As digital cable's customer universe surpasses 20 million households, there's mixed news about churn rates.
The good news: the rates of quarterly and annual churn — or digital disconnects — are dipping.
The bad: both rates are way too high.
That mixed picture comes from Communications, Entertainment and Technology Research and Information Service, or Centris, through a new study available for sale this month.
The California-based agency is best known for handling the Cable & Telecommunications Association for Marketing's Pulse surveys on various industry topics.
Over the course of the survey — July 2002 through last month, with nearly 28,000 customers responding — digital churn declined slightly on both a quarterly and annual basis. Centris declined to specify how slight the decline was, saying that was data reserved for paying customers.
A recent McKinsey & Co. study estimated that about 4-5 percent of digital-cable customers per month drop the service, making for a churn rate of 48 percent to 60 percent per year. Premium-channel churn, by contrast, is believed to be in the range of 3 percent per month.
But market reseacher Bruce Leichtman, of Leichtman Research Group in Durham, N.H., said many such studies include customers who disconnect because they change residences — and many of those people sign up again. He estimated last year that premium disconnects — mostly filtering out move-related disconnects — worked out about 17 to 20 percent per year. He also estimated 26 percent of customers who ever had digital cable no longer get digital cable, a figure that translates to about 27-percent annual churn, with some double-counting of movers.
Centris co-founder Jerilyn Kessel credited a churn decline to increased consumer comfort with electronic and interactive program guides, which help customers navigate across channels.
"There's still high churn and a long way to go to get it down," Kessel said. "It's still easier to retain a customer than get a new one. There's still a lack of killer digital applications, as well as other barriers to entry."
Half of the disconnecting customers Centris approached over the last eight months claimed digital wasn't worth the extra money they paid for it.
Pressed further, some customers noted there wasn't enough differentiation between digital and analog cable, while others were critical of the preponderance of multiplexed premium channels on digital, frustrated using EPGs or IPGs, or acknowledged they didn't watch enough TV to justify having digital around.
Other reasons for disconnection mentioned often among survey participants: price increases a few months after their subscription started and moving to another location.
Half cite costs
What's telling to Kessel is that the order and magnitude of answers provided by disconnecting subscribers who've responded to Centris over the last 90 days is the same as the order and magnitude of replys over the entire survey period.
"I'd expect cable operators to be in tune with them by doing research, or by having their CSRs ask why their digital subs are dissatisfied, and then do something about it," she said.
Didn't all pick DBS
More surprising is that 20 percent of digital disconnects tracked in the survey didn't replace one multichannel option with another, whether originating from cable or direct-broadcast satellite. They just dropped multichannel service altogether.
By contrast, 40 percent of disconnected customers went back to pure analog basic status, and 20 percent opted for analog-placed premium networks.
Five percent of the group turned to DBS basic packages and 15 percent switched to a DBS premium offering.
Kessel suspects that base of customers departing the multichannel world have satisfied their media tastebuds with DVDs, video games and videocassettes.
"This is unfortunate for electronic-entertainment providers," she said. "Everyone — operators, be they cable or DBS, and the programming services — lose. They must have really, really screwed up."
What could help
It will take more kinds of digital services and user-friendly navigation to make churn rates plunge, Kessel said.
Video-on-demand, especially original, exclusive content, can make a dent.
So can home networking, high-definition TV channels, interactive TV and personal video recorder applications.
"The key will be coming up with things that impact people's lives and keep them within a reasonable price," Kessel cautioned.
At the recent CTAM Digital Conference in New Orleans, several panelists and speakers said digital networks need to offer more appealing programming.
Sanford C. Bernstein & Co. analyst Tom Wolzein, for example, recommended operators invest some seed money in establishing must-watch digital programming. "There's going to have to be a significant amount invested going forward."
Patrick Vien, network enterprises president of Universal Television Networks, said on another panel that simply repackaging existing content into digital spinoffs hasn't gotten the job done. He credited such networks as National Geographic Channel, BBC America, Style, Fine Living and his own Trio as examples of networks that have broken through.
"None of those are inventory ideas," Vien said. "It's time to get innovative and creative. Those who don't will be confronted [by operators] in a very serious way."
Kent Gibbons and CED Magazine editor Jeff Baumgartner contributed to this report.
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