MSOs Feel Digital Churn

For a myriad of reasons, the race to install digital cable has slowed down, as some MSOs, like Comcast Corp., have reported a downtick in fourth-quarter growth.

Comcast reported 213,000 new digital-video installations for the period, compared to 243,000 in the third quarter.

And for different reasons, Cablevision Systems Corp. — which is ironing out some technical glitches — announced that it will slow down its digital-cable rollout.

None of that was lost on the analysts who track these things, or on the consumer press, in which analysts like to see their names and pearls of wisdom appear.

USA Today's David Lieberman reported that not only are operators working hard to get more digital customers, they are also fighting to hang on to them.

Right now, operators are looking at about a 5 percent churn rate for digital cable, which is comparable that of premium networks. Basic cable's churn rate is about 2 percent.

The industry is just now waking up to this digital slowdown, and the accompanying churn problem.

Cable & Telecommunications Association for Marketing president Char Beales acknowledged last week that the dilemma has shown up on her radar screen — so much so that the trade group will conduct a new research project to find out what's happening on that front.

Rolling out video-on-demand and subscription VOD could ameliorate the churn problem, said Beales. But a lack of available movie titles has already posed a problem in helping the new service gain traction.

"Is it the market or the product itself?" Beales asked. Her answer: probably the product. But there's no slam-dunk solution, because each MSO offers a different digital-cable package — and they're all constantly tweaking them.

For instance, Comcast's first digital rollout offered an all-movie product, Beales noted, but the MSO later shifted strategy and added more programming.

To some extent, it's also a marketing problem, Beales said.

Past CTAM research found that digital subscribers also seem to have problems with their interactive programming guides. If subscribers don't know what their IPG's can do, that's a problem. But there might be another inherent dilemma here: Maybe subscribers just don't care what those gizmos can do and don't really want to interact with the TV that much.

At CTAM's research conference two weeks ago, one speaker said digital video had peaked this year. If that's the case, that's bad news for operators who are now only on the cusp of rolling out VOD and SVOD. Churn from digital — and other not-quite-ready-for-primetime new services — will likely continue.

Now the hard work begins. Operators were very successful at snatching up the low-hanging fruit, as many digital upgrades came from households that already had premium services and could get many additional channels at little extra cost. That was a no-brainer.

The next phase is more tricky. Getting basic-cable subscribers to embrace digital is another story, according to Horowitz & Associates president Howard Horowitz.

"Cable won't keep the cream of the crop [high-paying subscribers] unless digital moves to the next level," he said. The digital category needs a rebranding effort as VOD starts to roll out, he said.

"Digital video is a dormant beast if you don't take advantage of it," said Horowitz.

It's going to be interesting to see what short-term strategies MSOs employ to tame that beast and halt churn.