Some major cable operators are aggressively revamping the way they sell premium networks, each pursuing different packaging and pricing strategies in a bid to retain customers.
Subscribers to Charter Communications Inc.’s Johnstown, Pa., system can buy a $49.99 digital-cable package that includes every channel owned by Showtime Networks Inc. — including subscription video-on-demand and HDTV channels.
About 200 miles east of Johnstown, Comcast Corp. charges its customers in central New Jersey $75.95 for its Digital Silver package, including one premium service and SVOD and HDTV content.
Farther north, Cablevision Systems Corp. charges subscribers in northern New Jersey and its other systems an additional $4.95 per month for each SVOD offering, such as HBO on Demand and Showtime on Demand.
Executives from several major MSOs said they’re looking at premium SVOD services as a way to differentiate themselves from satellite providers DirecTV Inc. and EchoStar Communications Corp.
On the other hand, they’re reluctant to pay more (and charge customers more) for adding on-demand functionality to premium channels, arguing that premiums need to go the SVOD route in order to cut their own customer churn.
Some MSOs — such as Charter, which focused in the past on pushing bundles of video and high-speed data — are now looking more toward pushing low-priced digital video packages that include SVOD content.
“Bundling data and video is still a key advantage for us, but the movie category is an extension of that two-way capability,” Charter senior vice president of sales and marketing Kip Simonson said. “They [satellite] cannot do on-demand, because they do not have the two-way capability.”
Charter said recently that it’s been pitching subscribers an entry-level $49.99 digital-video package since November. The offering includes Showtime, The Movie Channel, Flix, Showtime HD and Showtime on Demand.
For an additional $13, subscribers can add either a suite of Home Box Office or Starz Encore channels, which might put Showtime in a position to pick up more subscribers through Charter than its premium-network rivals.
NO RATE CUT
Although Charter’s retail rate for Showtime is dropping significantly under a new carriage deal the programmer cut with the MSO last fall, Showtime executive vice president of cable distribution Patrick Burks said the programmer isn’t receiving less money from Charter under the new agreement.
“We’re extremely happy with the economics of this deal,” Burks said.
Starz Encore Group president of sales and marketing Bob Clasen said he thought the Charter-Showtime agreement, which touts Showtime ahead of the Starz Encore networks, was a “surprise,” noting that the Starz Encore audience is broader than Showtime’s demographics.
The biggest difference between MSO strategies is the decision on whether or not to charge a premium for SVOD content.
Cablevision charges $4.95 each month for all of its premium SVOD channels, and Time Warner Cable also charges an additional $5.95 per month for premium SVOD on some systems. But Time Warner chief marketing officer Chuck Ellis said most SVOD subscriptions are sold through the MSO’s DIGIPiC bundles.
It would be good for MSOs to develop more consistent packaging strategies, said Ellis.
“I would advocate across the industry that everybody develop models that are easy and simple to understand,” Ellis said.
Comcast allows its customers to buy individual premium services a la carte for as high as $19 per month for each network, but senior vice president of marketing and new products Andy Addis said most SVOD channels are sold through its broad Silver and Gold packages.
Comcast looks at SVOD as a way to keep premium subscribers, some of which were dropping cable for satellite, Addis said.
“Our perspective is, the pay value proposition was on a slow but steady decline,” Addis said. Comcast believes it adds more value to the premium packages by bundling premium and SVOD content at no additional charge, he added.
Mediacom Communications Corp.’s first SVOD deal, announced in April, was with Starz Encore.
It enables the cable company to market premium channels to subscribers who can get the programming without buying expanded-basic and without paying extra for on-demand capabilities.
Mediacom said it wants to strike similar deals with HBO and Showtime.
ADELPHIA’S L.A. TACK
Adelphia Communications Corp. has taken a different tack in Los Angeles, where it uses “category pricing” for premium SVOD channels. Premium-network subscribers can pay an additional $4.95 per month to receive SVOD content from any channel they take.
“The content we’ve received for SVOD for HBO and Starz and Showtime is a little bit more expensive. We wanted to price it in such as way that it was strategically a reasonable cost for our customers — that’s why we chose the umbrella fee,” said Adelphia regional director of marketing and strategy Jeff Kapner.
HBO president of sales and marketing Eric Kessler said the company takes a neutral stance on whether its affiliates decide to sell all of the company’s programming service in a bundle, or charge extra for services such as HBO On Demand.
“Ultimately that’s their [the affiliates’] decision. What we feel great about [is that] it’s worked under what ever scenario or package they choose to sell it under,” Kessler said.
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