The pay-per-view pipeline

American Demographics, April, 1998 by Brad Edmondson

Some markets have lots of people who watch lots of television, but not many TV choices. Digital technology is about to change all that.

Sumter County, South Carolina (1997 population 108,000) seems like the perfect market for pay-per-view television. Blacks are 47 percent more likely than the average American to order a pay-per-view movie or event, and 48 percent of Sumter County residents are black. Young adults (aged 18 to 34) are 32 percent more likely than average to order pay-per-view; men are 9 percent above average, according to Simmons Market Research Bureau; and lots of young men live near Sumter's Shaw Air Force Base (ZIP code 29152), the home base for more than 53,000 active-duty military personnel and their families.

But demographics alone are misleading. "Sumter is not as good a pay-per-view market as other cities nearby," says Dan Santelle, director of pay-per-view marketing for Time Warner Cable's district office in Columbia, South Carolina. The reason: old technology holds the market back. Sumter's cable system provides only two channels for pay-per-view, compared with seven channels in Columbia. Fewer Sumter homes have the set-top box needed to order movies and events. Also, Sumter residents must make a phone call to order a movie. In Myrtle Beach and other South Carolina markets, customers can order movies simply by punching buttons on their remote-control wand.

The three Sumter-area ZIP codes with the highest potential demand for pay-per-view are all east of town: Pinewood (29125), Wedgefield (29168), and Rembert (29128), according to Claritas and National Decision Systems (NDS). All three are low-income and rural, and African Americans are about 70 percent of their population. Blacks watch about 20 percent more television than the average U.S. household, and heavy viewers of cable television are almost twice as likely as the average house hold to order pay-per-view. The reverse is also true: higher-income households watch less television. The highest-income ZIP code in the county, West Sumter (29154), has the lowest potential demand.

In the next few years, Time Warner and other cable providers hope to turn much of the potential pay-per-view demand into profits. Their strategy depends on "digital compression" a new technology that will allow many more television channels to be sent down existing cable pipelines. Another edge may come at the end of the pipeline. About two-thirds of U.S. households are hooked up to cable, but only 55 percent have the equipment to receive pay-per-view, and only 22 percent have ever bought a pay-per-view program.

"With digital compression, it may be possible to offer 30 to 50 channels of pay-per-view," says Santelle. "With that much bandwidth, the cable company can act like a server on a computer network. You will be able to order a movie and pause or rewind it, just as you do on a VCR." A few Time Warner markets have already switched to digital compression, and Santelle hopes that South Carolina may convert in 1999.

The top-ten metropolitan areas for potential payper-view demand are mostly southern working-class towns, according to Claritas and NDS. Four of the ten are in South Texas (Hispanics are also heavy pay-per-view users). If you consider the strong sexual content and profanity in many pay-per-view shows, it may seem surprising that Bible Belt towns want it so badly. In fact, Sumter and eight other southern metros are also in the top ten for the willingness of residents to pay more for television that has no sex or profanity, according to Claritas. The same Sumter ZIP codes that score highest in pay-per-view demand also score highest in demand for sex-free TV.

There may be a double standard at work, says Horst Stipp, director of research for NBC. "Pay-per-view is a cheap evening's entertainment for a big houseful of people," he says, "and it is especially convenient for people who have young children. People may order a movie because of the stars who appear in it. They go ahead and watch it, even if they object somewhat to the sex scenes or strong language."

Over half of Sumter residents are blue-collar workers, and the rural areas outside of town are some of the nation's best farmland. As a result, the most popular pay-per-view events in Sumter will always reflect working-class tastes, no matter how sophisticated the technology becomes. "Starcade '97," a professional wrestling extravaganza, had a sign-up rate almost 20 percent higher in Sumter than in South Carolina as a whole, says Santelle. But Sumter sign-ups for the Bee Gees' New Year's Eve concert were 70 percent lower than the state average.

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