Customer acquisition is only half the battle in the increasingly competitive cable industry landscape. Once an operator brings a video, data or phone customer into the fold, retention becomes job one. Concerns over customer loyalty have dogged the industry, particularly as cable operators battle on multiple fronts, sparring with DBS for video subscribers and telcos for high-speed data subs and, to a lesser extent, phone customers. MSOs have tried many different remedies to reduce churn, particularly the disconcertingly high rates for digital video. MSOs are rolling out interactive services, such as on-demand content, as a vaccine for the illness, which will end more than half of all digital cable subscriptions in 2003. But many operators are counting on the power of the bundle to stem the sub losses. Early returns on bundled customers tell us they are more loyal and more satisfied with their service in addition to being willing to spend more money. The good news for the cable industry is the number of subscribers taking an advanced service should continue to rise and inflate along with it the average revenue per sub. Our outlook suggests that revenue per sub will jump 43% by 2007, when revenue-generating units in the U.S. tops 136 million. Logically, the importance of basic video customers will continue to erode in the near-term outlook. But we forecast the category will still consist of just less than half of the base by 2007, when advanced services will make up the majority of total RGUs. However, as the industry discovered with the digital tier, attracting revenue and extracting cash flow don’t necessarily go hand in hand. Growth is good, but smart growth is even better, as evidenced by new more prudent customer acquisition tactics that are helping push the industry toward cash-flow generation.

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