Avalanche of channel launches frustrates the cable industry

You might have thought Britain’s cable operators would be grateful for this autumn’s wave of new TV channels. For years, they cried out for new programmes. Granada Sky, the Weather Channel, Warner Brothers and Sky’s own new offerings might be thought an added incentive to lure new customers into buying cable.

But nothing is simple in the cable industry. Far from being seen as an opportunity, the new programmes have become a problem. There are now, apparently, “too many” channels, either to fit onto the cable systems or for cable viewers to understand.

Little wonder that those companies trying to provide the channels (including cable-exclusive channels) are running out of patience. David Montgomery, chief executive of Mirror Group (owner of Live TV), has made no secret of his frustration at the cable industry’s failure to market itself as a national alternative to BSkyB.

“I don’t want to keep you long,” he told delegates at European Cable Communications 96 last week, “because frankly I don’t think you – the British cable operators – have much time left.”

After listing the industry’s “missed opportunities”, Montgomery put forward an audacious new proposal for marketing cable. He called on the operators to give up their individual autonomy to create a separate umbrella company, which would run all the consumer elements of British cable.

“It would independently raise new funds, perhaps $500m or even $1bn. It would create a brand; devise and operate a marketing strategy; co-ordinate uniform programming, including local and sport; negotiate on channel supply; and liaise on telephony offers, to bring pricing clarity to customers. Also, importantly, it would orchestrate cable’s switch to digital.”

Montgomery said the company would get its payback by taking an equity stake in each of the cable companies. He identified the launch of the new Flextech/BBC channels as one of the first – and last – chances to develop more exclusive cable programming. Unfortunately, the scheme seems to have as little chance of being accepted as any of its predecessors.

For what became clear at ECC 96 is that, despite their national marketing initiative this year featuring Dawn French (one of the “missed opportunities” according to Montgomery), the cable operators still seem determined to plough their own furrows.

With TV penetration stuck at little over 20 per cent of the homes passed by cable (though telephony brings the total to over 30 per cent), operators are trying out new ways to appeal to customers. Unfortunately, each one is different, which is why Montgomery’s scheme seems likely to fall on deaf ears.

Though Stephen Davidson, chief executive of Telewest, accepted his home truths, another of the fastest-growing cable operators publicly gave the idea the thumb’s down.

Steve Wagner, chief executive of CableTel (UK), runs a highly effective operation that has increased penetration well above the industry’s average. But he is the despair of those – like UK Gold and other cable and satellite programmers – for whom TV is their livelihood and who see TV as the instrument which will drive cable into people’s homes. For Wagner, telephony is the key to cable’s success, and he is reluctant to run joint marketing campaigns with TV channels locally, let alone nationally.

This is not to say he believes TV is unimportant. He just knows it isn’t working as a means of attracting cable customers and – like other operators – he’s experimenting with ways to make it more appealing.

CableTel’s customer research suggests the main problem is that cable isn’t offering viewers sufficient flexibility of programme packages and prices. Indeed, if anything, it is offering too many channels.

Forty per cent of those asked resented paying for “channels they do not watch” under the traditional “big-basic” package that most operators offer. So, in addition to that, CableTel has been testing other tiers of basic programming.

In one trial in Hertfordshire and Bedfordshire, TV penetration rose to 41 per cent, compared with 29 per cent elsewhere. And since the cheapest tier (at 7.29) included telephony, telephone penetration rose to 38 per cent (from 30 per cent) and total household penetration reached 41 per cent (from 33 per cent).

However, the top tier – at 13.95 – was taken by only five per cent of potential customers. Since that tier included MTV, Bravo, UK Living, NBC Superchannel and the Family Channel, these programmers were not at all happy about the results.

CableTel is not alone is deciding that segmentation is the key to increasing penetration. Videotron has just launched its own multi-tier scheme while Bell Cablemedia is going even further – much to the programmers’ dismay – by testing an la carte service. It says its research shows the scheme has great potential, but Wagner does not believe the market is ready for la carte. He says it is too confusing for customers and most operators could not handle the complicated billing it generates.

Programmers are alarmed at any move towards segmentation as it could mean a heavy reduction in their own penetration.

It is not all the cable operators’ fault. As Benjamin Ball of Videotron and Montgomery point out, BSkyB has squeezed operators’ margins by the way it sells them its own channels – with no real action from Oftel. Even with more capacity, they would have to charge viewers more for the new channels. And if viewers say there are too many channels, who is to argue?

But with more on the way from the BBC and Sky’s digital package due next autumn, it is hard to see how the cable industry will cope with its embarrassment of riches.

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