapes for consumers so they can quench their thirst."

Consumers are ticked off about high costs and the long climb up the ladder of different programming packages to attain much-desired premium movie channels and sports, Hale said.

Cable providers should relegate narrow interest and poorly rated digital basic networks to distant tiers for purchase in bundles, replacing them with a value-priced package of premium movie, sports and local channels, along with a core group of well-known basic cable channels. "The key questions here are, is anyone watching these basic channels and what are they doing for customer satisfaction?”

Bernoff, who made his remarks at the cable show in New Orleans, said the first step for cable TV is to add broad collections of VOD content to its digital cable product. To fight the threat of satellite personal video recorders (PVRs), cable must respond with not just movies but also broad subscription VOD collections with programs from broadcast and specialty networks – all for one low price.

The second step is to focus on improving the on-demand interface, which will become the key to creating customer satisfaction and driving traffic to VOD and information screens. Operators must simplify the path to on-demand information and video choices by offering quick access to frequently used features, flexible searches and intelligence about subscribers. Such interfaces will end satellite growth by 2004, Bernoff predicts.

The final step is to offer a set-top box that can compete with PVRs – a next-generation entertainment gateway with a hard drive and an always-on broadband connection. Such a gateway would enable cable operators to offer new revenue-generating services, including music downloads and games, content sharing and videoconferencing.

“As a result of these efforts made by the industry, satellite will be in decline by 2005,” said Bernoff.

To conduct its supporting research, Forrester interviewed key executives from seven of the nine top cable operators in the U.S. and both satellite operators.

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