‘Not Like Anywhere Else in Texas’
BY ANDREA FIGLER Drive down almost any street in Austin and you’re bound to come across at least one bumper sticker imploring those who hold sway over such matters to “Keep Austin Weird.” Likely you’ll see more than one of them. This may be the capital of Texas, the state that brought the nation its current — conservative — commander in chief. But it’s also the place where Janis Joplin got her start, and to some people that fact is of far greater consequence. In fact, many locals tout the city’s ability to lure musicians as its finest asset. “It was a haven for hippies,” Tom Kinney, president of Time Warner Cable’s Austin division, says of the city. “It has a soul, a soul that goes back to these real cultural roots, and that’s what it’s all about. It’s not like anywhere else in Texas.” It’s this unique creative backdrop that helps TWC do so well here. Why? Because where there’s music — and in Austin there is plenty of that — there’s youth. And youth brings with it two of a cable system’s best friends: advertisers and a technologically savvy population base. The area served by TWC is 30% more likely to have the treasured advertising target — 18- to 34-year-olds — than the top 75 market average, according to Scarborough Research. And a lot of these people are employed by the city’s hundred or so high-tech firms. Dell Computer is based here and is the biggest tech employer of the bunch, but Motorola and IBM have a big presence as well. There are also upstarts, such as Broadjump, a software company that helps people to self-install cable modems. (Broadjump was recently acquired by another locally based firm, Motive Communications.) “Austin is a very high-tech community,” says Kinney, who transferred from the Portland, Maine, system two years ago. “The people here have a very high education level and really love to embrace technology. They’re not afraid of it — at all.” He’s not kidding. The area’s households served by TWC are 86% more likely to have a cable modem connection than the top 75 market average; are 47% more likely to spend ten hours or more a week on the Internet; and are 90% more likely to subscribe to digital cable, according to Scarborough. Combine all these factors together, and bingo: just the right recipe to sell advanced products. It’s no wonder that most of TWC’s advanced products are first introduced in Austin. The system’s 117,877 digital subscribers represent 39% of all basic cable customers. That’s significantly above the 25% digital penetration nationwide in 2002. The system’s cable modem subscribers are even higher, at 122,693. Add 14,000 subscription video-on-demand customers, 10,000 of which order Home Box Office. Layer in about 8,300 top-notch digital video recorders at $9.95 a pop. Then sprinkle in some high-definition television viewers and, finally, add a dash of wireless data users and you’ve got an oven full of potential revenue generating units. Last year, the system started offering Road Runner wireless services for $14.95 in addition to the Road Runner cable modem service in a soft launch, says Terri Weber Cumbie, VP of marketing. Most of the 1,600 wireless subscribers signed up for the service by word of mouth. More recently, however, the system has been more aggressive in marketing the new service, making commercials for broadcast TV and radio. It’s also added some bill stuffers and even offered some demonstrations because “sometimes people just need to see it,” she says. Many consumers think the wireless data system can be used in the car or anywhere. But the new system works 150 feet to 200 feet away from a Road Runner connection to a household or even a business, the latter of which has become a strong target for Time Warner Cable. Wiring small- and medium-sized businesses with cable modems has become a priority in Austin since each commercial subscriber brings in more revenue than a typical residential sub does, says Steve Farabee, VP of operations. The system has about 8,000 commercial high-speed data subscribers, 7% of the system’s total. This small percentage of subscribers, however, brought in $7 million last year, the highest revenue for commercial subscribers for all of TWC systems nationwide, says Farabee, who formerly managed the system’s high-speed service. As of November, he now oversees all operations, including customer service. Farabee’s new job — to help assure that all subscribers are happy — is no easy task. As the new head of customer call centers, installations and credit services, he’s got a mandate to handle more advanced services with less customer service representatives and, to top it off, decrease his budget by about 5%. If the system handled an average of 3 million calls a year, as he says it does, that means each of the 250 customer service reps handled 12,000 calls a year. That’s 32.9 calls a day if you count weekends and holidays. The CSRs had a little help with this massive call volume, though. A telephone software upgrade, for example, helped move calls between call center locations seamlessly. And a program called Blue Pumpkin, which tracks the volume and types of calls coming into the center, also proved beneficial in scheduling, Farabee says. “It allows you to schedule lunches and breaks and vacation times in order to get your 90% [of calls answered] in 30 seconds.” The system also has a Spanish-language line to help out. The service area is 97% more likely to be Hispanic than the top 75 market average, according to Scarborough. But one of the best changes last year was dividing the Austin system’s service reps into three disciplines — customer service, inbound sales and technical service. The last group, the TSRs, was especially needed to handle the system’s influx of advanced services. These changes may be why complaints received by the city of Austin have dropped considerably in the first two months of this year. In January, the city received a total of seven complaints, a third of the total reported in January 2002. In February, the city logged just two complaints, a dramatic decrease from the 11 logged in February 2002. While the city might be happy with the low call volume, it does not approve of TWC’s alleged anticompetitive pricing system against competitive overbuilder Grande Communications. “The city has evidence that Time Warner is using an anticompetitive pricing system that, instead of promoting competition, threatens to stunt Grande’s growing competitive presence,” said Austin city manager Jesus Garza in a letter to the Federal Communications Commission last year. Garza alleges that TWC representatives were offering discounted services of between 36% and 42% to former Time Warner customers who switched to Grande or a satellite provider. “The pricing scheme is being — administered under the table,” his letter stated. “It is publicized only to those individuals living in areas serviced by Grande who have switched services from Time Warner. There can be no doubt that this marketing strategy is meant only to threaten Grande’s competitive presence.” Garza sent the letter to the FCC in response to TWC’s petition to lift rate regulations due to effective competition. In 2001, the Austin system applied for this special relief under the Local Exchange Carrier test. This test allows for an effective competition ruling if a phone company or its affiliate has a franchise with a city and plans to build out a video system, offering similar multichannel services as the cable incumbent. Grande objected to this petition. And, along with the city’s allegations of anticompetitive pricing, Grande’s objection has kept TWC at bay. Grande even got the Texas attorney general on its side after Time Warner Cable attempted to get the total amount of subscribers Grande served in Austin. If Grande subscribers were at a specific level, TWC could qualify for an effective competition ruling under a different FCC test. So Time Warner asked for Grande’s subscriber count. But no dice. Rather, Grande withheld its numbers and pressed further. The overbuilder last year asked the FCC for a regulatory ruling on whether it was possible for TWC to get Grande’s subscriber counts when it had already filed an effective competition petition under the LEC test. In December, Time Warner Cable officially requested the commission to fine-tune and clarify the rate rules in an effort to clear up this regulatory brouhaha, among other issues. At press time, the FCC had not released any decisions in relation to either company’s requests. When it comes to competition, TWC has at least one exclusive trick up its sleeve — a local news channel. It’s called News 8 Austin and it’s doing rather well. News 8 lured a 38.2% cumulative Nielsen rating of cable television households in the Austin DMA for the November sweeps. Not bad considering TNT brought in a 38.1% and ESPN a 37.9% cumulative rating for the same time period. Aside from the news channel, Time Warner offers News 8’s TrafficNow, a 24-hour digital cable road information service with traffic cameras; and News 8’s Non-Stop Weather, a digital cable channel covering Texas and the U.S. Starting next month, the Austin system also plans to launch News 8’s Non-Stop Weather en Español, a 24-hour Spanish-language digital cable channel. On top of that, Brian Benschoter, GM for News 8, plans to create more long-form local news programming for Time Warner’s video-on-demand service. He calls it local-on-demand, or LOD. “We started in December and we were one of the first two deployments of local-on-demand within Time Warner,” Benschoter says. “We just finished up two week-long series, on the music district on Sixth Street, and the other is on school finance reform. We will aggregate those and put them up on VOD.” This local news also gives TWC an edge when it comes to advertising, says Ross Newsome, GM for advertising sales. Newsome says the local channel helps customize advertising packages. For example, auto dealer Charles Maund Toyota sponsors the channel’s sports report, which is called “Charles Maund Toyota Sports Report.” “It is branded that way, it is marketed that way,” he says. “The community knows that. That is something very unique that we offer our advertisers that the broadcast stations can’t.” Media buyer Chris Caldwell, VP of BrivicBriggs Media Inc., likes the local station because of the eyeballs it attracts. “Whenever there is breaking news, they are there,” he says. The high-tech appeal of the market, however, makes Austin a bit more expensive than other comparative DMAs, Caldwell adds. “The first thing that’s interesting about Austin is that if you were to rank TV DMAs, it’s in the $30 to $40 range,” he says of the cost per point. “The others, their cost is in the $20 to $30 range. Austin is the most expensive market I’ve ever bought, probably because Austin is a fast-growing market. It’s almost the little Silicon Valley of Texas.” If you compare cable with broadcast in prime time, including late news, TWC Austin is only 10% under the broadcast norm. A cost per point in the $100 range for broadcast would be about $90 for cable, Caldwell adds. Newsome says the average cost per point in prime time, excluding late news, is about $150, down from the high of $225 two or so years ago when the tech boom hadn’t yet busted. “We kind of lived and died by some of the high-tech sector’s success and then stagnation.” Regardless of the tech lull, Austin has a sexy advertising demographic, Caldwell says. “It’s affluent, it’s young and it’s got great demos from a branding point of view.” It’s also not a bad place to sell bumper stickers and T-shirts, which is what Outhouse Designs has been doing for 16 years. In fact, the local design company even applied for a trademark for the “Keep Austin Weird” slogan, to make sure no other city hijacks it. “Austin went through the high-tech boom and bust, so the slogan kind of fit,” says Brian Riebe, president of Outhouse (which may use TWC in the future to advertise its wares). “Austin is going through an identity crisis. Are we the high-tech Silicon Valley of Texas? Or are we going back to the late 1970s when Austin was just a small town with unique individuals that liked to hang out, listen to music…and be weird?” EMPLOYEES: 1,000 MILES OF PLANT: 6,364 HOMES PASSED: 510,529 PERCENT UPGRADED: 99% BANDWIDTH CAPACITY: 750 MHz, two-way BASIC SUBS: 301,425 BASIC RATE: $8.58 DIGITAL SUBS: 117,877 DIGITAL RATE: $49.18 CABLE MODEM SUBS: 122,693 CABLE MODEM RATE: $44.95 AD INSERTIONS: 47 insertable channels SOURCE: TIME WARNER CABLE Before coming to Austin two years ago, Kinney oversaw Time Warner Cable of Maine. He’s spent most of his 20-years cable career with TWC. Kinney was GM in Charleston, W. Va., and director of operations in Council Bluffs, Iowa. Active in philanthropic and city activities, he even held public office as a city councilman and mayor pro tem in Council Bluffs. Stanek has been at the forefront of many of TWC’s new services. In 1998, he was instrumental in the company’s first beta test and launch of digital cable. In ’99, he was part of the deployment team for Austin’s VOD trial and deployment. This year, he installed a fiber ring to transport high-definition local broadcast programming. The Society of Telecommunications Engineers recognized Stanek for his innovation and deployment of interactive services three years ago. Stanek joined TWC 18 years ago in Denver. In 1982, Farabee started with TWC as a door-to-door sales rep. He now oversees the system’s call center operations, installation and credit collections. Before his latest promotion in November, he was VP of digital online services and launched the Road Runner cable modem service in central Texas. Cumbie served as TCI of Pennsylvania’s commercial sales manager for four years directly before coming to Time Warner Cable’s Austin system. Her marketing experience in cable spans 20 years and a range of MSOs, including Adelphia Communications and United Cable. Cumbie is a member of the CTAM Texas board of directors. In his first two years at TWC, Newsome has increased viewership of cable’s niche networks and created a loyal advertising client base. He previously served as national sales manager at KXAN, an NBC affiliate, and as GM at KEYE-TV, a CBS affiliate. Comparison of Time Warner Cable subscribers in Austin to the top 75 market average.