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Independents usher in the dawn of DVR.

For independent telcos, the age of the digital video recorder (DVR) has dawned. The technology, which allows viewers to digitally record and store programs that they can watch whenever they choose--"time shifting," in TV industry parlance--has created added revenue opportunities for rural video providers and has given customers one less reason to look to competing video providers.

Across the Country

Recent research confirms that DVR growth and penetration have increased substantially in the past few years. The Leichtman Research Group Inc. (LRG) in September 2008 released "On-Demand TV 2008: A Nationwide Study," based on a survey of 1,300 U.S. households. The report revealed that 27% of TV households in the United States have at least one DVR, and that 30% of those homes have more than one DVR.

"The number of U.S. households with DVRs has essentially doubled in the past two years, and--with a continued push from cable, DBS [digital broadcast satellite] and telco TV providers--will likely double again over the next four years," predicted Bruce Leichtman, the group's president and principal analyst. The group foresees the total share of TV viewing time in the United States from DVR and on-demand programming increasing to 16% by the end of 2012, up from its current level of 6%.

Magna, a media consulting branch of Interpublic Group, puts DVR penetration at 52.3 million, or 44%, of U.S. TV homes by 2014. That represents a surge from the third quarter of 2008, when DVRs were found in 28.6 million, or 25%, of U.S. TV households. And what is the demographic Holy Grail among DVR devotees? The youth market.

"DVRs will continue to disproportionately impact younger target audiences and network prime time," wrote Brian Wieser, director of industry analysis at Magna.

Making the Case

For rural telcos, increasing demand for DVR service has provided a learning experience that has been better for some companies than it has for others.

At Star Telephone Membership Corp. (Clinton, N.C.), the company first offered DVR service to customers of its cable subsidiary, Star Vision Cable, before quietly launching IPTV in February 2008 and adding a DVR option last August. "You've got to offer what your competition is offering, just to be competitive," said Kyle Randleman, marketing manager at Star.

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In this case, the new technology also was seen as a way to keep customers from switching to an alternate video provider. "From the research I had put together, DVRs are classic ways of reducing churn," Randleman said. "I needed some kind of churn reducer for our system. That's why we rolled it out."

Ballard Rural Telephone Cooperative Corp. (La Center, Ky.) is ramping up for a launch of DVR early this year. Stephen Jones, customer marketing manager, said the telco is rolling out a fiber network that will allow for IPTV--an upgrade over its current TV-over-DSL network, which reaches 60% of the telco's customers.

"We're in the TV business today, and the system we're using is going away," Jones said.

Once the company started losing customers because it could not satisfy requests for high-definition (HD) programming, it moved toward fiber, which accommodates the customers' demand for more HD programming. "We have had a lot of requests for DVR and HD. together," Jones said. "We hadn't been able to get some customers because of that [lack of DVR and HD]."

That will change with the new fiber network, which Jones said will reach "every single customer" in the telco's service area. The fiber rollout will extend to seven exchanges over five years.

"We have not quite 6,000 access lines and 2,000 TV customers," Jones said. "For IPTV we want to get to 2,500 or the 3,000 mark. Once we can reach these other customers, I don't think it will be a problem because we're really the only community-based company here. Our local presence is very strong. Our customers are as loyal as can be. We're in a pretty good position to compete with the larger guys."

Downturn Challenges

Although independent telcos have weathered the economic downturn so far, the introduction of new services has presented some challenges in terms of take rates. Deron Steiner, marketing manager at RTC Communications (Montgomery, Ind.), said customer sign-ups for the telco's television product have been slightly below expectations the last few months.

"I don't know if it's the economy, the holiday season or exactly what the reason is for the lower numbers," Steiner said. "Overall, though, we are pretty pleased with where we are at in terms of new subs."

RTC launched IPTV service in October of 2007 and started offering DVR service last January. "We're at about a 12% to 13% take rate for DVR," Steiner said. "We honestly had no idea what the take rate might be. Most people around here are fairly price-conscious. There are a lot of folks who just aren't willing to pay an extra $5 or $6 a month for the service. For some people, it's just not worth the cost. For others, if we didn't offer the DVR product, they wouldn't sign up for our television service. It's that important to them."

Technical Challenges

As their customers have embraced DVR service, telcos have had to make their own adjustments to the new technology. Some, like Star Telephone, have chosen to pursue a soft launch for the service, allowing time to resolve any service problems before more broadly marketing the DVR option.

"We started releasing DVRs into the test population and had some quality issues," Randleman recalled. "We ceased to sell DVRs for a period of time. It took us a while to determine that the DVRs were the problem. There was some code that was needed and some upgrades and updates for set-top providers to work better with the middleware providers. But it was also an educational issue on our behalf."

System capacity issues also surfaced once fans of the technology caught a fullblown case of DVR fever. When those customers started to use multiple DVR set-top boxes to record several programs simultaneously, the telco began to hear complaints that the customers' video streams were "blocked up," Randleman said. "Quality of service became an issue."

The telco's solution? "We now have limitations as to how many set-tops can be in the home depending on distance and how much bandwidth we have. We had to start limiting it because people were pushing it."

The experience has been smoother at RTC Communications, which is part of a larger video network in Indiana. "We haven't seen many glitches," Steiner said. "Of the eight or nine companies involved with this partnership, we were seventh or eighth to launch. We are fortunate in that our friends did most of the work in getting the glitches ironed out."

Randleman said it can be difficult to win back customers alienated by a service offering still working out its kinks.

"I would suggest a long burn-in period, where you get out there with some test accounts and get all these bugs worked out," Randleman said. "We're still doing a soft rollout even though it [DVR] has been available for months now. With no marketing or advertising, we're trying to slowly wade our way into it."

If companies don't offer a good product upfront, customers may turn to a competitor--and that's the last the telco will see of those customers for some time.

"Satellite is going to make them sign a two-year commitment, and you're not going to have the opportunity to win that customer back for over two years," Randleman said. "So you better do it right on the front side, because if they're not satisfied, it's a long period of time before you can get the opportunity to win them back."

Customer Feedback

Telcos contacted for this article expressed satisfaction with the response to their rollouts of DVR.

"The people that have it seem to be extremely devoted to it," Steiner said. "We have some very dedicated NASCAR and baseball fans, and it frees them up. They can do whatever they want to do and watch things at their leisure. People have commented that it's literally changed their lives."

For younger customers, DVR has quickly become a part of their lives--and there's no going back to the "appointment TV" viewing that anyone in their 30s or older grew up with. The lure of that younger demographic speaks perhaps most powerfully to telco operators who are watching their customer base grow older, and who are wondering how to attract and retain the long-term customers of tomorrow.

John Klatt, president and CEO of Lakeland Communications (Milltown, Wis.), drew on his own family experience to show the appeal of DVR among younger customers.

"When I watch my sons and daughters, I ask them: 'You're watching TV, you're also on the laptop, and you're watching YouTube videos. How can you keep track of all of those?'

"My son says, 'Dad, I don't set my schedule to the TV schedule. I use the DVR, and I can watch it anytime I want.'"

Christian Hamaker is managing editor of Rural Telecom. He can be reached at chamaker@ntca.org.
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Title Annotation:MARKETING Matters
Author:Hamaker, Christian
Publication:Rural Telecommunications
Date:Mar 1, 2009
Words:1526
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