Accenture Study Uncovers Four-step Path to Help Maximize Cable Company Profits.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 12, 2001

U.S. cable companies should consider quickly taking four key steps to help realize maximum profits from their interactive television (iTV) services and get the biggest payoff from their investments in digital infrastructure and acquisitions, according to an Accenture (NYSE:ACN) study.

Facing serious competition from satellite operators and telcos, cable companies should begin taking these steps immediately to minimize the loss of valuable customers to satellite, secure a large and profitable customer base and realize additional revenues from iTV services.

Accenture conducted its study, Path to Profitability: How cable companies can achieve attractive returns on iTV services, to determine how the introduction of iTV products and services may impact the profitability and competitive positioning of U.S. cable companies. The study recommends that cable companies retain their most valuable customers - those who currently spend the most money on cable services - and rapidly enlarge their digital subscriber base by following four steps:

1. Roll out iTV services in a highly targeted way to maximize

benefits and reduce operational complexities and costs

2. Develop better, more sophisticated pricing and packaging

strategies to maximize medium- and long-term profitability

over short-term gains 

3. Offer the right content mix for video-on-demand (VOD)

services, based on an understanding of what content attracts

targeted subscribers and what generates profitable returns

4. Significantly improve the quality of customer service

The study also found that the first new services cable operators should introduce are VOD and Personal Video Recorder (PVR). These services attracted the highest interest among consumers surveyed, and have the highest revenue generation potential. According to Accenture, VOD could yield a company with five million subscribers and 600,000 digital customers more than $80 million in operating cash flow in Year 5. PVR could yield more than $35 million in operating cash flow in Year 5 for a similar company.

Safeguarding cable's most valuable customers is critical because they generate a significant percentage of current revenues and are likely to be the big spenders on new digital services in the future. It is important for cable companies to move quickly to preserve their customer base because in 2000 alone, satellite operators captured over $1 billion of new revenue from former cable customers, according to the study. Eighty-one percent of households surveyed cited more channels and programming choices as a reason for switching to satellite. Sixty-nine percent considered price a factor, while sixty-four percent cited better quality of services.

"Accenture's research clearly shows that cable companies need to stem the flow of these customers to satellite or they will find it very difficult to recover their investments in digital infrastructure. Furthermore, if these customers are lost, they will be hard to win back and cable companies may be forced to undertake expensive buy-back programs to do so," said August Geise, Accenture Partner and Cable & Satellite Industry Lead. "With a better understanding of consumer demand for specific iTV services and consumers' willingness to pay for them, cable companies will be better poised to offer the services to compete with satellite and increase cash flow, customer, and revenue growth."

Other notable study findings include:

-- 56 percent of cable subscribers who switched to satellite said
dissatisfaction with their cable operator's customer service was a motivating
factor, while 33 percent said it was a major reason for switching

-- Only 18 percent of analog subscribers say they are very or somewhat likely
to switch to digital at a $10 premium. Lowering the price difference between
analog and digital cable by 30 percent could double incremental revenue in Year
2

-- Sports and documentary videos on demand could generate over 200 percent
gross margin

-- Enhanced TV, high speed Internet and interactive games were the next most
popular services consumers would like cable companies to offer

In short, the study indicates that cable companies need to defend their customers much more aggressively. Having a digital cable offering will not be enough - they should offer iTV services to compete effectively. If cable companies wait until they complete their infrastructure upgrades or have capacity to launch all services to all markets simultaneously, the study suggests it may simply be too late.

About Accenture

Accenture is the world's leading management and technology consulting organization. Through its network of businesses approach - in which the company enhances its consulting and outsourcing expertise through alliances, ventures and other capabilities - Accenture delivers innovations that help clients across all industries quickly realize their visions. With more than 75,000 people in 47 countries, the company generated net revenues of $11.44 billion for the fiscal year ended August 31, 2001. Its home page is www.accenture.com.

Methodology

The Accenture study examined consumer preferences and buyer values in relation to iTV services. It included in-depth interviews with approximately 700 cable and satellite households and multiple focus groups to explore consumer preferences, level of interest and willingness to pay for existing and future digital services.

The survey covered consumer spending on all entertainment services, and other goods and services that might be completely or partly replaced by or augmented by iTV services. It also looked at consumers' awareness of the current offerings from cable and satellite companies, key purchase decision drivers, level of satisfaction drivers and their relative importance. Accenture identified five consumer segments with distinct needs, price sensitivities, propensities to buy, and other characteristics.