Cable’s Content Gatekeepers, Part III

As we’ve seen in parts I and II of this series, the future of the cable content business could best be summed up by lyrics from the 1972 musical Pippin, where the wise, old grandmother tells an uncertain, young Pippin, "If there’s one thing to be sure of, mate: There’s nothing to be sure of!" That said, the grandmother’s worldview, expressed in the song It’s Time to Start Livin,’ is to move ahead before it’s too late.

So it is with Time Warner Cable’s content gatekeepers, who approach the future with a panoply of VOD, SVOD content and advertising plans, local and multicultural programming initiatives as well as four options that complement its popular Start Over feature, which allows viewers to see the start of a show that’s already in progress.

Still, questions linger as to which interactive services to offer and how much to charge. Rights questions abound and even the basics, like when to add a digital channel or place it on a tier, are far from easy.

For the finale of our Gatekeepers series, Time Warner Cable programming chief Melinda Witmer, in a wide-ranging Q&A, discusses the company’s VOD and SVOD priorities, while media sales president Joan Gillman and on-demand and ITV chief Bob Benya lay out plans for advertising on advanced platforms. [The full three-part series can be found here.]

Since becoming Time Warner Cable’s chief programming officer at the start of the year and replacing retiring EVP of programming Fred Dressler [click here for our cover story on Dressler’s legacy], Melinda Witmer has advanced two priorities: Developing closer relationships with programmers to create a richer slate of on-demand content; and getting more support for regional divisions so they can expand local programming options. She considers both initiatives vital to her company’s ability to compete. Witmer talked about this, the complexity of adding channels and life after Dressler with CableWorld‘s Janet Stilson. An edited transcript follows.

When you’re considering adding a channel — particularly those that have been involved in heated negotiations, such as sports services — how do you decide to carry them and where to place them?

Melinda Witmer: We do a lot of research. We look at lineups. When it comes to sports, we’re not just looking at the teams, the leagues, the conferences that are being provided, but what events that they’re bringing. What are the match-ups? How important are they to people in our community? And then we spend a lot of time with our local field people who interact daily with these consumers; they live in the communities. And we get an understanding of how important the content is to them. And we often engage research folks to get some feedback.

What other things do you keep in mind when considering new offerings?

Witmer: I feel when we sit down to negotiate with every programmer — not just sports — that we represent our consumers. I feel it personally. When someone comes in and says, "I have this great programming, and it’s only going to cost you X, Y and Z," for me, that translates into: "How do we pay for it? And how does the consumer pay for it? And is it worth it to the consumer?"

One of the things we’ve found is that very few programs and very few networks really move the needle for a customer — really very few. That means we have to make smart decisions, particularly before we spend a lot of money, because it may or may not be worth it to the consumer. And a lot of people in this country are very sensitive to a $1 per month price increase. It makes a difference to them.

What kinds of deals do you want to do with programmers that you didn’t do in the past?

Witmer: What I find really energizing right now about our business is there’s so much experimentation going on, trying to build different platforms. As a result, part of what we’re doing with programmers is really trying to be both supportive of new things they want to try as well as to entice them to do new things that we want to try. So there’s a lot of dialogue going on around how can we make the entertainment experience more fascinating.

What are the top things that you’d like programmers to get involved in?

Witmer: Unquestionably, for Time Warner Cable, it’s about Enhanced TV. We’re very excited about our Enhanced TV platform. It’s a whole concept. Enhanced TV is really a suite of applications, and what’s most beautiful about it is it’s accessed directly from the network’s channel. So if you’re watching ESPN, and they’re enabled with Enhanced TV, you bring up the enhanced menu. There are a number of applications, depending on whether we have a deal with the programmer and they have the rights. (See sidebar, below.)

Do you want agreements with every program network that you carry to have Enhanced TV features?

Witmer: Absolutely.

Is there concern among programmers that if people drill down and go into other content, interrupting their viewing of a particular show, that they won’t come back to the original show they were watching?

Witmer: We’re spending a lot of time talking to programmers about these applications. We really want their feedback. We’ve seen things change in our Enhanced platform as it’s being developed based on that feedback. For example, we’ve decided to turn off fast-forward during the Enhanced applications because we’ve heard from programmers who [say,] "We really like that, but if they go off here, we’d like to know that they’re going to watch the advertising." There are a couple of things we’re developing based on other feedback. It’s come up in the context of Start Over, enabling the consumer to pause [a show], watch whatever the [Start Over] content is and then come back, and they haven’t lost any ground on the network programming.

You mentioned that you wanted to focus more on local opportunities.

Witmer: What I wanted with a larger team was to focus on each region, because each region has different needs. We’ve had some terrific people within our divisions that have used the VOD platform to develop local programming. But there was never the ability to be a facilitator from the programming department. We hear interesting creative ideas from programmers all the time. [I wanted us to] have the ability and the time and the resources to take that to the divisions and figure out how that might be tailor-made to suit the needs within a particular community or region. I think it’s a huge competitive advantage.

What genres of local programming are you most interested in developing?

Witmer: There are some communities where local sports is huge and where it would be very valuable to us to work with someone to bring a more robust high school sports offering to our consumers. Certainly here in New York City, it’s such a diverse community — and no question about it — it has the most diverse need for programming, from all over the world, and in all kinds of languages. So we are looking at a number of multicultural program offerings and trying to evaluate the most relevant and valuable content. It’s most likely going to be VOD [instead of linear channels], because bandwidth is still at a premium.

Do you see a big increase in the amount of multicultural programming you offer — above and beyond what you plan to offer on the local level?

Witmer: Yes. I think we are an incredibly diverse melting pot, and every demographic in each region is a little different. I consider that to be one of our real growth opportunities, and another area where we can use our VOD platform to be able to create an amazing offering.

How will navigation for TV change?

Witmer: We have a couple of different generations of our navigation system that are evolving over the next few years that are really, truly remarkable. There’s going to be a lot more graphics. It’s the kind of thing where with movies-on-demand offerings you’ve got box art, and you can see the same sorts of things you’d see in a video store. And that’s just one example. It’s more like the changes in navigation that you’re seeing online. It’s designed to browse and search volumes of content, because we’ve upgraded our server capacity to provide thousands and thousands and thousands of hours of VOD.

Do you have plans to offer content online and on VOD simultaneously, bypassing the linear channels?

Witmer: Yes. There’s an interesting start-up that has a website up today that’s actually getting a fair amount of traffic, and one of the things I encouraged them to do was to take the best content from their website and put it up on the VOD platform and see how it does. There’s a marketing challenge in starting up that way. But we’re still encouraging programmers to try that, particularly the ones that already have a presence on the Web.

It seems HD channels will be the big winners from switched digital on your systems. True?

Witmer: Our consumers want high definition, and they want more high definition. We’re hearing them loud and clear, so it’s a priority for the company.

Does the new mobile service Pivot open up any exciting opportunities in terms of content development from your team?

Witmer: Yes. But I’m not quite sure how that changes things for us right now. Aspects of the cell phone business I’m not as knowledgeable about as I’d like to be. One of the things that stops me a little bit is the programming model for the cell phone. I feel instinctively like it’s different. I see a value in getting certain types of content on your cell phone. [While NY1 local news channel content will become available on Pivot when it’s introduced in New York, and there are plans for live sports content,] part of the challenge is what do you deliver that’s unique to the mobile experience and adds value to the consumer experience? And I’m not sure I know that yet.

How will the Road Runner online portal change, in terms of video content?

Witmer: We’re looking to greatly expand the amount of programming available through Road Runner Video. There’s a lot of discussion with programmers about, "Look, anything you’re putting up on the Internet, let’s put it up on Road Runner Video. It’s good for you; it’s good for us." So we’re working on that with everyone.

Five years from now, what will the programming revenue streams look like?

Witmer: It’s really hard to say. But the one area that I really think will grow is the transactional VOD and SVOD business. In my view, the VOD platform has only begun to take off. We’re seeing some programmers come in now with some really good ideas targeted at very specific consumer groups that really take advantage of the subscription video-on-demand model.

I also think as the studio windows are moving closer and closer to day and date with home video — who knows? — maybe we’ll end up with VOD coming before the DVD release. There’s no question that the earlier the VOD window, and [the fresher the content], we’re seeing an increase in buying activity. It’s not a huge part of our business today, but I think as a percentage, it’s really going to grow. I also think advanced advertising is really going to change things, and I don’t know exactly how, but I think it is going to influence our revenue models for video programming.

A colleague at another MSO asks about how to keep costs down. What advice would you give?

Witmer: Focus on the consumer. If we make the right decisions, for the right price, then we’ll be accepted by the consumer, and we’ll be successful. And pay attention to what people are watching. We are being armed, slowly but surely, with unbelievable tools for really understanding what consumers watch. That’s got to be relevant to how we spend our money.

During a time period known for downsizing you’ve hired five people.

Witmer: We were really pretty bottlenecked, to be honest, and not as efficient or nimble as we wanted to be. So when I looked at transitioning the department, it was an opportunity to stop and say: We need more help. We need to structure differently so we can be more responsive in getting deals done more quickly and also to be more proactive — particularly in working with our local divisions in developing local programming and helping them to maximize efficiencies with respect to their lineups.

How have you reorganized your programming staff?

Witmer: I have eight people across four teams [see below] and we will have one more person [yet to be hired] on one of those teams. Each team is run by a VP and has a director or senior director working with them. Those teams may get deeper over time, depending on how the workflow goes. Each of those teams has account responsibility. So one team has ABC Disney and many others. Another team has Fox and many others. Another has Viacom and many others. And then they each have Time Warner regions assigned to them. One has Texas, another has the Carolinas, another has the Midwest and so on. My master goal was to be able to sit in a program meeting in [Time Warner Cable’s corporate HQ in] Stamford [Conn.] and have programming relationships represented as well as our regions. So I could understand at any one point in time what’s happening.

How does that differ from the way Fred Dressler set up the department?

Witmer: For a very long time [the department] was just Fred. And occasionally — in and out — he had one person working for him. And then a number of years ago, he brought in Lynne Costantini, and then a couple of other people over time. As deals came in, Fred would make a decision as to who was free enough to take the deal on. But it meant that there wasn’t always continuity in the relationships. And I could work on something [with a certain programmer] and nine months later, if I was busy and something else came up with that same programmer, someone else might be assigned to pick up and do the next thing with them.

I think relationships with programmers have always been incredibly important, but [given today’s competitive landscape] it’s more important than it’s ever been to have good relationships. And that’s most easily fostered when it’s not always in the context of doing deals.

Not including the legal staff within programming — which doesn’t report to you — there are nine people on your team, including yourself. How many were on staff directly before you took this post?

Witmer: We were five. But the biggest difference was that there were three senior negotiators — it was Fred, Lynne and I — and part of unclogging the bottleneck was having a more senior team. There are now five very experienced senior level negotiators. So it’s nearly doubled our capacity in that regard, plus other [staff] who are also very experienced.

America’s Next Top VOD Model?

Like many cable operators, Time Warner Cable is deploying new interactive options as it continues to seek viable revenue models. Time Warner Cable Media Sales president Joan Gillman sees several VOD advertising opportunities, while SVP of on demand and ITV product management Bob Benya pushes the MSO’s virtual video store and special sporting events, like the De La Hoya-Mayweather fight.

Media Sales chief Joan Gillman believes cable has only begun to tap the potential of the VOD platform. For Gillman, of course, the focus is VOD’s ad potential. She sees two types of opportunities. The first is similar to purchasing traditional ad avails — for five-, 10- and 30-second spots — and dispersing them as pre-rolls, post-rolls or mid-rolls. There are also sponsorship opportunities similar to those available on traditional linear channels.

The second opportunity is for longer-form content from advertisers to communicate information about products and services in a showcase environment. "Similar to the way we’ve seen ads that might say ‘Visit Website.com’. In this case it would be much more simple and it would leverage the impulse opportunity," Gillman says.

For example, subscribers might be prompted to "press select" to pull up an infomercial, either within traditional commercials or as an option in a program guide. "And that environment is rich, and is managed so that the information is refreshed on a regular basis. It becomes an attractive destination," Gillman says.

"Based on our early research, the impulse nature of being right there where people are watching TV with a ‘press select’ opportunity can significantly drive viewers’ engagement with the channel and the brand," she says.

THE INTERACTIVE FUTURE IS NOW

While Gillman speaks in a future verb tense discussing interactive ad opportunities, some are available now. She notes that General Motors has more than 75 promotions and ads in a video showcase that are regularly refreshed. Time Warner Cable also recently launched across all its systems Journey TV, where it runs showcases from tourist boards and vacation destinations like Busch Gardens.

All of that will change, hopefully for the better, as more advertisers begin using the showcases. The effectiveness of creative execution should rise, too. "A lot of the brands are not accustomed to developing video experiences," Gillman says. "So there’s going to be an evolution, of trying to decide if [a given advertiser is] going to take full advantage of this real-time, impulse environment. It’s about the brands figuring out how they can use long-form video to their advantage."

ENHANCED TV ROLLOUT

Time Warner Cable is evolving the on-demand function for both advertising and content so that it’s seamlessly integrated into linear channels and no longer a separate and distinct option. At the heart of that is its Enhanced TV platform, which gives viewers the option of pausing what they’re watching to drill down into other content and advertising (see sidebar, opposite page).

Enhanced TV is just starting to roll out broadly across Time Warner Cable systems, but the first seeds of the platform sprouted last year, with the rollout of the Start Over feature, which allows viewers to view from the beginning a show that is already in progress.

Each programmer decides what content to include in the Enhanced TV suite, which is something programmers really appreciate, says SVP Bob Benya. "The other thing that we do is there’s no fast-forward or ad-skip [function] on any of the enhanced features. We’re also very cost effective for the networks, because there’s no satellite delivery involved." All the technology for Enhanced TV resides in the set-top box, and the two-way interactivity is provided by the fiber coax architecture.

DEMANDING 2K MOVIES BY ’08

A feature Benya’s been working on is the virtual movie store. "It is a radical expansion of our movie-on-demand offering from what was traditionally about 200 movies. Our plan is to take that up about tenfold between now and the end of next year," Benya reports. "We’re doing this by launching genre-specific movie-on-demand channels. We have it deployed in more than half of our operating divisions. And in those divisions they offer five new channels of movies on demand." They include new releases, comedy, drama, kids and family, plus classics.

About 50% of Time Warner Cable’s systems have the virtual movie store, and are offering some 700 titles. By the end of the year 75% will have the feature, and by the end of 2008, all will. Older titles are $1.99, new releases in standard def $3.99, HD new releases are $4.99. Packages of older films cost 99 cents per title.

Movies are the No. 1 ranked on-demand choice at Time Warner. And Benya notes some releases premiere day and date with home video store premieres. "We’re doing things like IFC in Theaters, where movies are available on demand the same time they’re in theaters. And we’re actually offering movies as a world premiere in VOD prior to them even appearing in a theater or video store."

DE LA HOYA ON DEMAND

Time Warner Cable enjoyed double-digit growth in movie-on-demand buy rates as well as unique users who had never before used the VOD function, when first quarter 2007 results are compared with the same period last year. The buy rates themselves are in the high-single-digit area. Benya attributes at least part of that success to the introduction of the virtual movie store.

The company also is showing strong results with sporting events, particularly the May 5 Oscar De La Hoya/Floyd Mayweather fight. "In some Texas and Southern California communities, we did over 10% buy rates on the De La Hoya fight at $54.95," says Benya, noting that the price tag was on the high side for an on-demand boxing match. Fights typically attract 1% to 5% buy rates.

All told, Time Warner Cable expects to deliver more than 1.2 billion VOD streams to customers by year’s end. During June alone it delivered 118 million VOD sessions — both those that were free and those that involved a transaction.

ROAD RUNNER REVISED

Time Warner Cable is in the process of building advertising capability within video content that resides on the high-speed platform. The sheer amount of video content is expected to grow on the platform as well.
“We will have a pretty extensive video opportunity for advertisers,” says Gillman. While video advertising opportunities exist on Road Runner, as video content increases, so will ad opportunities.

GAME FOR MOBILE
 
Gillman remains circumspect when discussing how big growth will be for advertising on mobile devices. And she’s taking a wait-and-see attitude about advertising within video games. “For the right audience segment it can be a pretty significant opportunity,” Gillman says. “It’s also a very clever way—when there’s embedded advertising and the game is built around the brand—to extend the time that the user spends with the brand. So you can drive engagement in a meaningful way if it’s done right. It all depends on the success of the game, the design of the game and how they incorporate the advertising.”

Time Warner On Demand Snapshot

• In 2006, Time Warner Cable launched its virtual movie store in Greensboro, N.C.  The number of on-demand movies is increasing from what was traditionally 200 titles to 2,000. By the end of ’08, it will reach that number, and be deployed in all Time Warner Cable divisions. It’s currently deployed in half the divisions.
 
• By the end of 2007, Time Warner Cable plans to offer more than 3,000 hours of on-demand content (not including Enhanced TV offerings).
 
• More than 100 million VOD streams were delivered in March ’07, and 118 million in June ’07.
 
• Some 4 million VOD buys were made in July ’07, with a buy rate of 54% of all customers.
 
• Time Warner Cable had 3 million DVR subscribers as of June 30 — a 38% penetration rate of all digital customers.
 
• The MSO expects to deliver about 1.2 billion VOD streams in 2007.

• The company has agreements with every major studio for VOD product.
 
• More than 400 hours of free-on-demand programming is available in many divisions.
 
• Better than half of its divisions offer local programming on demand, including Milwaukee’s Wisconsin On Demand and Austin’s Lone Star On Demand VOD channels.

Source: Time Warner Cable