In a nod to the success of fast-food marketers like McDonald's Corp. and Burger King Corp., AT & T Broadband last week unveiled new "Digital Cable Value Packages" to help take the guesswork out of selecting from a growing menu of programming options.
AT & T Broadband executives said the key to the revamped digital strategy, which Multichannel News first reported in May, is to simplify the ordering process for both subscribers and customer-service representatives.
The new strategy will also have huge implications on programmers. About 20 networks will be included in the MSO's digital-basic package, which will go to all digital subscribers.
But close to 40 digi-nets will be moved into three genre tiers, which will be offered on anàla carte basis. They will receive less distribution than networks carried in the digital-basic package.
The three genre tiers-which AT & T calls "Special Interest Bonus Categories"-are "Movies & Music," "Sports & Information" and "Family & Variety."
"Programmers certainly would like as much distribution as possible," AT & T Broadband executive vice president Matt Bond, the MSO's top programming negotiator, acknowledged. "That's what drives their economics. From a cable MSO perspective and from a customer perspective, you simply can't fill up the lowest-priced package with hundreds of new channels of digital product that are being delivered today. The economics just won't support it."
Digital Value Packages start with "Digital Bronze" at $39.99 per month, which bundles the core analog programming plus digital basic, Encore, three Starz Encore Group LLC thematic movie channels, expanded pay-per-view access, DMX Music digital music and an electronic programming guide.
"Digital Silver," "Gold" and "Platinum" each add multiple feeds of Starz! movie channels, plus one, two or all (respectively) available premium services, including Home Box Office, Showtime, The Movie Channel and Cinemax.
New subscribers taking the Digital Silver package or higher can also "supersize" their order by adding one to three of the genre tiers.
Silver customers pay an extra $5 per month for a single tier, Gold customers can choose two bonus tiers for the same $5 and Platinum-level customers can add all three tiers for $5.
But just as a McDonald's burger typically costs more in Manhattan than it does in the Midwest, AT & T Broadband senior vice president of marketing Doug Seserman said he doesn't expect the MSO's digital-cable prices or products to be identical in every market.
By the end of next year, though, all AT & T Broadband systems across the country are expected to adopt the Bronze/Silver/Gold/Platinum packaging construct.
Programmers had mixed reactions to the new format.
WebMD Television has been placed in the Family & Variety tier, and its direct competitor, Discovery Health Channel, made it into the digital-basic package.
But Fox Cable Networks executive vice president of affiliate sales and marketing Lindsay Gardner noted that his contract with AT & T Broadband guarantees that the network will eventually reach two-thirds of AT & T Broadband subscribers, regardless of which tier it's in.
"Within four-and-a-half years, WebMD Television will be in two-thirds of AT & T homes-no ifs, ands or buts. And Discovery Health will not be," Gardner added.
Bond acknowledged that AT & T Broadband may eventually have to move some of the digi-nets into more widely distributed tiers in order to meet distribution commitments in some contracts.
"We don't have present intent of detiering networks. But if we have a commitment that needs to be met through a different packaging strategy, then that's what we would have to do," he added.
One network executive-speaking generally, and not about the impact on his business-predicted that the new structure would not succeed. He said he found it more confusing than the current offering. He added that consumers can get the same number of channels that are in AT & T Broadband's digital-basic package and in the three genre tiers combined for less than what the MSO would charge.
"I think it's going to be a miserable failure for them," the executive said, adding that he expects AT & T Broadband to lose even more subscribers to direct-broadcast satellite under the new structure.
The programmer also said he believed it would be difficult for subscribers to select which genre tier they'd like without being exposed to many of the little-known channels available in the tiers. "When you have too many choices, the customer gets confused," he added.
But other programmers were more optimistic about the new structure.
"We're confident that it will increase their digital penetration," A & E Television Networks spokesman Gary Morgenstein said.
The top suggested package price for AT & T Platinum is $79.99 per month, including the three bonus tiers and all premium-movie services.
By comparison, DirecTV Inc. sells its own Platinum package-"Total Choice Platinum"-for $82.99, and EchoStar Communications Corp. recently began marketing its "America's Everything Pak" for $69.99.
Unlike AT & T Broadband, the DBS providers charge extra for local programming in markets where it's available.
"If you do an apples-to-apples comparison with DBS, we have a better value," Seserman said.
Networks that made the digital-basic cut include Discovery Kids, Discovery Science Channel, Discovery Health, The Golf Channel, ESPNews, The Independent Film Channel, Game Show Network, Fox Sports World, BBC America, Turner Classic Movies, Noggin, TV Land, Sci-Fi Channel, Outdoor Life Network, Romance Classics, Home & Garden Television, Bravo, The History Channel and ESPN Classic.
In the Movies & Music tier are BET on Jazz, Encore Action, Encore True Stories, Fox Movie Channel, Lifetime Movie Network, MTV2, MTVX, MuchMusic USA, Sundance Channel, Trio, VH1 Classic, VH1 Country and VH1 Soul.
In the Sports & Information tier are Bloomberg Television, CNN/SI, Discovery Civilization Channel, Discovery Wings Channel, History Channel International, International Channel, Newsworld International, The Outdoor Channel, Speedvision, The Biography Channel and Techtv (formerly ZDTV).
In the Family & Variety package are Discovery Home & Leisure Channel, GoodLife Television Network, Inspirational Life, Nick Games & Sports, Ovation - The Arts Network, Style, WebMD Television, Toon Disney and Trinity Broadcasting Network.
Fox Family Worldwide Inc.'s digital offspring, boyzChannel and girlzChannel, were expected to be included, but the programmer has decided to let the struggling networks go dark.
AT & T Broadband systems in Batavia and Oak Lawn, Ill., were the first to adopt the new Value Package approach last week.
The pricing model will be used for new connects first, and current customers will be pitched the package upgrades later.
Local market pricing will depend on a number of factors, Seserman said, such as the state of the system's plant upgrade, the number of channels available and local market conditions.
"Where there's intense competition, prices generally fall," he added.
Pricing on AT & T Broadband's packages will be "very competitive" with what overbuilders and DBS providers offer, Seserman contended.
AT & T Broadband also hopes to retain its whole-house advantage over DBS by bundling a second digital set-top box into the monthly fee of its Gold and Platinum packages.
Cable customers who want additional boxes pay an a la carte monthly fee for each extra box.
In the typical DBS model, consumers buy each receiver separately and pay an extra monthly access fee of about $5 for each additional box. Earlier this year, though, EchoStar introduced its "Digital Dynamite" lease program, which includes a multiple-box option.
Seserman said the Digital Cable Value Package strategy was more than just a way to sell more video. He added that it would help AT & T Broadband customers to get comfortable bundling multiple services, such as local telephony and high-speed Internet access, on a single bill.
"We definitely view bundling and cross-promotion of services as something we'll be doing over time," he said. "One way to think of this is that it's the bundle before the bundle."
The smarter way to stay on top of the multichannel video marketplace. Sign up below.