Any doubt that cable-system operators are getting serious about selling television, telephony or other services through stores may soon be dispelled as a result of a partnership announced this spring between the country’s largest cable provider and the world’s largest retailer.
Through a deal several years in the making, Wal-Mart Stores Inc. late in June began selling high-speed Internet and digital cable services from Comcast Corp. through Connection Centers in 11 stores in the Philadelphia, Atlanta and Washington, D.C., markets.
Comcast plans to expand its Wal-Mart rollout to 500 stores this month, according to its senior vice president of retail, Bob Faught.
The nation’s largest cable operator expects to sell its triple play of voice, video and Internet services at Wal-Mart in the first quarter of next year, when Comcast Digital Voice telephone service will also be sold through Wal-Mart Connection Centers, Faught added.
“We saw this as an opportunity for us to lead them into the cable industry,” Faught said.
PROCEEDING WITH CAUTION
Other cable operators are in discussions with Wal-Mart, although no other deals have been announced.
The second largest operator, Time Warner Cable, already has retail partners across the country, which include Best Buy Co. Inc., Circuit City Stores Inc., CompUSA Inc., RadioShack Corp. and Tweeter Home Entertainment Group.
But Time Warner is proceeding cautiously in working with discount merchandisers, said chief marketing officer Sam Howe, because the company does not want to undercut its profit margins.
“We’re doing a good job in other channels of maintaining our price points,” Howe said, “even in the face of competition.”
Comcast is marketing a cable modem and self-installation kit at Wal-Mart for $59.97, similar to its pricing at its other national retailers. Faught said he’s not worried that distributing Comcast through Wal-Mart will hurt its products’ value — real or perceived.
But Time Warner’s Howe worries that discounters won’t spend the time needed to demonstrate products that require customer education.
“You have to ask the question, how much incremental business am I really picking up, and at what price?” Howe said.
But it’s hard to ignore Wal-Mart, which has more than 3,000 stores and SuperCenters nationwide and $26.2 billion in sales — per month.
Wal-Mart “is not the highest of the high end, but it’s huge. Clearly, broadband is beyond the early adopter phase now, and phone is ubiquitous,” Bruce Leichtman, president of Leichtman Research Group, said.
Time Warner would work with the discount retailer “when the dynamics are right,” Howe said, such as when telephone service is more widely sold at retail.
Because consumers don’t need as much education with telephone service as they might with data or video services, telephone might lend itself to distribution through discount chains. From a sales point of view, telephone service is also more price-driven than other cable products, Howe said.
Cox Communications Inc. is in talks with Wal-Mart, said the operator’s director of retail business development, Steve Asbell.
“Many of our customers are in a Wal-Mart day in and day out,” Asbell said.
Charter Communications Inc. is in “initial discussions” with the retail giant, according to Charter director of retail and third-party e-commerce marketing Mark Guberman.
“Wal-Mart is exciting because of its presence in the hearts and minds of consumers, because of the traffic and the volume of people they draw in,” Guberman said.
With Wal-Mart’s Connection Center in the middle of its electronics department, Charter’s video and Internet services would be placed near digital television sets, while its high-speed Internet service would be situated near MP3 players and digital cameras.
HITTING A TRIPLE
The Comcast/Wal-Mart announcement in April points to the holy grail of retail deals: the triple play of voice, video and data in a single customer transaction.
According to Asbell, Cox will support its program to push bundles at retail this year with an updated version of the GoToBroadband referral software developed by CableLabs.
Originally created for high-speed Internet services, the program matches consumer ZIP codes against a database of participating cable operators to let customers in a retail outlet know which cable services are available in their neighborhood. The customers’ inquiries can act as sales leads.
Retail outlets become more important to cable operators as big-box retailers move to sell bundles of services, like TV, telephone and Internet access, Howe said.
“Big retailers aren’t quite there yet,” Howe added, because the chains tend to have different sales reps for the different product categories, and individual sales associates don’t know how to sell all three products in the bundle.
Directing shoppers to other departments within a store isn’t enough.
“There’s a lot of competition for consumer mindshare in a big-box store,” Howe said. “They could lose attention along the way.”
He recommended that retailers use kiosks to sell bundles so that all details of a package can be presented at a single location within the store.
FINDING THE RIGHT FIT
But the triple-play marriages between national retailers and cable operators are just getting started.
“We’re certainly interested in offering bundled product’’ for the cable operator, Circuit City senior buyer of video source Michelle Lueck said. “That’s part of what the provider wants. We’re still at the early stages of that now.”
Not all retailers lend themselves to the triple play. Audio/video specialists like Tweeter or Myer Emco don’t sell telephones or cable modems, noted Cable & Telecommunications Association for Marketing president Char Beales. And office supply chains like CompUSA and Staples don’t specialize in television.
“Best Buy and Circuit City sell everything,” Guberman said. “They’re good candidates for the triple play.”
Even when they sign new subscribers for only a single service at retail, cable operators can promote the triple play later. Beales recommended cable companies use direct mail to sell service upgrades.
For the most part, cable companies are still testing the waters with telephone at retail, although the industry is enthusiastic about its role in driving product bundles in the future.
Cox, which began a retail program in late 1997, has been selling telephone service at some local retailers, said Asbell, and is in talks with national chains to add voice.
“By this time next year, we expect to sell a full suite of Cox products at retail,” Asbell added.
Time Warner Cable markets telephone service through Circuit City stores in such markets as New York City; Greensboro, N.C., and Austin, Texas. The operator is also talking with RadioShack and other retailers to sell telephone throughout its service footprint.
To help gauge customer take rates and test the operational piece of the business, Comcast plans to begin limited tests of retail phone sales this month in the Portland, Ore., and Detroit markets, Faught said.
Charter recently began to roll out local and regional retail phone tests, Guberman said, adding, “We’re in negotiations for big-box retailers.” He expects the larger chains will roll out telephone service starting this summer and into the holidays.
Through the tests, Charter hopes to learn the consumer dynamics of selling phone services at retail, both at brick and mortar locations and online.
“Common issues might be, is this as good as a real telephone service?” Guberman said. “In some pilots, we let the customer make a call” to clear up any doubts, he added.
When a store can’t be wired for cable telephone service, Charter uses product simulations, sales brochures and videos with customer testimonials.
Guberman said he expects low cost and reliability to be top customer draws for the telephone service at retail.
HIGHER DEFINITION
On the video side, the ability to tie in high-definition television programming with the sale of a digital television has helped operators make retail inroads with digital cable.
“With HD, we now sell as many video subscriptions as Internet subscriptions through retail,” Asbell said.
Circuit City makes it part of the sales strategy to capture the high-definition programming sale, according to Lueck, who said retailers don’t want to deal with HD product returns.
“From a customer satisfaction point of view, the set alone doesn’t get HD,” she said. “They have to have a source.”
Lueck said that sales associates are trained to determine whether the customers have cable or direct-broadcast satellite service at home. Whether cable or DBS makes a better source for HD programming “depends on the customer,” Lueck said. “Satellite TV has traditionally been big for sports, and they have some unique content in HD. Cable typically has the advantage of local channels in HD.”
She added that there are different areas of the country where one source, cable or DBS, has stronger consumer pull than the other. It’s easier to sell digital cable in markets that offer video-on-demand and where local HD channels are not yet available via satellite, for example.
While the need to sell HD programming may be a no-brainer, retailers and cable operators will face new challenges when it comes to digital cable hardware. To date, the partners have for the most part avoided selling digital set-top boxes at retail because different operators deploy incompatible standards. That may change as the industry moves to a two-way standard based on the Open Cable Application Platform.
Digital-cable-ready televisions available today allow subscribers to view digital cable without a set-top box if they get a CableCard from their local cable operator.
Although millions of digital-cable-ready TVs have been sold, the adoption rate of CableCards in subscribers’ homes is significantly lower than that, according to CableLabs chief technology officer Ralph Brown. The current standard “doesn’t enable the full suite of digital cable services,” Brown said, including interactive television, video-on-demand and electronic programming guides.
“It only enables broadcast, one-way services,” Brown said. “Most consumers purchasing digital TVs are looking for a broader product set.”
LOOKING FOR MORE
Customers instead typically ask for a digital set-top box from their cable company, perhaps with an HD-capable digital video recorder.
The cable and consumer electronics industry have had heated debates over the issue of one-way digital-cable-ready standards.
“The MSOs’ concern is customer confusion if they get the CableCard and don’t get all the services available on digital cable,” Brown said. Consumer confusion impacts both retailers and cable operators in the areas of customer support, marketing and customer satisfaction, he added.
It’s not clear yet how much demand standalone digital set-top boxes will see at retail even after the move to two-way standards.
“Clearly there’s a consumer electronics manufacturer—more than one—who indicates there’s a market there by submitting a product for testing and seeking licenses,” Brown said.
Guberman said Charter does consumer testing to see whether it makes sense for the consumer to own the set-top box. “The consumer really needs to drive this,” he said.
“Customers have to be tired of buying state-of-the-art equipment and then a few months later finding out there’s something newer and better,” Beales said. She said satellite providers are leasing their most advanced hardware.
Cable already goes head to head with satellite-delivered services in many retail outlets, and also sees competition from broadband services, from telephone companies.
Last month, Wal-Mart announced a deal to market Verizon’s digital subscriber line service, for instance, in more than 500 of the discount merchant’s stores. The telephone version of high-speed Internet access will be sold through the Connection Centers in the middle of the electronics department, also.
“We’d love to be exclusive, but the reality is you do have other competitors on the shelf,” Comcast’s Faught said.
Comcast’s deal with Wal-Mart “offers many other services, and will eventually add a voice and wireless piece,” he said. And Comcast plans to add more Wal-Mart stores next year.
“The best place to be relative to your competition is right next to them,” Guberman said. “By being right next door, it allows shoppers to make smart and informed purchase decisions.”
ONE’S OWN SHOP
In some cases, cable operators can avoid the competition by setting up their own shop, either as a standalone store, mall-based kiosk or as a dressed-up payment center.
Most famously, Cablevision Systems Corp. bought — and has since closed — a regional consumer electronics retailer called The Wiz to help merchandise its cable products.
Time Warner has a showcase store in its Milwaukee territory, Howe said, and plans to open a second store in that market. The operator also plans to give 16 payment centers in highly-trafficked strip centers in Houston a better look and feel.
Cox runs 17 branded retail stores, plus mall kiosks and what Asbell called “hybrid stores,” a cross between retail and traditional payment centers required by local franchises.
Comcast has 33 standalone kiosks in malls across the country, Faught said.
From a retailer’s standpoint, it can be a challenge to work with a variety of different cable operators, and not just because there’s no nationwide platform to promote. Even managing simple processes, such as having multiple signs for multiple operators, is a challenge, said Lueck.
“If you’re going to get involved in retail, you can’t just stick your big toe in the water,” Leichtman said. “Operators should look at it from the retailer’s perspective, not just their own.”
For example, Leichtman advised operators to consider establishing sales incentives.
“There will be other priorities. Selling warranties and Monster Cable will always be more important than selling cable HD,” Leichtman said, referring to a brand of high-end home-electronics components.
Also, turnover is high among retail sales staff, so training needs to be ongoing, he said.
In St. Louis this month, Charter plans to send dedicated sales agents into retail to demonstrate its cable products. If successful, the system operator plans to roll the pilot program out wide during the holiday selling season and into 2007, Guberman said.
Faught chairs the CTAM retail council, which he said is in the “embryo stages” of its work with retailers. He said the council wants to adopt common policies across all operators on how they work with retailers.
“The retailers we deal with are national in scope,” Faught said. “If we could get behind one program, it would be advantageous for all of us.”
Clearly, Comcast is not holding back on its retail push until all operators get behind a common policy.
“It’s not a business we take lightly,” Faught said. “It’s been a very good growth business.”
Cox strikes deals for promotions and sales incentives at both the system and corporate level, depending on the size and geographical scope of the retailer.
“One of our greatest strengths, localization, is the retailer’s greatest challenge,” Asbell said. “We’ve realized some things need to be customized to get the retailer’s full support.”
Executives interviewed for this story would not disclose specifics of their retail business model. But Beales believes retail is an expensive sales channel for cable.
For example, satellite TV companies heavily subsidize their hardware at retail and in some cases offer a cut of their subscription revenues to retailers.
Satellite companies, “paid a high price of admission to the consumer electronics sales channel,” Beales said, “and for anyone coming in after that, the bar has been set high.’’
