Cable's Dodgy Reception
Fry, Andy, Marketing
Dogged by competition with satellite, cable firms face new challenges as the sector consolidates, writes Andy Fry
When the cable industry boasts of its technological advantages over satellite, it likes to position itself as a Rolls-Royce to British Sky Broadcasting's Morris Minor.
Unfortunately, such comparisons have a habit of coming back to haunt it.
With Sky utterly dominant in the image stakes, cable currently appears to have more in common with a De Lorean or, worse still, a Sinclair C5.
Three weeks ago, when Sky, Carlton Communications, Granada and the BBC jointly applied for a digital terrestrial television (DTT) licence, as British Digital Broadcasting, cable's much-vaunted advantages did little to prevent its stock sinking to a new low in the financial markets.
The DTT announcement wrong-footed a market which had assumed that Sky's commitment to developing a digital satellite broadcasting (DSB) system would kill the commercial opportunities for DTT. Instead, it looks as if both will be available via the same conditional-access set-top box.
Cable's major players Homes passed Connected Cable & Wireless(*) 2,514,223 487,136 TeleWest 2,435,520 521,998 Commercial Cable 602,147 134,238 Comcast 484,748 124,685 Telecential 449,707 95,614 Cable Tel(**) 410,646 108,433 Diamond Cable 217,065 50,109 * Subject to merger with Bell, Nynex and Videotron ** Cable Tel has also bid for a DTT licence
The implications of this joint venture are important for cable. But first, it is worth reviewing the sector's laboured progress.
Cable firms, largely driven by US players, began laying a network in the mid-80s. So far, the industry has spent around [pounds]6bn of the estimated [pounds]10bn it will take to complete. Some 19 million UK homes are within designated franchise areas, although only 7.8 million have cable running past them.
Even with the leverage of Sky programming, cable penetration remains low. Only 1.6 million (about 21% of the available audience) subscribe to its television package, and it has a high subscriber fall-out rate.
In recent years, cable operators have seemed confused about how they should market their service. At one point, the emphasis was on cable's ability to provide cheap telephony. More recently, a [pounds]12m marketing campaign, fronted by Dawn French, attempted to clarify the cable television proposition. The campaign was pulled, having had little impact on public perceptions of cable.
As the industry underwent a new phase of acquisition activity, its trade body, the Cable Communications Association (CCA), had its marketing function stripped and was left to focus on its lobbying role under a new director of communications, Roy Payne.
A positive consequence of cable's ineffective marketing has, however, been a consolidation in ownership among the players.
In October, the merger of telecoms giant Cable & Wireless and cable operators Bell Cablemedia, Videotron and Nynex, created the UK's largest group. It took the top slot from TCI-US West-backed TeleWest, which is now expected to look for further acquisitions. The two companies control 70% of the homes so far passed.
Cable's future lies in the hands of these two companies, and even dispassionate observers would agree they face obstacles.
First, there is the branding problem. The beauty of satellite is that it allows Sky a consistent, highly visible brand all over the country. Cable, by comparison, seems more parochial and fragmented.
In addition, BSkyB has rights to most of the good programmes. While the cable sector dug up roads, Rupert Murdoch bought sports and movie rights, to drive dish sales.
Murdoch didn't stop there. He used his programming strength to sign up other attractive programme providers to the Sky Multichannels package. This not only forced consumers to buy channels they didn't want, but prevented cable companies from offering the sort of la carte service that might create a point of distinction from Sky. To date, CCA has had little success in finding a regulatory answer to this problem.
The link between Sky and BT (which has an interest in News Corp due to its merger with US telecoms group MCI) is likely to provide the platform needed for interactive services.
If Sky appears to be a formidable rival for cable, what of BT? Currently, BT is precluded from offering entertainment services on its network to allow cable to get a return on its investment. But cable's progress is slow. There are signs that a Labour government might review these restrictions. As if that isn't enough, there is digital television.
Under the proposed arrangement, it seems that a DTT and digital satellite box will be available to consumers at a subsidised price, thanks to a link-up with BT, Matsushita and Midlands.
It is not clear how this will affect cable, which also needs a set-top box to further its digital ambitions. Although cable claims to have a similar timescale to Sky to launch digital, the DTT deal means cable has no obvious programming partner.
The solution for cable seemed imminent when the BBC formed a joint venture with TCI's broadcast and production arm, Flextech, to launch eight new channels. Yet the possibility that this might be distributed exclusively on cable has been blown away by the DTT deal. Cable's hope that it might enter such a relationship with Granada and Carlton seems a distant dream.
The prospects for cable-exclusive programming have not been helped by TCI's ambivalent approach to the UK market. Not only is the US firm the UK's number-two cable operator but, through Flextech, it is a major programme provider to the Sky Multichannels package.
TCI's desire to be on Sky's digital satellite platform has been a higher priority than a generic cable marketing push. This was made clear when TeleWest and Nynex committed themselves to a long-term programming deal with Sky - in effect killing off joint cable initiatives.
This leaves Cable & Wireless, which is yet to reveal its plans. Although it has access to a potential network of six million UK homes, building its own set-top box will have to take its place on the list with establishing a brand identity, finding a killer programme application and finishing off its network (estimated to cost about [pounds]2bn). It is not clear if C&W's priority will be a renewed attack on the consumer telephony/online market.
Despite cable's problems, however, there is a strong lobby which insists that cable is not finished. The ITC's deputy director of cable, Anthony Hewitt, believes there has been "a marked over-reaction" to the DTT announcement and insists that this is "absolutely not the end for cable".
"The majority of new multichannel subscribers come through cable. In areas where cable is an option, it is the number-one choice," he says.
Hewitt sees two forms of protection for cable. First, that cable consumers will not be saddled with the cost of buying a new set-top box. Cable services are already digital at the head end and are converted to analogue so they can be received in homes. In due course, when cable upgrades, customers will get a digital cable box free.
Second, cable is not just a media network. As well as television, it can deliver telephony and Internet access, and educational and industrial services. Although it is dependent on programme carriage arrangements with Sky, growth of these incremental services will introduce potentially powerful new allies to cable.
Paul Styles, director of KPMG's ICE Consulting, says cable must develop a unique proposition, and points out that US production studios are unlikely to give Murdoch exclusive digital movie pay-per-view rights, thus improving its consumer appeal.
Styles believes: "We're getting out of the building phase and into the marketing and programming phase, and I think that cable will have to fully exploit its flexibility and interactivity."
There is a high degree of loyalty for some of the niche channels (see box) and the success of cable will depend on its ability to exploit this loyalty.
New allies for cable might provide some relief. Styles says: "We've barely scratched the surface of home shopping. When the likes of Tesco and Sainsbury's come round, I think we'll see a revolution in distribution which will suit cable's localness."
RELATED ARTICLE: Finding a niche
* Children's television is the most competitive arena in multichannel homes. The market is currently dominated by Ted Turner's Cartoon Network and Viacom's Nickelodeon.
* 60% of all two- to nine-year-old viewing is multichannel. 50% of Cartoon Network viewers never watch weekend GMTV and 25% never watch Children's ITV.
* Cartoon Network is available 24-hours-a-day on cable, whereas on satellite it shares a channel with TNT.
* Nickelodeon UK comes into its own in the ten-to-15 age group. Managing director Janie Grace believes kids' channels are a key factor in stopping or reducing churn in multichannel households.
* Eric Clemenceau, senior vice-president European advertising sales for CNN International, says niche programming is particularly appealing to advertisers. "We offer a targeted medium of senior AB executives, many of whom are watching less and less television," says Clemenceau. CNNI can offer a pure environment, he claims: "98% of CNN advertisers, such as Rolex and Siemens, want the same target audience."
* Clemenceau believes that co-operation between channels such as CNNI, Cartoon and TNT (all owned by Ted Turner) provide them with greater clout in the area of program me carriage. Nickelodeon, MTV, Paramount and VH1 represent a similarly powerful partnership.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Cable's Dodgy Reception. Contributors: Fry, Andy - Author. Magazine title: Marketing. Publication date: February 20, 1997. Page number: 27+. © 2003 Haymarket Business Publications Ltd. COPYRIGHT 1997 Gale Group.
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