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Hi-Def's Retail Rush

Cable World, August 25, 2003

Byline: K. C. NEEL

Give customers what they want, and make it easy for them to get it.

With the NFL's regular season less than two weeks away, cable operators should repeat that mantra if they hope to compete against satellite distributors on hi-def's primal battleground - the consumer electronics store.

Retailers, who have long-term relationships with the DBS providers, are poised for a possible oncoming rush for hi-def service, thanks to promotions like DirecTV's $99 HDTV deals.

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Circuit City confirms it is offering DirecTV's HD equipment for an up-front lease cost of $99 on a limited basis. Also now available with at least one online retailer, the $99 HD lease test will be followed by a limited test in a Best Buy market on Sept. 7, according to a source close to DirecTV, which declined to discuss the lease trials. Starting that day, DirecTV will present CBS's primary NFL game each week of the regular season schedule in 1080i high definition for DirecTV Sunday Ticket NFL package subscribers.

Hi-def is a complex product, and many consumers will likely allow salespeople at local electronics stores to take the lead. Unfortunately, only a few operators are aggressively hawking their HD wares via retail, says Adi Kishore, an analyst with the Yankee Group.

"Everyone needs an HD retail strategy, and they need it now," Kishore says. "Not many MSOs have one."

Operators are toying with various marketing strategies. Cox Communications, which is offering HD in nine markets, is selling it three ways via retail to determine which method works best. The MSO is leasing Scientific-Atlantic HD set-top boxes to customers for between $8 and $10 a month in three markets. In five other systems, Cox is selling the boxes to customers for $499. In one market it's offering both options to consumers. Cox has relationships with about 300 retailers in its service territories, according to a spokesman.

Comcast, meanwhile, has hired Robert Faught as SVP, retail/commercial online sales, to oversee its retail efforts. It's a bit too early to talk specifics, he says, but Comcast is well-positioned to expand its existing program, and he expects retail to play an important role. Comcast is leasing its HD tuner to customers for a monthly fee. "Retail [representation] is terrific visibility for the company, and is an expansion of the business that the local systems can't offer," Faught says. "We want to put products where consumers shop - and they shop at consumer electronics stores."

Kishore believes DirecTV and EchoStar's Dish Network hold the advantage over cable operators when it comes to selling HD service. Satellite HD service is available nationwide; the NCTA estimates hi-def via cable is available to only 55 million U.S. homes right now.

Retailers are beginning to see the benefits of promoting cable products, says Bryan Smith, VP, strategic marketing/analysis, at Insight Communications. The MSO is now negotiating with national and local retailers about an in-store presence.

"Compensation models are still being worked out, and then there's the issue of training," Smith says. "We need to educate retailers on what we offer."

Focusing on retail will be a huge step for cable, says Bruce Leichtman of Leichtman Research. "Operators have spent too much time bad-mouthing the competition," he says. "Cable is being blown away by DBS at the retail level right now. That needs to change."

While operators figure out how to convince retail salespeople that cable's HD product is worth selling, consumer acceptance of HD continues to grow. More than 4 million HD sets have been sold, and the Yankee Group estimates that number will climb to 9 million by year's end and could reach almost 42 million by 2007.

"We're all still learning about the whole process," Insight's Smith says. "But retailers are beginning to realize cable's HD product is a better alternative to DBS. We still have 60% of the lines going into customers' homes, and the retailers can't ignore that."

With reporting by Shirley Brady.

THE NEXT QUESTION:

*How would a retail strategy affect operators' margins after paying for training and compensation for retail sales personnel?

Technology Industry

Hi-Def's Retail Rush

Cable World, August 25, 2003

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