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Vying for Viewers
Cable and satellite operators scramble to attract Hispanics with ever-expanding offerings that go beyond simple TV
November 01, 2006
By Janet Stilson
MATIAS EICHBERG is stuck on DIRECTV, and he doesn't care if it costs more than other multichannel platforms. Eichberg, 34, is a native of Argentina who runs a translation business in Tampa, Fla. He subscribes to the local cable company, Bright House, for his high-speed Internet service. But even though he'd enjoy a cost savings if he subscribed to Bright House's TV service, he isn't interested.
"I'll pay a little more to get the programming I want," he says. "With DIRECTV, you get channels from places like Spain, Chile, Argentina. I like to follow the news of what's going on in South America. … They aren't as held back when talking about American politics and foreign policy."
But Eichberg's view about the value of a Spanish-language tier of program channels is far from unanimous. Just ask Martha Yepes, a 51-year-old native of Colombia, who lives in the seaside community of Milford, Conn. She and husband Hernán, who is an acting dean at a local community college, subscribe to Cablevision Systems. But they have no interest in paying more for a special tier.
"Once in a while, we'll watch Univision or Telemundo [on the basic channel lineup], but just for the news," Yepes says. Their college-age daughter is only interested in the mainstream MTV channel. Sure, they've received the "propaganda" from the satellite providers, "but we think there are so many channels and very few things to watch."
Finding more Eichbergs, and convincing more Yepes, is only a small part of a fierce battle going on between cable, satellite and even telephone companies as they attempt to charm the public with an ever-expanding array of services, not the least of which is television programming.
The challenges are many and one of the biggest is the issue of keeping Hispanic customers satisfied once they do subscribe. A consumer survey from Horowitz Associates in the spring included a rather troubling set of statistics: Some 14 percent of the respondents said they might disconnect from cable; 10 percent said they might switch from cable to satellite service; and 15 percent said they might disconnect satellite service.
"Those are big numbers," says Howard Horowitz, president of the Larchmont, N.Y.-based research company.
Another big challenge is fending off the competition. And nowhere is this more evident than in San Antonio, where a growing number of companies have touched down to pitch their video and telecom offerings to a population that now stands at 54 percent Hispanic, according to Miami-based research firm Synovate.
In a sense, the battle of San Antonio is a preparation of things to come.
"We believe that much of the United States will eventually look like San Antonio today," says Jon Gary Herrera, a third-generation Hispanic who serves as vice president of government and public affairs at Time Warner Cable San Antonio.
Time Warner Cable spent decades as a de facto monopoly supplier of cable programming in the market. But those days are long gone. The company not only competes in San Antonio with a five-year-old cable upstart Grande Communications, but the two national satellite platforms, DIRECTV and EchoStar Communications' Dish Network. As if that weren't enough, the telecom monolith AT&T Inc., which is headquartered in San Antonio, chose the city to officially launch its new television service, Uverse, earlier this year. (See chart, page 36)
It's no coincidence that so many well-heeled companies are available in a community so infused with Latino culture. "The easy growth days of rising multichannel penetration are over," notes Craig Moffett, the New York-based vice president and senior analyst of U.S. cable and satellite broadcasting for Sanford C. Bernstein & Co., which executes trades in the stock of some multichannel providers like EchoStar and Comcast Corp., parent company of Comcast Cable Communications. "The cable companies have had to look harder to find underserved segments of the population. And the biggest — by a wide margin — is the Hispanic market."
Tiers of channels catering to Hispanics are now de rigueur for most platforms targeting the top Latino markets — or, in the case of the satellite platforms, the country as a whole. But Moffett and other industry observers note that the various platforms' aggressive Hispanic marketing and programming strategies are becoming more sophisticated. What's more, new technology is being introduced allowing some providers to offer a limitless number of channels: switched broadcast video and Internet Protocol TV (IPTV). And there is an expanding array of "extras" like wireless phone service. Together, the changes are likely to shape-shift the industry in the coming years. And that will inevitably alter the competitive clout of the various players.
To understand what's occurring, and what it means to the many program networks targeting Hispanics, it pays to look at some of the underlying dynamics. Currently, about 77 percent of all Hispanic TV households in the U.S. subscribe to either cable or satellite service, according to September 2006 data from Nielsen Media Research. For their part, the telcos just started introducing video service, so their numbers are still fairly negligible. Nielsen reports that the Hispanic TV household universe is about 11 million. That means there are about 8.5 million multichannel subscribers of Hispanic origin.
Industry estimates put Hispanic households that subscribe to special Spanish-language tiers of channels at about 3.5 million, with the satellite platforms comprising about 2 million of that figure and the cable operators about 1.5 million. The only platform that is on the record about its Spanish-language tier sub count is DIRECTV, whose officials report it stands at about 1 million — up threefold since News Corp. took over the company in 2004.
The good news for the program networks is that while the vast majority of channels are relegated to tiers serving such a small universe the many packages of Spanish-language channels offer different mixes of channels, so most have found solid ground with at least one multiple system operator (MSO) or direct broadcast satellite (DBS) platform. The bad news is it's a challenge to make a profit when the subscriber base is so minuscule. It makes attracting advertisers much more difficult, and sources say the monthly per-subscriber fees that most of the channels attract are mere pennies, probably in the low double digits.
"With the exception of one or two signals with broad distribution — like NBC's bilingual channel mun2 and Univision's Galavisión — most of the channels are going up on the tiers," says Chris Fager, the Los Angeles-based president of the TuTv package of channels, a joint-venture between Univision Communications and Grupo Televisa. "It's a good thing most of the channels have repurposed programming [from overseas channels or mainstream U.S. networks]. They can't spend a lot of money on programming when it's going to so few homes."
Fager notes that there are around 90 Hispanic program channels in the U.S. that are either Spanish-language services or English-language channels targeting Latinos. He sees no clear sign that the number of Latino channels in the U.S. will diminish anytime soon. "Obviously there are other companies in America that will come to market, repurposing programs en español," Fager says. "And why not? Look at Desperate Housewives with its separate Spanish track."
EXCLUSIVELY SATELLITE
Dish Network and DIRECTV are inking exclusive carriage agreements with the networks. That's a key differentiation for both. Most of the exclusives are specific to satellite delivery, although some are exclusive in both the cable and satellite realms. DIRECTV has 12 channels that are exclusive in the satellite window, out of a total package of 31 Hispanic TV channels on the platform's "Selección Extra" package. The exclusive channels range from Puerto Rico's WAPA America to Sur Perú and Ecuador's Ecuavisa International.
"We decided about a year and a half ago to go after exclusives," says Aaron McNally, vice president of international programming at DIRECTV, noting that one of the exclusives to both satellite and cable is the TyC Sports channel, a popular Argentine service.
Dish has a few of its own exclusives, including the Ecuadorian service Canal 1 and TV Colombia. Dish was ahead of the multichannel business pack when it introduced the industry's first tier of Latino channels in 1998. Carolina Padilla, director of multicultural marketing for Dish, won't reveal subscriber numbers, but industry sources say it's still the fastest growing, when judged by total subscribers, and that it currently stands at about 1.1 million.
In the beginning "we had six or seven Hispanic channels," Padilla says. It expanded the lineup in 2003 to three Hispanic tier alternatives, and then in 2005, Dish rolled out a more expansive array of Hispanic packages of channels, which combine a standard lineup of over 30 Latino services with different combinations of audio and mainstream TV channels. Each package is focused on a subset of the Hispanic population, from recent immigrants to the highly acculturated. In addition, it now has a pre-pay option for the credit challenged, which it calls Dish Ya!
It's not stopping there. Data from TNS Media Intelligence shows that Dish has ramped up its advertising expenditures to promote its Hispanic services — from just under $3.5 million in the January to July 2005 time period, to about $10.7 million for the same period this year. In the same two periods, DIRECTV's ad spend dipped just slightly, but still was higher than Dish: from just under $12 million in 2005 to just over $11 million in 2006. (See spend chart, page 35)
Will DIRECTV ramp up that promotional effort much in the next year? "No," says DIRECTV's McNally. "The more nuanced answer is, we're looking to attract subscribers that stick with us a very long time. We have upfront costs [for equipment, when a new customer signs on]. And we have to make it back over the years." With that in mind, DIRECTV is more carefully screening the financial standing of their prospective customers to make sure they're credit worthy.
Sanford C. Bernstein's Moffett adds some context: "DIRECTV gained a lot of growth in 2004 and 2005 by catering to the Hispanic segment. It was off the charts. At the same time, churn rose sharply, because the quality of the subscriber base declined, and they were forced to pull back." He notes that many of the new subscribers weren't able to keep up with the monthly payments. "That has undoubtedly put the breaks on their rate of growth," Moffett says.
Strutting their stuff via promotions — and pointing out the exclusive advantages — is extremely crucial to the satellite platforms, notes Luis Torres-Bohl, president and founder of Atlanta-based Castalia Communications Corp., which represents several overseas channels in the United States. Castalia also has created Mexicanal, which features programming from various regions in Mexico and which has an exclusive carriage agreement with DIRECTV in both the cable and satellite realms. "Cable has more things to offer [subscribers], because of the apparent technical advantage they have," he says, referring in particular to video on demand (VOD).
THE ON-DEMAND, PHONE EDGE
Not all the large cable operators have launched Hispanic offerings on their VOD platforms, but the ones that do say it's a hit. In San Antonio, over a year ago, Time Warner Cable rolled out programming from Mexico-city based TV Azteca, and it has become of the most popular VOD offerings for the system, according to Time Warner Cable's Herrera.
Another VOD proponent is Comcast Cable Communications, the cable operations unit headquartered in Philadelphia. Comcast ranks as the largest cable provider in the U.S. and passes 4 million Hispanic households with its infrastructure. Comcast launched its free "On Demand en Español" service two years ago. And its selection of 100 hours a month from a variety of Hispanic channels attracted 7 million orders in 2005, says Mauro Panzera, senior director of multicultural marketing at the company.
This year, Comcast systems are collectively averaging 120,000 orders a week, according to the company. In September, it increased the selection to 125 hours a month. "Movies are No. 1," says Panzera, about the most popular genre. "Sports, music and children's programming fight for the second spot. Those are very key genres and dear to the hearts of Hispanics.
"Demand makes the product much more valuable" to Hispanics, he adds. Comcast is also expanding its Paquete Triple de Comcast — a bundled package of cable TV, phone and high speed Internet. By November, Paquete Triple will be in eight of the company's top 10 markets.
Comcast is far from alone in offering special triple-plays of appeal to Hispanics. And many of them include special international phone rates. For example, the large Multiple System Operator Cox Communications, based in Atlanta, Ga., has two bundles that combine TV and phone service, one offering 60 free minutes of calling to Mexico each month, and the other offering 120 minutes a month.
Tony Maldonado, vice president of acquisition and marketing sciences at Cox, says the company is taking a holistic approach to Hispanic service. "One of our acid tests is anything we do in English, we make sure we do the same in Spanish," he says. That translates into Spanish-language bills, Spanish-language customer service reps in local markets, and coming soon, a Spanish-language Web site.
Also ahead for some MSOs is mobile services marketed to Hispanics. Panzera expects Comcast will offer that in the next few months. "Hispanics over-index in wireless [usage]. It will be huge in the Hispanic community."
But the satellite providers are not without their own versions of added service. Both Dish and DIRECTV are partnered with telephone providers to offer high-speed Internet and phone service. For example, Dish is allied with AT&T and Sprint Nextel Corp., while DIRECTV counts among its partners Verizon and Qwest Communications.
DIRECTV also offers the Direcway satellite Internet service, and both DIRECTV and Dish are expected to roll out VOD on a more limited basis than the cable companies in the first half of 2007. But industry observers say that may not be enough of a hedge. "I personally think that the satellite providers have a problem," Horowitz says. "It has nothing to do with ethnicity. It has to do with the technology they can deliver."
HERE COME THE TELCOS
If all the new technology and offerings have been keeping the satellite companies up at night, clearly the phone companies are doing the same to the cable operators. Verizon Communications has its FiOS multichannel TV service up and running in six markets so far, including Los Angeles, Dallas-Ft. Worth and the New York metro area, says Joe Paz, Verizon's group manager of multicultural marketing, based in Irving, Texas. And a spokesperson for AT&T says the company's Uverse TV service will be in 15 to 20 markets by the end of the year.
In particular, AT&T's use of Internet Protocol television (IPTV) technology for the delivery of channels can make its lineup of networks virtually limitless. So there's little wonder that in San Antonio it offers the largest package of channels geared to Hispanics in the country: 50.
But in yet another example of how technology can change the playing field, some cable operators are starting to deploy switched broadcast video. Simply explained, rather than delivering all channels at one time to a given household, the cable company sends subscribers only the channels that are being used at a given point in time. In freeing up the system, it has the opportunity to offer up more channels than it did before the new technology was put in place. "It's cable's answer to IPTV," Moffett says. "It means they can now send an infinite list of choices to the home."
Moffett expects this will be "transformational in the delivery of Hispanic programming." He notes that Cablevision Systems, an MSO that services many communities in the greater New York City area, recently announced it is in the process of deploying switched broadcast video across its entire footprint, and the company cites one of the key motives is to increase its Hispanic offerings.
Not surprisingly, Time Warner Cable has earmarked San Antonio as one of its first markets to roll out switched broadcast video. Herrera certainly expects that it will allow his system to expand its offerings to Hispanics. "Not only will we add many more channels, but also many more products," he says, referring to different speeds of Internet service and different phone "extras."
Some industry executives say that isn't enough. According to the Horowitz survey, 16 percent of all Hispanic cable and satellite subscribers in urban markets actually subscribe to a Spanish-language tier. That's an increase from 6 percent who said they did in last year's survey. However, Horowitz doesn't think that rate of growth will be necessarily maintained moving forward.
"I think that the big changes came about in the past after operators eliminated a lot of buy-through requirements, and there was a lot of stepped up competition," he says. In speaking of "buy through," he refers to the practice of forcing customers to pay for costly basic tiers of service to get to Spanish-language packages, a strategy that has been discontinued by many operators.
The real opportunity, Horowitz says, is for platforms to fine-tune their offerings, so that they cater not to just Hispanics that prefer their TV in Spanish, but a wider spectrum of people, such as to bilingual speakers and the highly acculturated. It's pretty common to find some of each group all residing in one multigenerational household, he says.
A similar view is held by Miguel Gomez Winebrenner, a Chicago-based senior consultant for the Hispanic practice at research firm Cheskin. "That brings us to a bunch of challenges for the DBS and cable operators," Winebrenner says. "They need to readjust their packages and bring in more relevant programming." He notes the importance of channels like mun2, which uses a Spanglish approach and original U.S.-produced programming to reach young Hispanics.
That thought is echoed by Michael Schwimmer, CEO of Sí TV, applying his own channel as the perfect model. "Operators need to create a strong connection, and need to address that not only with Spanish-language programming in Spanish-language tiers, but culturally relevant programming in basic tiers," he says.
Some observers say operators are becoming more discriminating about programming. "I am seeing a natural evolution as the relationships deepen and grow between programmers and operators," says Marlene Braga, director of programming for The History Channel en español.
"People are much more aware than they used to be that there is this vast underserved audience," Schwimmer says. "The conversations are easier."
That may mean that in the future reluctant consumers like Martha Yepes and loyal customers like Matías Eichberg may change their ideas about multichannel television.
As the competition mounts, prices could dip — a natural consequence of changes in the supply and demand equation. What's more, channel lineups are likely to expand and become more discerning of Latino tastes, and new services like mobile telephony are likely to sweeten the deals.
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