Meet the System–Lawrence, Kan.: Can an Independent Operator Follow the Comcast Model?

The cable industry’s largest MSO, Comcast, has been fighting to maintain and win subscribers and beat back the competition by launching cutting-edge services and offering the biggest treasure trove of VOD content, thereby driving digital subscriptions. Patrick Knorr thinks his Sunflower Broadband—based in northeast Kansas, about 45 minutes west of Kansas City and 30 minutes east of Topeka—can do the same, even though it is a sliver of the size and has a fraction of the subscribers of Comcast. Earlier this month, it flipped the switch on digital simulcasting, a move designed to free up enough bandwidth for the conversion to all-digital. The next step before going all-digital: Knorr has to convince programmers to allow Sunflower to deliver their analog channels in digital form. And therein lies the rub. The Sunflower Broadband GM is expecting tough negotiating sessions as he tries to talk programmers into moving to digital simulcast. "Digital simulcast is a good first step for both programmers and operators trying to drive that digital penetration to a point that makes the transition to the digital platform more palatable over time," Knorr says. Knorr’s National Show dance card was filled with programmers whose contracts are expiring later this year, such as Lifetime. "Nobody has spelled it out, but there are different interpretations," he says. "A lot of contracts reference analog carriage, and a lot of them spell out that piece of it without explicitly stating separate requirements for digital carriage." Sunflower needs programmers to play ball so it can launch new services and sweeten its digital video offering. By giving distribution to networks that want analog carriage—and further acting as a carrot for customers to get that all-important digital box—Knorr expects digital penetration to grow. "I’m hoping if programmers are flexible we might use this as an opportunity to launch some new programming onto expanded basic, and that would only be available digitally." American Cable Association president Matt Polka says he understands the programmers’ reticence. They don’t want to erode their existing revenue streams. But they "ought to be embracing thinks like this," he says. "It’s going to get there. We’re all going to be all digital some day." Sunflower is no stranger to being top in its weight class. Owned by Lawrence’s 113-year-old World Co., it was one of the first companies to deploy DOCSIS modems in 1998. In September 2001 it became one of the smallest cable systems to deploy circuit-switched telephony. "I admire what Patrick is doing," Polka says. "He’s always pushing the edge of the envelop to create a path for independent operators." Moving to all-digital hinges on boosting digital penetration from its current 27% level. "We’re looking at doing some initial shuffling as soon as this summer, but I think we’ll have to really drive penetration up before any major changes can occur," Knorr says. "The cheaper price point on the box combined with the VOD services and the [picture] quality of the digital lineup on the simulcast will lay a solid foundation for what occurs." Knorr is excited about Sunflower’s VOD platform, which launched March 1. "We think niche programming on VOD is just fantastic, and the more content choices we can provide subscribers, the better," says Knorr. "First-week take rates were 20%, which wasn’t bad out of the gate." In addition to paid movies on demand, Sunflower’s subscription VOD offering includes Showtime, HBO and Starz On Demand and WWE 24/7. Scripps Networks, TVN and the NFL are providing free VOD. After haggling with programmers, Knorr decided to bundle Sunflower’s SVOD offering with the premium services. Sunflower already offers all local over-the-air broadcasters in HD, and hopes to launch additional HD networks once it reclaims some bandwidth. (Sunflower’s HD tier is at 25% penetration of digital homes.) "We have a lot of people knocking on our door, but it’s just a matter of finding something that would hit a good niche," he says. "It’s really a matter of capacity. So we think that this will help strategy overall, to beef up content and get that digital deployment with VOD and all these different elements. Then we can really get more out of these products." Juggling Act Sunflower got serious about going all-digital in early February when it underwent a DAC conversion—a procedure involving Motorola’s Digital Access Control platform at Sunflower’s head-end. Knorr describes the process as "slightly more painful than a root canal, but without anesthesia." The bandwidth-freeing conversion enabled Sunflower to launch a three-bucket video-on-demand offering of movies, subscription and free content in March. Sunflower’s local programming will join the VOD lineup this summer; among that programming is Sunflower’s 6News, which won a 2005 Walter Cronkite Award for excellence in television political journalism. The next step came April 1, when Sunflower flipped the switch on digital simulcasting. The DAC conversion sets the stage for the eventual move of Sunflower’s subscribers from analog signals to all-digital. The move to simultrans is a necessary in-between step. "We have a lot of balls in the air in one 60-to-90-day window," says Knorr. Sunflower launched TV Guide’s i-Guide, which Knorr says "is one of the other primary drivers for going to a DAC conversion." Knorr plans to deploy digital boxes to 60 to 80% of its homes within a two-year window, using the Motorola DCT-700. Sunflower is busy expanding its phone service to four smaller communities in its footprint; deploying the Moxi Digeo two-room DVR, which it started testing in November; and introducing Motorola’s Canopy wireless broadband product to deliver low-cost broadband access to its hard-to-reach customers. Cheery moniker notwithstanding, are the Sunflower folks simply gluttons for punishment? "The reason we’re going through all this pain at the same time is we’re really trying to stay on top of the competition," Knorr says of the threat from satellite and telcos. Sunflower’s satellite penetration is 19.36% in its service area, slightly below the national average DBS penetration of 21%, according to data from Media Business Corp. "With everybody coming into the market I feel like the only thing we’re going to be missing is that low-cost digital video recorder, which right now all the MSOs are subsidizing, but as an independent operator we just can’t afford to do that," he says. "We’re really looking forward to something that we can offer to the masses, which we hope is an all-digital solution. So if that comes out I’ll feel like I have every barrel loaded against the competition, and should be in real good shape by the end of the year." Lessons Learned From Sprint Following Time Warner Cable’s lead, Sunflower Broadband signed a deal with Sprint in March 2004 to offer wireless services to its subscribers. Sunflower offers Sprint PCS wireless voice and PCS Vision services with its bundle of cable television, high-speed data and telephone services. While Sunflower is acting as a Sprint reseller, Time Warner’s Kansas City market and Sprint have taken their partnership further. They’ve created a more integrated bundle, one that lets Sprint PCS customers call Time Warner’s digital phone numbers at no charge and offers different pricing plans—including Sprint’s "fair and flexible plan"—to Time Warner subs. That will become the template as Sprint expands its deals with other MSOs. So what has Knorr learned from his yearlong relationship with Sprint? "It’s very interesting that they’re breaking off their local units. They’re focusing their strategies, and the PCS and the backbone of Sprint will continue to be very closely allied with the cable industry," Knorr says. "There are some good things going on with Sprint and Time Warner in Kansas City that we mapped out, but didn’t have the scale that would motivate Sprint to tackle." Knorr also found out that simply being a cellular reseller is not enough. "It’s the synergy of the bundle that really drives customers," he says. "We did some analysis of our own services, and the bundle that we discount the least sells the most: our basic bundle of phone, Internet and cable [priced at $86.44, a savings of $11.36]. I think that’s because it has the basics. That’s what people want, and the discount isn’t as much of a driver as just the convenience of `tie it up in a bow, deliver it to my door, take care of it and put it on one bill with no hassle.’" While everyone loves a deal, "the biggest driver of the bundle is one-company, one-stop shopping," Knorr adds. "That’s why it’s important to fold phone and cellular in that bundle in the same manner—which being a pure reseller doesn’t allow. What Time Warner is testing with Sprint now is a fully incorporated bundle. That is definitely the way to go." —S.B. In a Comcast State of Mind You want a Comcast attitude? Hire Comcast people. Two of Patrick Knorr’s most recent hires came straight from the big MSO: He brought in Stephanie McCoil as his new marketing manager and Rod Kutemeier as his new customer service manager. "They’re very talented folks," says Knorr. The difference in what they bring is subtle, he adds. "Their experience and leadership really give us the opportunity to take our customer service to the next level. With all these services, the marketing challenge meant we had to grow the marketing role within the company because there were just so many things that we were doing." —S.B.