Cable Firms Salivate Over Slices of Adelphia Pie Time Warner, in Particular, Aims to Use Its Piece to Offer New Services in Key Markets
By SHAWN YOUNG and PETER GRANT Wall Street Journal July 13, 2006; Page B2 http://online.wsj.com/article/SB115275014933405184.html?mod=todays_us_marketplace Roger Keating is high on the list of the people looking forward to when Time Warner Inc. and Comcast Corp. buy and then carve up the cable systems of Adelphia Communications Corp., a deal the Federal Communications Commission is expected to approve today. Mr. Keating, who is the head of Time Warner Cable's Los Angeles division, for years has been frustrated by the fact that Los Angeles has been splintered among five cable companies. Satellite-TV and telephone-company rivals have been able to outmaneuver cable companies, which have been hamstrung in their marketing efforts and their ability to introduce new technology. "We've really been competing with our hands tied behind our backs," Mr. Keating says. Those bonds should come off July 31, when the $17 billion Adelphia sale is expected to close. When the dust settles, and Adelphia's cable systems are divvied up, Time Warner will add 3.5 million subscribers for a total of 14.5 million. Comcast, the country's largest cable operator by subscribers, will increase its total by 1.8 million to about 23 million customers. More important, the Adelphia sale, combined with planned system swaps by Time Warner and Comcast, will strengthen Time Warner's grip on Los Angeles, Dallas, Cleveland and parts of New York, while beefing up Comcast's presence around Miami, northern Virginia, Boston, Minneapolis and Pittsburgh. In Los Angeles, after the Adelphia deal, Time Warner's systems will be able to provide service to 75% of the households, up from 15% today. Gaining critical mass in major markets is crucial for cable operators, which face competition not only from their traditional satellite-TV rivals but also from phone companies that are upgrading their networks to offer faster high-speed Internet service and television. Cable companies are fighting back by adding telephone services and improved TV-viewing features such as advanced interactive guides. (See related story on cable networks.) Adelphia, which has been operating under bankruptcy protection since 2002 in the wake of a scandal involving its founding Rigas family, hasn't been able to move as aggressively. As a result, Time Warner and Comcast have their work cut out for them to woo customers to cable. Close to 28% of Los Angeles-area residents subscribe to satellite TV, the highest rate in the nation, according to Forrester Research. More than 30% of the households in the region get high-speed Internet connections from telephone companies, compared with a 20% share for cable operators. In most other regions, cable operators dominate the broadband business. Introducing phone service is going to be a key to Time Warner's new strategy in Los Angeles and elsewhere. Along with other cable operators, Time Warner has been successful at packaging phone service with its cable and broadband offerings for a special price, currently $119 a month in its Los Angeles systems. The company had 1.4 million phone subscribers at the end of the first quarter. Time Warner is planning to begin offering phone service in Adelphia's Los Angeles systems before year's end. "Customers with both video and data are sticky; they stay with Time Warner longer," Mr. Keating says. "But if we can get digital phone into the home as well, that's like Super Glue. They're tremendously loyal." Time Warner, which has been a technology pioneer in the cable industry, will likely launch in Los Angeles new features that it has begun to test in other markets. The cable operator, for example, is expanding its "start over" feature that it rolled out this year in Columbia, S.C., which lets viewers watch a program from the beginning even if they've tuned in while it's in progress. Time Warner also has been working closely with programmers including CNBC, CNN and the Weather Channel on something called "Quick Clips," providing Web videos. The service enables viewers to push a few buttons on their remotes to call up a menu of videos that these networks have produced for the Web. "It's one thing to tell a Hollywood producer about Time Warner's video delivery features at a meeting," Mr. Keating says. "It's another thing when he comes home and can use 'start over' or interactive polling." Soon after the close of the Adelphia deal, Time Warner is planning a multimedia marketing campaign to announce its arrival. Until now, the five cable operators in Los Angeles have been reluctant to use regionwide advertising because their pitches would be wasted in neighborhoods not able to get their services. As a result, Time Warner often was restricted to direct-mail and door-to-door sales efforts, says Mr. Keating. In the campaign, Time Warner will advertise on broadcast TV for the first time, as well as billboards and "welcome kits" with product and service information for existing Adelphia subscribers. Phone companies and satellite operators aren't planning to sit idly by. By year's end, AT&T Inc. plans to offer its new Homezone service, a combination of satellite TV and Internet video-on-demand, in the region. The company currently has a promotion in the area that offers unlimited home telephoning, 450 minutes of Cingular Wireless service and high-speed Internet for $95 for the first six months. The offer includes a free phone and a $125 gift certificate, a company spokesman said. Verizon Communications Inc., which has been upgrading its systems in the region by stringing fiber-optic cable directly to homes, is planning a media blitz before Time Warner Cable gets up to speed, says Kim Cochran, Verizon's director of regional marketing for the West Coast. "We definitely have some plans to protect our market share," she says. And DirecTV Inc., which has Los Angeles as its largest market, said it intends to continue to package its services with those of Verizon for customers who want combined phone, Internet and video. Cable-industry consolidation will likely continue as competition among telecom players intensifies. Time Warner executives have indicated they are interested in more acquisitions. After the Adelphia deal closes, the company is planning to issue stock in its cable subsidiary. That will give Time Warner a currency to use in future deals. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
