Selling Cable in the Land of Rabbit Ears
Byline: JON LAFAYETTE
Minneapolis is a tough place to sell television.
You would think the snow and cold weather would drive Minneapolitans indoors where they could warm themselves by the glow of the boob tube. But you’d be wrong, according to Eric Brown, president of Time Warner Cable’s Minneapolis division.
“People here don’t let the winter get in the way of being active,” Brown said.
That translates into relatively low penetration for pay television. Combined penetration for cable and satellite TV is just 54%, far lower than the national average.
“My neighbors take pride in having only one TV in their house and having rabbit ears on it,” said Brown. People there don’t talk about The Sopranos or The West Wing, he said. Instead, they’re very involved in community activities. “You hear them talking about their kids and the Lutheran Circle,” Brown said. “TV is not the centerpiece of their lifestyle.”
The family-oriented nature of the market “has a very definite impact on how people view technology and what their appetites are for entertainment and communications services,” Brown said.
Fortunately for Time Warner Cable, while Minneapolis is traditional and family-oriented, it’s also an upscale market in which high-speed Internet access is an easy sell.
“We do recognize that high-speed data is our growth engine, and we focus on growing our penetration there,” Brown said. “About 25% of our customers have high-speed access, and it’s growing every month.”
Brown arrived in the market about a year ago from Los Angeles, which is a bit warmer. “It’s been an absolutely delightful transition,” he said. “The Twin Cities are very cosmopolitan. It’s much more diverse than I was expecting, particularly in the city, which is our service area.”
The city is the home for several major corporations, including Best Buy, ADC, 3M, American Express’s IDS division, Target and Northwest Airlines.
“There is a very healthy corporate community,” Brown said. “That makes for a community with a high level of education, a lot of dual-income families.”
These are the folks scarfing high-speed service. Time Warner has offered Road Runner since 2000 and is now a multiple-ISP provider, with Earthlink, America Online, Max.Inter.net and BigNot available.
Still, Time Warner needs to sell its video products and has been refining new strategies to do that. In a market like Minneapolis, where television is deemed less crucial to one’s existence than in the rest of the country, hawking hundreds of channels might not be the best approach.
“We know that if we go to someone and start the conversation with a digital offering of over 300 channels, they’re immediately overwhelmed,” Brown said. Many of these customers are what Time Warner calls cable resistors. Their unwillingness to subscribe isn’t about money – it’s about them not feeling they need cable in their life, he said.
Time Warner’s goal is to sign up residents for basic reception service as a way to get into the home and establish a business relationship. With the proverbial foot in the door, Time Warner can start working on upgrades. And while a multitude of channels may not be attractive to viewers in Minneapolis, Brown expects video-on-demand will be.
“People here are very receptive to the concept of what I want, when I want,” he said. While potential subscribers say “a lot of what you have I’m not interested in,” they also say “if you had what I wanted and it was convenient, yeah, I’d be interested.”
Last month, Time Warner began pushing VOD aggressively, running commercials on broadcast TV and ads in newspapers and in some minority publications, because African-Americans in particular are above-average consumers of these services, Brown said. The ads proclaim: “Now you can control your own viewing.” Time Warner has also been demonstrating the product at local retailers to create a buzz.
So far, the results have been encouraging.
“We’ve been very pleased. We see growth in usage every single week,” Brown said. In October, 40% of Time Warner’s addressable customer base used VOD, a number he put in the thousands. At first the activity was driven by movies on demand, with 70% of PPV movie buys done through VOD. But the system has also begun offering basic cable network programming at no charge to get people into the habit of “doing the transaction.” HBO and Showtime on-demand packages are also being offered.
The Minneapolis market is still recovering from Sept. 11, which hit Northwest Airlines particularly hard during last year’s fourth quarter and this year’s first quarter, when the airline began rehiring some of its laid-off workers. Since April, Brown said, “we’re seeing a return to normal business levels.”
Time Warner also encountered some disruptions as it completed the rebuild of its plant last year and focused on getting reliability back where it had been and improving service delivery levels.
The system upgrade began in fall 1998; it was completed in the suburbs by the end of 2000 and in the city of Minneapolis in December 2001.
Minneapolis had an A/B dual 450-MHz system that was converted into an 870-hybrid fiber/coax system. In the suburbs, a more standard 450 system was converted into the 750-MHz system typically built by Time Warner Cable.
The extra bandwidth in the city allows Time Warner to carry the extra PEG channels the system had been carrying, said VP of engineering Scott Olson, who recently marked his 20th anniversary with the system. “I started out as a service technician and kind of worked my way up the ladder. I got to see the technologies evolve,” said Olson, who was an engineer during the planning stage of the upgrade and then got promoted and ultimately supervised the upgrade.
The new system relies on Scientific-Atlanta optics, a Philips RF platform and S-A set-top boxes.
The system has one master facility in Eden Prairie that services Minneapolis and all of the surrounding suburbs. It also services all of its digital and high-speed data platforms in New Ulm with a 100-mile fiber link. “The only thing the head-end there supports is our analog channel lineup,” said Olson. “Everything else is transported from our master facility in Eden Prairie to New Ulm.”
The system has 18 hub sites, most of which serve about 20,000 homes. Within the city of Minneapolis, Time Warner Cable has four virtual hubs, each of which serves between 60,000 and 80,000 homes.
Once the upgrade was completed, the engineering department got to work on customer service. New drop-back procedures keep customer disruption to a minimum when software is upgraded; if something doesn’t work right, the system can be quickly restored using the old software. “And we do this in the early a.m. hours so there’s less impact on customers,” Olson said.
The system has also instituted a new way to bury drops. “Basically from Nov. 15 to April 15 the grounds froze up here,” so cable drops to newly installed homes and housing developments were left on the ground and buried when the ground thawed in the spring, he said. Now, as foundations are being laid, the cable operator installs conduits. “We just pull this drop through the conduit we’ve already got in place and plug them in,” said Olson. “As a result we’ve got much happier customers.”
With these and other changes in place, Time Warner Cable’s trouble calls have dropped from 7,300 in 2001 to 5,400 in 2002 through November, leading to a 26% reduction in truck rolls and a reduction in costs. “We’ve devoted more resources to training our employees,” Brown said. The advanced services put new demands on field technicians as well as on phone operators, who, once trained, were able to troubleshoot and avoid sending out technicians.
Minneapolis boasts a $300 million television advertising market. Cable ad sales are not measured, but ad buyers and broadcasters estimate that cable’s share of the market is between 5% and 15%, depending on the demographic.
“With Gold’n Plump chicken, which skews female, cable is 5% to 10% of our buy,” said Anne McKean, manager of spot broadcast at the Martin Williams ad agency. “For Polaris Industries [which makes snowmobiles and personal watercraft] it’s more,” since the buy includes ESPN and other high-priced sports programming.
“They’re making an impact,” said Trey Fabacher, general sales manager at ABC affiliate KSTP-TV.
Time Warner Cable covers the city of Minneapolis and some suburban and rural areas, while AT&T Broadband serves St. Paul. According to one buyer, “they’re both viable entities.”
Nevertheless, McKean said most of her agency’s larger clients tend to buy the interconnect, leaving the Minneapolis system selling to mostly car dealers and local restaurants.
Roger Werner, regional VP, Time Warner Cable ad sales, had a very busy October and November as hotly contested races for governor and the U.S. Senate poured millions into the local media, including cable.
“The good news is it was lots of money,” Werner said. “The bad news is after the election; it was like a retailer that went out of business.”
A good amount of end-of-the-year ad dollars is still flowing from retailers and entertainment advertisers, Werner said. And since snow held off through late November this year, there was a longer automotive season than usual.
Time Warner Cable has nine account executives in Minneapolis. The entire system is sold as a single geographic zone and can insert up to 42 channels. Werner declined to discuss pricing but said his organization is shifting from selling run-of-schedule packages to picking the most appropriate shows for advertisers. About half of its ads are sold on a program-specific basis, he said.
“We’re highly focused on specific programming and sports opportunities,” he said. A staffer dedicated to sifting through programming that can command premium prices from clients has been added.
“We’re getting better at it,” Werner said. “As the networks bring more salable properties, we can convert to a different pricing model.”
NFL football on ESPN is the most popular program on cable, although the system also did well when Twins playoff games appeared on ABC Family last fall. “Local sports tend to be the best,” he said.
But most large clients are interested in buying the whole DMA, and that means buying through the interconnect.
“There have been times in the past where we have looked at just Minneapolis,” said Corey Johnson, media director for Carmichael Lynch. But we mostly buy the interconnect because it almost has a footprint to the full DMA now.”
The agency’s biggest client is Blue Cross/Blue Shield, which does business statewide and in parts of Wisconsin. “That’s what leads us to the interconnect,” he said.
The Interconnect of the Twin Cities has doubled in size over the past year, employing 20 people. Much of the growth stems from Charter joining the venture, adding about 100,000 homes in some of the surrounding small towns and suburbs. The interconnect now covers an area that closely matches the broadcast DMA.
“We’re up for every piece of business,” said Dave Baker, general sales manager at the interconnect. Baker and many of his colleagues have been in the market for years, working for one of the local broadcasters. In September he hired as local sales manager Tom Bourassa, who had been with the local Fox affiliate.
The experience pays off because selling cable is harder than selling broadcast, Baker said. “A lot of it is educating the planners and the buyers. These guys can get deep into the agencies,” he said.
Baker would not discuss pricing but said buyers want to pay the same cost per point as they get from the broadcasters. “We try to get a premium because cable is more targeted. That’s the approach we take. But we’ve got to deal with the market cost per point.”
Some buyers are hearing cable’s message. “The people that we’re trying to target for some of our clients tend to have cable, so…we can still justify the slight cost per thousand premium that cable gives in comparison to broadcast,” said Johnson of Carmichael Lynch.
The interconnect had some success with sports programming, in particular, the Olympics and the NCAA hockey tournament, which aired on ESPN and ESPN2. The hockey tournament was held in St. Paul and included the University of Minnesota Golden Gophers.
Recently, Baker was able to sell premium packages on Sci Fi’s miniseries Taken. “There was pretty good uptake,” he said.
But McKean said the interconnect doesn’t seem to get enough inventory from the local systems, particularly for high-demand shows like A&E’s Biography. According to Werner, about 30% of his system’s avails are dedicated to the interconnect.
Like many cable operators, Time Warner is making efforts to tie itself in to its community.
“We have encouraged our employees to get more involved from a voluntary standpoint,” Brown said.
Minneapolis is surprisingly diverse. People of color comprise about 25% of households, and there’s a large population of immigrants from Southeast Asia, according to Brown.
To match that, “I’m proud to say we have a fairly diverse work force,” he said, with more than 40% being people of color.
Brown is also taking Time Warner deeper into the community by supporting community-based organizations involved in education and economic development.
MEET THE OPERATOR
Eric Brown President
Brown oversees all business and technical operations for Time Warner Cable systems in the state of Minnesota. Prior to his arrival in Minnesota in December 2001, he was VP and general manager for the Northern region of Time Warner Cable’s Los Angeles division. He was previously VP of marketing in Los Angeles. Prior to joining Time Warner, Brown was VP of corporate marketing for Times Mirror Cable Television. He began his professional career with the Procter and Gamble Co., working in brand management.
Scott Olson VP of engineering
Olson oversees all engineering and technical operations for Time Warner Cable’s systems in Minnesota. He began his career in 1982 as a utility technician with Rogers Cable TV, Time Warner’s Minnesota predecessor. Later that year he accepted a maintenance/return technician position and was assigned to the Minneapolis system, where he remained until 1990, when he was promoted to installation/service supervisor. In 1998 he was promoted to project manager, taking on responsibility for the engineering, design, upgrade and construction groups.
Mark Hammerstrom VP of sales and marketing
Hammerstrom is responsible for the Minnesota division’s growth strategy and execution. He graduated from St. Cloud State University in 1977 and held management positions with Target Stores until 1980, when he was hired as a customer service representative for Storer Cable in Fridley, Minnesota. In 1981 he was sales and marketing manager for Storer in the Twin Cities area. Nortel Cable Associates purchased the cable systems from Storer in 1986, and in 1987 Hammerstrom became general manager. He joined Time Warner Cable’s Minnesota division in 1994.
Kimberly M. Roden VP of public affairs and customer service
Roden is responsible for 170 employees and a budget of nearly $8 million. She has a B.A. from the University of Minnesota School of Journalism and an M.A. from the university’s Humphrey Institute of Public Affairs and Department of Political Science. She began her career in 1977 as assistant director of public relations for the Fairview Community Hospital system in Minneapolis. In 1981, she was promotions director for United Way of Minneapolis, and in 1982, she joined Minnegasco, a gas utility company. Roden joined Time Warner Cable in April 1993.
TIME WARNER CABLE
HOMES PASSED: 385,032
MILES OF PLANT: 3,300
PLANT UPGRADED TO DIGITAL: 100%
BASIC SUBSCRIBERS: 208,846
BASIC RATE: $10.24
BASIC LINEUP: Local broadcast, WGN, TBS, CSPAN, PEG channels, Shop NBC, HSN, MTV2 (part time) and Shop@Home (31 chs.)
DIGITAL TIER RATE: $7.50
HIGH-SPEED INTERNET RATE: $44.95 to $54.95
LOCAL AVAILS: 42 channels
SOURCE: TIME WARNER CABLE
Time Warner Minneapolis Scarborough Research Profile
Comparison of Time Warner Cable subscribers in Minneapolis to the top 75 market average.
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