A New Connection with Customers
TEAM BRUINGENUITY
Jake Darby, Mark Glenn, Deepauk Murugesan
TWC losing to competitors, not cord cutters
Economy
Cord Cutting
Competition
3Q’11 ∆ in
Subscribers(1)
California Unemployment
Rate
+ 131,000
Today
Threat Neutralized
Tomorrow
Future Threat
+ 176,000
+ 327,000
(128,000
)
Immediate Threat!
• TV Essentials plan developed
for those affected most
• Future unclear as Netflix &
Hulu continue to face hurdles
• Price war for lower customer
tiers
• Affects entire industry
• Apple & Google actively
searching for opportunities
• Lack of differentiation in video
subscriber services
• Economy slowly stabilizing
• Market disruption imminent,
but uncertain as to means
Source: (1) 3Q’11 subscriber numbers provided in respective 3Q investor reports and 10-Q’s
Differentiation limited to secondary factors
Differentiating Factors
Infrastructure
Cable
Fiber to Home
Fiber to Node
Satellite
Availability
Strong Penetration
Slowed Expansion
Continuing expansion
Everywhere
Signature Features
iPad App
Fiber-Optic HD
Interactive TV
Sports Packages
Premium
Package
Parity in programming,
pricing, and basic features
-
Choice
Package
Value
Package
Price
- All Programming
- All Premium channels
- Multiple HD/DVR boxes
DVR and additional boxes
Expanded Digital and HD Programming
Premium movie/sports packages
On-line Offerings (e.g. HBO Go, iPad app, etc.)
- 100+ Digital Channels
- Limited HD Programming
- Short-term promotional offerings (Premium channels and/or DVR/HD boxes)
$30
$60
$90
TWC customers are unsatisfied ...
JD Power 2011 Residential Television Customer Satisfaction Study
Scoring Legend
Overall Satisfaction ProgrammingCost of Service
Billing
Offerings &
Promotions
Performance Customer
& Reliability
Service
AT&T U-verse
Verizon FIOS
DirecTV
Time Warner Cable
•
Survey results reflect customer opinions, not objective performance data
•
Previously established parity in programming, pricing, and basic features
 Conclude that reliability and customer service are driving poor overall customer satisfaction
How do we increase customer satisfaction?
Build satisfaction through improved connection
to customers
Issue: Low Customer Satisfaction
Objectives
Solutions
Improve customer service and features
Expanded SignatureHome services
Increase customer involvement in brand
New Loyalty Program
Allow customers to share with friends
New Referral Program
It’s all about the customer … every customer
SignatureHome ... Improve and expand availability to all customer tiers
SignatureHome Benefits
Execution Plan
• 30 minute installation window
• Phased roll-out within Southern Cal.
• Satisfaction guarantee
• Start with high income residents to
gauge willingness to pay
• Priority service line
• Increase customer service reps
• 24/7 advisors, no holding time
• Define metrics for customer satisfaction
(e.g. call wait times, management
referrals, JD Power survey, etc.)
• 2X reimbursement for outages (minimal cost)
• Priority Installation: $25 (Covers cost of labor for additional window time) (1)
• Annual Membership: $10-15/mo. (Revenue to support add’l customer service investment)
(1) Support for installation calculation provided in appendix
Boost loyalty and pride in current subscribers
Year 1
Year 2
Year 3
• Free On-Demand (3)
• 6 mo. Tier Upgrade
• 1 Year Tier Upgrade
• Free Premium Channel
• 6 mo. Sports Package
• 1 Year Sports Package
• Free Pay Per View
• $50 off cable bill
• $75 off cable bill
~$10 Cost
 Loyalty programs proven to boost pride,
involvement in brand
 Gain valuable customer insights, data
through sign-up process
 Customer value of rewards exceed cost
to TWC
~$30 Cost
~$75 Cost
Goal: Reduce churn and boost CLV
$1,000
$900
Break even with
8% improvement
in churn rate!
CLV
$800
$700
$739 current CLV
5%
10%
15%
20%
Churn Rate Improvement
CLV calculation provided in appendix
* Requires loyalty program sign-up for new and existing customers
Target referral program to multi-family residences
1ST Referral
Referral
Program
• Free box/DVR service
for both parties (1 Year)
~$50 Cost
 SoCal home prices continue to drive
residents towards apartments with high
turnover rates
 Choice of cable TV provider often based
on friend or neighbor
 CLV much greater than cost of referral
2nd Referral
3rd Referral
• Referrer receives free
package upgrade
• Referrer receives +$50
off current bill
• Free DVR for sign-up
• Free DVR for sign-up
~$100 Cost
~$100 Cost
CLV of new customers outweighs costs
$2,500
$2,000
$1,500
$1,000
$500
$0
Cost to TWC
CLV of New
Customers
1
2
3
Number of Referrals
CLV calculation provided in appendix
Looking toward the future…
The Industry
The Customer
Cable TV Forecasts (1)
% of TV Subscribers who also
subscribe to online video (2)
Revenue
+6.4% CAGR
Cable Subscribers
40%
+1.9% CAGR
40%
2002
2011
2016
• Higher-priced, valued added services driving
future revenues
• TV still essential in everyday life, but prevalence of
online video growing
• New technologies
-
Total TV- 2008: 4.2 hrs  2010: 4.4 hrs (2)
• Broadband
-
80-90% awareness of all online video(2)
• Higher margins cancelled out by new
investment in technologies, infrastructure
•
25% multitasking daily across media (3)
Sources: (1) IBIS; (2) eMarketer, Dec 2010, (3) Ofcom Media Report, August 2010
The two worlds are beginning to collide
Smart TV
•
WIFI + hard drive pre-installed
•
À la carte content via Apps available now
•
Large On-Demand Library (e.g. iTunes)
•
Steve Jobs: “Integrated television … simplest
interface … I finally cracked it”
Connected TV Penetration(1)
65%
8%
2010
15%
2011
(1) Morgan Stanley, May 2011.
New MSO competition
•
Leading tech companies evaluating new
infrastructure investment
•
Wireless and fiber-optic-based broadband
currently in test and trial phases
2015
TWC in prime position to capitalize on industry trends
and TV/Broadband convergence
Online Video
Popularity
TV Viewer
Multi-Tasking
TV customers declining,
Broadband increasing
TWC should reposition Broadband as primary service
1) Promote Broadband’s
competitive strength
2) Develop new multiplatform technologies
3) Investigate Strategic
Partnerships with Tech
-
vs. non-existent DBS
-
Second Screen Apps
-
-
vs. slower AT&T
-
-
vs. unavailable FIOS
Wirelessly Connected and
Personalized DVR
Combine cable and tech
industry strengths
-
Share infrastructure
expansion costs
Summary
•
•
Time Warner Cable losing subscribers primarily due to low
customer satisfaction versus its competition

New dedication to premium customer service to associate
TWC brand with quality and reliability

Loyalty and referral programs will also help to curb subscriber
loss and boost involvement in brand
While cord-cutting not significant issue, cable TV future is
filled with uncertainty

Repositioning broadband as signature offering will ensure
TWC brand maintains strong relevance in consumer’s minds
Appendix
Competitive Analysis
# of Subscribers in
Southern California
Method of
Content Delivery
Pricing and
Incentives
Differentiating
Features
Brand
Perception
2.7M
~.60M
~.24M
1.2M
• Traditional Cable
• Fiber-Optic direct to
home
• Fiber-Optic to node
• Satellite
• TV: $30-$55
• TV/HSI: $40-$140
• Multi-room HD: free
 HBO $15/mo for 3
months
• TV: $65-$90
• TV/HSI: $75+
• No annual TV contract; 2
year for bundles
• Multi-room HD: free
•
•
•
•
• TV: $25-$84
• Showtime free for 3
months
• DVR: $7
• Multi-room HD: free
•
•
•
•
•
•
•
•
24,000 titles on-demand
Superior HSI/TV Quality
Sports in 3D
Multi-Room DVR with
remote programming
• FlexView
• IPTV
• NBA TV and MLB
packages
• No contract required
• Free WiFi
• National hotspot network
• NFL Sunday ticket
availability for low tier
• Extensive foreignlanguage programming
• High quality products and
services
• Poor customer service
• High quality
• Good value and service
• Limited availability
• High quality programming
• No HIS; Must bundle with
competitors
10,000 titles on-demand
Price Advantages
Whole-house DVR
iPad app with live TV,
guide, and remote DVR
programming
• Mid-tier products
• Quality/Service issues
• Poor customer service
TV: $29-$92
TV/HSI: $49-$74
HD free for 6 months
DVR: $8
CLV Calculation – Current Estimate
Assumptions
# Customers
ARPU
Gross Margin %
Direct Mktg
Average Churn Rate
Average Retention Rate
Annual Discount Rate
Acquisition Costs
Year:
Margin per Year
Cost of Direct Marketing
Survival Rate
Expected Profit
Retention Costs
Acquisition Costs
Profit/(Loss)
NPV of Profit/(Loss)
CLV
Month
Year
Assumptions
14,446 Per TWC Financials
113
1,356 Per TWC Financials
50% Per TWC Financials
(44) Per TWC Financials
2.00%
24% Estimates range 1.5 and 4%
98%
76% Calculation
10% Standard
(125) Per eMetrics from 2002
0
0
0%
(125)
(125)
(125)
739
1
679
(44)
76%
483
483
439
2
679
(44)
52%
331
331
273
3
679
(44)
28%
178
178
134
4
5
679
(44)
4%
25
25
17
6
679
(44)
0%
-
679
(44)
0%
-
CLV Calculation – Loyalty Program
Assumptions
# Customers
ARPU
Gross Margin %
Direct Mktg
Average Churn Rate
Average Retention Rate
Annual Discount Rate
Acquisition Costs
Year:
Margin per Year
Cost of Direct Marketing
Survival Rate
Expected Profit
Retention Costs
Acquisition Costs
Profit/(Loss)
NPV of Profit/(Loss)
CLV
Month
Year
Assumptions
14,446 Per TWC Financials
113
1,356 Per TWC Financials
50% Per TWC Financials
(44) Per TWC Financials
1.84%
22% Estimates range 1.5 and 4%
98%
78% Calculation
10% Standard
(125) Per eMetrics from 2002
0
0
0%
(125)
(125)
(125)
739
1
679
(44)
78%
495
(10)
485
441
2
679
(44)
56%
355
(30)
325
268
3
679
(44)
34%
214
(75)
139
104
4
679
(44)
12%
73
73
50
5
6
679
(44)
0%
-
679
(44)
0%
-
SignatureHome Pricing
SignatureHome Installs
Price of Installation
Daily Install Windows
Revenue per Day
Labor Cost
Daily Profit/(Loss)
Cost per Install
Install
8
(200)
(200)
(25)
SigHome
25
4
100
(200)
(100)
(25)
Suggested Pricing
Reduced efficiency to guarantee customer windows
Calculation
Assumes $25/hr for 8 hour day
Value Chain
Content
Networks
Aggregators
MSOs
Broadcast
Studios
Cable
Online
Consumers