Meet the System–Peoria, Ill.: Do Cable’s New Services Trump DBS’ Local Channels?

Illinois may not have been a battleground state during last fall’s presidential election, but for telecommunications providers, campaigns for the hearts and minds of consumers in the Midwestern state couldn’t be more heated. If the state has a Gettysburg, it’s Peoria, where Insight is waging a battle against two satellite competitors, both of which have blunted cable’s edge by offering local broadcast channels. "This will be our first year with both competitors here [offering local-into-local]," says John Niebur, Insight’s area VP for the Peoria/Central Illinois district. "I can tell you right now it’s a war out there." Just before the December holidays, DirecTV introduced local broadcast channels in Peoria, which is situated about midway between Chicago and Springfield. The DirecTV local-into-local launch followed its rival EchoStar, which previously had launched local broadcast channels in the Peoria market. Even though the move was expected, it was not great news for Insight’s system there, which also serves Bloomington and Normal, Ill., two cities about 45 miles from Peoria, and about two dozen smaller communities in an eight-county area on both sides of the Illinois River. Insight serves about 1.3 million customers in four states; Peoria serves about 125,000 customers, or 10% of Insight’s subscriber base, and it is the third-largest of 13 districts within Insight’s footprint. Satellite penetration in Insight’s Peoria service area is about 13%, according to data from Media Business Corp. Neither satellite company wasted time letting potential customers in the area know they could get local channels with no extra hassle. DirecTV’s advertising in Peoria increased significantly since it launched local broadcast channels; SBC and EchoStar, which in 2003 partnered to offer a telephone/DSL/video bundle, plastered the region with ads and embarked on telemarketing campaigns. National ads promote both EchoStar and DirecTV, while retailers that sell satellite services tout the local channel offerings in area papers. Insight Fights Fire With Fire Insight is fighting back with an advertising blitz of its own—one that plays up cable’s edge in advanced services. Although the Peoria district never before had advertised much on broadcast TV, it is now running ads promoting high-speed Internet and DVR services. In an attempt to underscore Insight as the local service provider, one ad with the tag line "That’s my Insight" features Insight employees talking about digital cable, HSD and DVRs. Niebur also is expanding Insight’s retail presence. Insight Peoria has claimed shelf space at Best Buy through a deal set up at the corporate level; at the local level it has cut deals with furniture and electronics stores. Earlier this month, Insight opened its first kiosk at Northwoods Mall, the largest indoor shopping center in the area. From its perch in the mall’s center court, Insight showcases—and sells—its products; customers eventually may be able to pay bills there as well. Niebur expects to open additional kiosks in other malls with heavy foot traffic. "We’re trying everything we possibly can," he says. The ultimate goals in Insight’s battles against its DBS competitors are to retain digital customers and entice them to use new services. Another focus is increasing customer loyalty to the system’s high-speed Internet service. Insight has had success in this area: More than 85% of new customers who sign up for Internet service are purchasing, rather than leasing, their modems, Niebur says. "Once the customer owns the modem there is incentive to keep the service," he says. Cable modem service through @Home was introduced in the city of Peoria in 2001. Penetration rates climbed fairly quickly soon afterwards. Peoria’s early and rapid adoption of high-speed Internet service also can be attributed to the presence of 12 colleges in the area and employers such as State Farm, which has its world headquarters in Bloomington. These days Peoria’s high-speed penetration rate (14.5%) stands below the industry average. Still, that’s a big improvement from a year ago, when it was less than 10%. "We need to perform as well as the rest of the industry," Niebur says. Although most customers take high-speed service as part of a bundle, it is now also available on a stand-alone basis. Broadcast ads have helped Insight reach the 30-35% of the market that doesn’t subscribe to cable. The ads inform those viewers that high-speed service is available even if they don’t subscribe to Insight’s video service. Last year, Peoria began offering a business-class Internet service. Still in its infancy, this service has attracted about 100 new clients, but Niebur expects to promote it more aggressively this year. Although each of Insight’s districts has been selling high-speed Internet service, there hasn’t been a hard push to drive penetration until last year, says Dinni Jain, Insight EVP and COO. "Last year was really the year we made it far and away our No. 1 priority," he says. "That included selling it as a stand-alone service in addition to selling it as part of a bundle." Wake-Up Calls to Digital Subs Insight led the industry when it came to offering interactive services and video on demand. Digital customers in Peoria receive, for instance, interactive service Local Source and VOD service Mag Rack. The problem has been making sure digital customers are aware of them. Niebur and his team learned from recent focus groups that many digital customers were unaware of the VOD services they had at their fingertips, such as HBO and Showtime On Demand. (Insight Peoria charges $12.95 each for HBO and Showtime; a fee that includes the on-demand services.) To boost awareness, Insight now follows up digital installations with courtesy calls and a welcome letter describing all the new services available to digital subs. "There are no selling points on [the letter]," says Doug Dial, VP, marketing, "just more information, and our phone number." The welcome letter includes information on Local Source and Mag Rack, as well as other on-demand content. Insight offers a hi-def tier for $7.95; PBS and ABC are the only HD broadcast channels offered in Peoria. Negotiations are ongoing with NBC and Fox; the CBS affiliate isn’t planning to deliver hi-def until 2007. This wouldn’t be possible without a fully upgraded system. Mike Vandegraft, the district’s technical operations manager, has been in the area for 34 years, and has seen the system grow from 12 channels to its current 200-plus. The majority of the 2,200 miles of plant uses the Motorola platform; three head-ends serve as the nerve centers of the operation. In upgrading the plant, Vandegraft made sure there was a redundant communications link throughout the state; if the operator’s fiber is damaged in one spot, the signal automatically will travel back the other way so there is no loss of service. That’ll become more important as the system readies a VoIP launch. Vandegraft is looking into developing round-the-clock automated system monitoring—another crucial component of launching VoIP. Experts on the Competition Insight has been overhauling its customer service operations. In Peoria, that’s translated into folding the district’s call centers into one location. There has been more of a focus on training—standardized corporate training as well as technical and product training. Customer service reps and techs work in the same building, enabling them to more easily share information. In addition, a team dedicated to customer retention was culled from the CSR pool. As at other MSOs, these reps are empowered to offer coupons or small credits to help retain customers. "We’re trying to use the information that we get back from the customers to know what we need to do," says business operations manager Pat Lawson. Niebur stresses the importance of reps knowing not only what’s going on in their own communities, but what’s going on with the competition. "We try to arm our CSRs so that when customers are talking about the $29 Dish package they can point out that you actually have to subscribe to the next level to get Fox News, or that WGN is part of another package or that the Comcast SportsNet may not be on there." Insight presents its customer service improvements—as well as details of its rebuilt cable plant and new service—as proof to city officials that it is living up to the commitments in its franchise agreement, which is coming up for renewal in 2006. Randy Ray, the Peoria city attorney who handles the franchise renewal negotiations, says it’s too early to tell if there are any demands the city might have. He is looking for more input from the community in city council meetings leading up to the negotiations. He expects the franchise term will be shorter than the 20-year agreement that expires at the end of this year. "This is the city’s first opportunity to even really look at this," Ray says. Relations between Insight and the city of Peoria are "relatively trouble free," he says. "I hesitate to comment on plant or any other infrastructure issues because…we haven’t really addressed them yet. But I know when I go home and turn my TV on, I have cable." Kim Sheetz, Insight’s Peoria district community and public affairs manager, is gearing up for several other franchise renewal meetings this year in communities outside of Peoria proper. She’s not expecting to field angry demands at any of the meetings. "With all the advanced services, they are pretty willing to agree to new franchises," Sheetz says. It doesn’t hurt that she can point to a long list of events her district participates in and a good number of organizations it sponsors, from Cable in the Classroom teacher workshops to the sponsorships of the Tri-County Urban League galas and the Knox County Symphony. Duels With Newspapers If it’s Niebur’s job to worry about digital retention and adding high-speed data customers—two of his priorities for the year—it’s Rick Sainte, general manager, of Insight’s ad sales arm, Insight Media, who worries about the economy and how it will affect advertising. Last fall Mitsubishi Motors Corp. laid off about 1,200 workers at its manufacturing plant in Normal. The layoffs, coming just before the holidays, put a dent in the Peoria DMA’s economy. Just a month or two earlier, Maytag shuttered a big plant in nearby Galesburg; about 900 workers lost their jobs. So it was good news for Sainte when heavy equipment manufacturer Caterpillar finally signed a new contract with some 6,000 union workers in January, averting more labor strife in the region. "The [Mitsubishi] layoffs woke the retail community up," Sainte says. The factory was one of the three biggest employers in Bloomington. Disposable income declines when fewer people are working. That’s when advertisers need to keep their messages in the forefront of consumers’ minds, Sainte says. "We normally tell advertisers during tougher times if you cut your spending, you cut your throat," he says. "A lot of them understand that." Although the economic downtown associated with the layoffs in the region hurt Sainte’s overall ad sales "a little bit" in terms of meeting projections, his group still saw double-digit growth. "I’m still waiting for the final numbers," he said in mid-January, "but we had a positive, solid year." Insight Media is ahead of last year’s pace, with nearly 30% of the annual budget already booked. Automotive is the system’s largest category, accounting for between 15-18% of revenue each month. Sainte views his biggest competitor as print, not the broadcast stations in the market. (Both Peoria and Bloomington have their own broadcast TV and radio stations.) Even with circulation declining 2-3% on average annually, newspapers and their special sections and inserts command more ad dollars than cable. Still, cable’s share of the advertising pie has been increasing. For example, last year Mitsubishi was one of the first automotive companies to move nearly all of its upfront ad dollars to cable. Meanwhile, Niebur says it’s still too early to gauge the effect of satellite’s delivery of local broadcast channels on Insight. The operator has been able to "hold its ground" because of its new digital services, Niebur says. As marketing VP Dial says, services such as VOD, Mag Rack and Local Source are "something we can offer that satellite doesn’t." Insight Peoria by the Numbers Employees: 290 Miles of Plant: 2,241 Homes passed: 203,128 Bandwidth: 550 MHz, 3%; 750 MHz, 11%; 860 MHz, 86% Basic subs: 125,000 Digital subs: 36,588 Digital penetration: 29.3% Basic rate: $13.60/mo. Digital rate: $62.90/mo. (includes converter rate of $7.95, Family Pak, Movie Pak, Sports & Lifestyle Pak) HSD subs: 29,625 HSD penetration: 14.5% HDTV rate: $7.95/mo. (HDNet, HDNet Movies, Discovery HD, ESPN HD) HDTV subs: 2,448 DVR rate: $12.95/mo. Insertable networks: Four to 13, depending on the zone. Source: Insight