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Building a Better TV Bundle

Time Warner Cable is gradually overhauling its premium digital packaging, adopting a repricing strategy in which Home Box Office and Showtime subscription video-on-demand services would be bundled, rather than marketed separately at $6.95 per month.

Although an à la carte SVOD option will remain, Time Warner marketing executives believe that SVOD, premium networks and its packaging strategy have evolved to the point at which it makes more sense to group the products together.

Many of the MSO's divisions are offering the new packages: DIGIPiC 1000, DIGIPiC 2000 and DIGIPiC 4000.

Ease And Understanding

The new strategy grows out of focus group research conducted last year, said MSO chief marketing officer Chuck Ellis. "One thing came through loud and clear," he said. "Consumers wanted easy and simple to understand pricing and packaging. [Direct broadcast satellite] had a significant advantage over us" in that regard.

Ellis said about 60% of Time Warner's divisions have deployed the new packaging, and by year-end, nearly all of its systems will be offering DIGIPiC.

The DIGIPiC 1000 package is the entry-level package, featuring standard basic channels, digital channels, Music Choice and access to VOD. Pricing varies by market, but the average hovers around $49.95 a month.

The DIGIPiC 2000 package includes two pay services and their associated SVOD packages, and is priced in the $64.99 neighborhood. (Right now, only HBO, Showtime, Cinemax and The Movie Channel SVOD are available, but Time Warner Cable executives said they are negotiating with Starz for its SVOD package.)

The DIGIPiC 4000 package includes four premium networks and their associated SVOD packages, and is priced at roughly $79.95, again relative to the market.

Each of those services is also bundled with high-speed data at various discounts. DVR service carries a separate charge, ranging from $6.95 to $9.95 a month.

HDTV requires a subscription to the digital tier, but the high-definition set-top is leased to the subscriber for the same price as the typical digital box.

Although DIGIPiC is built around the two- and four-pay packages, TWC will still sell one or three pay services — or singular SVOD offerings — if a customer desires. But the packages have been built to entice customers to each of those levels.

For instance, even at the DIGIPiC 1000 level, cable-modem service is included for a discount ranging from $7 to $10 per month over its standalone price, Ellis said. High-speed customers in the DIGIPiC 2000 package can save $15 or so a month and consumers at the DIGIPiC 4000 level can save $20 to $25 a month, Ellis said.

For existing multipay and SVOD subscribers, the pricing changes will be phased in over time.

"We would typically not proactively reach out and touch every customer initially," Ellis said. "We would plan to do that over a period of time. It gets managed from a transactional calling basis and targeted strategy with existing subscribers. We will move the vast majority over a period of time to these three levels of service."

The key, of course, is to maintain revenue levels and upsell customers, either by pitching more premium networks, the SVOD feature or the high-speed service. Time Warner has seen Road Runner cable-modem additions slow down, although some of that can be attributed to removing Advance/Newhouse Communications customers from its subscriber count.

"This is a way to bring together a wide variety of programs and services and create high value packages on the video level," Ellis said. "The ability to have SVOD as an added value within the pay category was powerful."

Early Returns

The early numbers from Time Warner's system in Austin, Texas are encouraging. The MSO said digital sell-ins for new installations was up 31%, while digital household growth rose 14.6%.

Perhaps more important, Road Runner sales among new installations zoomed 90%, and revenue per customer had climbed 6.3%.

HBO supports the change, in part because it's still getting paid an unspecified SVOD per subscriber fee.

"DIGIPiC offers a far greater value to the digital [Time Warner] customer and better positions our SVOD offerings," said network vice president of subscriber marketing Juliette Morris. "Being tied directly to their linear counterparts, HBO on Demand and Cinemax on Demand will enjoy greater distribution and therefore expose more subscribers to these innovative services."