The Power of Tiers

In August, the fifth anniversary of EchoStar Communications Corp.’s Dish Latino package passed without even a press release from the company’s usually prolific public relations department. But the revolution in multichannel programming for Hispanics that Dish Latino helped launch in 1999 continues to reverberate through the cable and satellite industry.

Over the last 18 months, the popularity of the Dish Latino package in the Hispanic community helped convince at least four major MSOs — Comcast Corp., Cox Communications Inc., Charter Communications Inc. and Insight Communications Co. — to radically revamp their Hispanic packages.

“All the MSOs are revising their strategies,” notes Starrett Berry, a consultant for channel LATV. “Comcast was the first, [launching new Hispanic tiers in May of 2003]. But they all understand [that the old practice of] making customers buy expensive digital packages before reaching Spanish-language programming is not a competitive strategy.”

Satellite’s competitive advantage can be seen in a couple of numbers. While EchoStar and DirecTV Inc. don’t provide subscriber counts for their Hispanic tiers, observers estimate that EchoStar is the clear leader with over 800,000 subscribers, followed by DirecTV with about 500,000. The cable operators have much smaller figures, the programmers say.

To improve its competitive position, DirecTV has aggressively added more programming to its Para Todos packages, and beefed up its marketing efforts in the last year, says Stephanie Campbell, executive vice president of programming.

“I think we still have a much broader offering than cable,” she says. Because DirecTV is a national service, Campbell says that it’s possible for the service to add networks that local operators with relatively small Hispanic communities and limited bandwidth might find hard to justify financially.

Some of the cable offerings, however, are beginning to close the gap on pricing and programming. Comcast, which has been the most aggressive of all the operators in targeting the Hispanic community, recently revamped its offering by adding new networks and over 100 hours of video-on-demand programming to the Cable Latino entry-level package that costs $20 to $25.

To better compete with low-cost satellite Hispanic tiers, a number of local systems served by Insight, Charter, Time Warner Cable and Adelphia Communications Corp. have also launched packages priced at under $30.

Rob Daleo, regional marketing director of video products for Adelphia’s California region, says the MSO launched new Hispanic packages priced between $24.95 and $29.95 in November of 2003 because the Hispanic community represented their best opportunity to attract new subscribers.

“We realized we had to eliminate the need to buy through expensive digital tiers,” says Jeffrey Kapner, the regional director of marketing and strategy for Adelphia’s California region.

The Cox Paquete Latino package, priced at about $35, is slightly more expensive. But the offering includes HBO Latino, and its lineup of up to 35 Spanish channels is larger than the 25 video services offered by both EchoStar and DirecTV.

Still, many systems and MSOs have a way to go. A number of operators with Hispanic tiers offer 10 or fewer Spanish-language channels, and a few major operators, such as Time Warner Cable, still require subscribers in many of its systems to buy up through the digital tier, forcing a potential Hispanic subscriber to pay $50 or more for Spanish-language programming.

That is likely to change. Time Warner recently hired a new multicultural marketing director to revamp their strategy. And the under-$30 entry level Hispanic packages currently available in New York City and San Antonio could soon be offered in other markets.

But the battle between cable and satellite packages is increasingly being fought over more than just price and the number of Spanish-language networks. Comcast is leading the way in this area too, adding 100 hours of free Spanish-language VOD to its offering in October. “It will give us a clear edge over satellite,” says Mauro Panzera, Comcast’s senior director of multicultural marketing.

Charter, which is in the process of inking a number of programming deals, has also embraced the free VOD strategy. Tim Kelly, director of marketing, core video at Charter, argues that free VOD will help them diversify their programming, distinguish their offering from satellite and allow them to serve niche audiences within the Hispanic community, such as immigrants from a specific region of Mexico, without having to launch an entire network or raise the price of the offering.

But executives at Time Warner Cable and Cox seem skeptical.

Cesar Cruz, director of multicultural marketing at Cox, says the first priority has been to expand and market “our core product, which is video.”

However, when they begin rolling out Spanish-language VOD in mid-2005, consumers will need to pay something for the product. “If you have strong product, which we plan to have, you shouldn’t be giving it away,” he says.

Either way, the increased demand for Spanish VOD fare has opened up some opportunities for programmers to launch VOD packages.

World Picks Latino On Demand provides 20 hours a month of Spanish-language VOD, and it’s been picked up by such operators as RCN Corp. and Cablevision Systems Corp., explains Cynthia Burnell, senior vice president and general manager of digital media at IFC Television and World Picks.

Likewise, Schramm Sports and Entertainment will launch Sol VOD to about 6 million homes in early 2005, says Joe Schramm, the company’s founding partner and president. “Free VOD reminds me of the Internet bubble,” when Web sites erroneously thought advertisers would finance expensive original content, he says. “We have to have some subscriber fees to provide the kind of unique content that will work.”

Both World Picks and Sol VOD are charging for their product but most others aren’t doing so well. “Comcast has made it very clear that if we want carriage, we have to provide free VOD,” notes one programmer. That creates new expenses for programmers who generally aren’t getting subscriber fees in the early years of their contracts.

Still most of the programmers seem to have embraced free VOD, in part because it offers them a way to get carried. “All the programmers we work with are supporting it 100%,” notes Jorge Fiterre, a co-partner of Condista, a company that handles distribution for a number of Hispanic networks.

Other Latino-focused products are also in the works. A number of operators have embraced the idea of bundling their new video offerings with high speed data and phone, adding long distance packages to Mexico and other Latin countries. “Our first priority has been to build up our customer base [for video], but once we do that, we can effectively market other products,” says Cruz. He suggests they will be pushing bundles of phone and video by the start of the second quarter of 2005 and triple-play packages by mid-year.