How Low Can You Go?

BY ANDREA FIGLER

?Thirty dollars a month [for cable] is still cheaper than taking a family of four to see one movie,? says one critic of low-priced billing for Latino subscribers.

Looking to boost its subscriber rolls, Adelphia Communications is concentrating efforts on a large and growing audience: Southern California's Latino population.

The cable operator started late last year to sell a package aimed at Hispanic households in Los Angeles, which has one of the largest Latino populations in the U.S. The package, called Adelphia en Espanol, offers about 70 English channels normally provided on Adelphia's expanded-basic analog tier as well as 13 Spanish-language channels and eight Latin-music channels.

The monthly rate is $24.95 ? far lower than the $40-plus per that many English-only households typically pay for a similar number of channels.

The low price is at least partly the brainstorm of Francisco Valle, a cable-marketing consultant whose firm, SCDRG Inc., was hired by Adelphia to help market its services to Latinos. Valle has become the apostle of a bargain-basement sales approach, urging MSOs to offer relatively cheap packages of mixed English and Spanish channels to lure Latino customers.

Essentially Valle tells cable operators that they must be willing to surrender some profits today in order to attract more customers and grow.

?I understand what I'm proposing is hard to integrate under current economic business models,? Valle says. ?But [cable operators] have to penetrate the market. Who would you like to be, a Nordstrom's or a Wal-Mart? While Nordstrom's has a higher margin, Wal-Mart has more profits [in absolute terms].?

This view has touched off a debate within marketing circles about how best to win over ethnic groups, especially Latinos, who according to research by the Cable Television Advertising Bureau will become the largest ethnic group in the U.S. by 2005. (The 2000 Census tabulated 35.3 million persons of Hispanic origin in the U.S.) The bureau estimates Latinos' buying power at $350 billion a year, a figure expected to rise as recent immigrants become more assimilated in American culture and business.

Many scoff at Valle's low-rent approach as naive and even patronizing, arguing that it assumes that all Latinos are poor.

?While Hispanics as a group have lower incomes [than many whites], they also have larger families and will make the necessary sacrifices to provide for their family as long as it is demonstrated that it is important,? says Lucinda Martinez, a board member for the National Association of Minorities in Communications.

?Thirty dollars a month is still cheaper than taking a family of four to see one movie. I strongly believe that if the right buttons are pushed when targeting this market, price is a nonissue.?

Plenty of cable operators hope that Martinez is right, of course. They'd far prefer to charge all customers full freight rather than start extensive discounting programs. But there is some evidence that here, as elsewhere, operators are feeling the heat from satellite competitors.

DirecTV, for instance, has been offering DirecTV Para Todos, a Latino package that combines English- and Spanish-language networks for only $19.99. And EchoStar Communications offers 22 Spanish-language channels in a $21.99 package.

Adelphia is struggling with the price issue at the moment, partly because the evidence is somewhat contradictory.

Since the launch of the Latino package last October, the operator has seen a 2% increase in new subscribers in just five months ? much of it attributable to the promotion. That is far above the 1.5% growth goal for the entire year, according to Sandy Perron, regional director of sales and marketing for Adelphia's Southern California division. She adds that those figures already account for initial churn, or subscribers who dump the service, although she would not release the exact number of new subscribers.

However, the strong growth could also be attributed to another factor that might undercut Valle's point. Adelphia en Espanol with Home Box Office Latino, a Spanish-language movie channel that offers top Hollywood films translated into Spanish and original Latin American films and Latin music performances, has proved popular with many subscribers.

Adelphia offered the HBO digital package, which also includes five other HBO feeds in English, for $31.95 ? far below the $60 average for a digital tier with a premium channel.

The problem for Adelphia is that such a low price probably can't last for long. Adelphia's Perron explains that HBO agreed to reduce its license fee for the Latino package's promotion.

?HBO had to give me some relief on the license fee in order for me to price it that way,? she says. ?Will HBO continue? My guess is no, not in the long term.?

If that happens, she says, the price hike will probably be between $4 and $5.

?I would not be comfortable [with] increasing it more than $5,? she says, explaining that she must try to hold onto new subscribers even with that price increase.

Valle, ever the advocate for low rates, urges Adelphia to hold the line on further increases, saying that customers would see that as a bait-and-switch ploy.

To that view, Martinez replies: ?High price points are no more a deterrent to a Latino consumer than a general market consumer.? Latinos, she adds, buy $100 Nike shoes just like any other group. Thorough research of each target group is the only foolproof way to break into any market.

Susan Patten, VP-public affairs, Time Warner Cable Southwest region, agrees.

?Customers make their decisions based on value and perceived value,? she says. ?Price point is important to some customers but not necessarily Hispanic customers versus other customers?. When you demonstrate to the customer that what you offer them has value, they buy it.?

Right now Patten spends her time trying to understand what has value in the diverse markets she serves.

Some areas within her division, which covers the entire Southwest border region, offer Spanish programming and English channels on its basic analog tier for a low $8 to $12 instead of creating a separate Spanish tier altogether. Expanded basic with extra Spanish stations and more English programming bumps that up an extra $20 to $25.

These areas are 80% to 95% Latino, she says.

?We find that our constituents find Spanish programming as important to their lives as sports programming or movie programming,? she says.

But her areas are so diverse within the region that it's hard to pitch any uniform package, whether it consists of programs solely in Spanish, English or a combination of the two.

It takes time to figure out what any particular audience wants, let alone an audience that speaks two languages.

One Latino in Los Angeles, for example, might not speak Spanish but still watches soccer on the Spanish-language channel because such fare can't be found elsewhere. Other Hispanics complain about a lack of good Latino comedies in English.

?There's all kinds of black sitcoms, but none for us,? says Sal De La Riva, a bouncer at a Hollywood bar. ?Why isn't there some kind of Beverly Hillbillies from East L.A.??

The programming interests ? and price sensitivity ? of Latinos in Florida, however, could differ completely.

In Florida, for instance, operators find more demand for Spanish-language stations from South America and Caribbean regions.

Canales N, a division of the International Channel that provides Spanish-language programming, tries to carry stations that use a common Spanish dialect targeting a general audience. But after that, it looks to provide coverage from Caribbean stations to the southeastern United States and coverage from Mexican networks to the Pacific and Southwest regions, says Rick Acosta, vice president and general manager of the Hispanic markets.

To date, Canales N has nine video channels, including CNN en Espanol, Cine Latino, Discovery en Espanol, Rio de La Plata, Toon Disney and Fox Sports World Espanol, as well as eight audio signals.

Initially, Canales N was offered as an add-on block of programming to any premium tier. The entire package would cost between $60 and $80 per month, Acosta says.

Operators say offering low-cost service can boost the bottom line. ?The main thing is getting that set-top box in the home and issuing a monthly invoice,? says one executive.

After some research, though, Acosta discovered what Valle has been saying all along.

?The real bull's-eye on the target is $25 or less,? he says.

So Canales N now pitches itself as a Spanish building block for cable operators. Its suggested retail is $6.95, or $9.95 for an upgrade to digital.

Acosta agrees that the $25 price point is low but says a local operator can walk the customer up the ladder by offering HBO Latino, for example, or pay-per-view. ?The main thing is getting that set-top box in the home and issuing a monthly invoice,? he adds.

AT&T Broadband in Denver uses Canales N as a foundation for its AT&T Espanol digital tier.

If you go digital in Denver, you can order the Canales N package ? or AT&T en Espanol ? for $9.95. But that $9.95 falls on top of other digital rates, which range anywhere from $41.99 to $76.99.

Jeannine Hansen, executive director of AT&T public relations for the region, says that there's strong interest in AT&T Espanol despite the price point. But neither the price point nor the programming is fixed, she explains. For example, basic-cable subscribers in Denver who pay $12.69 can also get Canales N for an extra $14.95 without going digital. On top of all that, the operator is still making changes to the programming lineup to best fit the audience.

Like AT&T in Denver, many local operators are desperately hunting for appropriate programming to meet their audience needs.

Divisions of Time Warner, for instance, can now select Spanish movie channel Cine Latino because its central corporate office cut a deal with the network. Hispanic Television Network, a broadcast and cable startup focusing on Mexican-Americans, also is being shopped around by Time Warner and AT&T Broadband. Canales N is also considering including Hispanic Television Network and some sports networks from Latin America into its programming block.

Richard Cozzi, vice president of sales and marketing for Time Warner's Garden Grove, Calif., division, is watching the market carefully before making any bold moves.

Southern California has a unique blend of Spanish-speaking and English-speaking Latinos, along with a growing number of more recent immigrants. Targeting the right dialect in Spanish and keeping the price point low, therefore, becomes even more important, he adds.

The operator already includes Spanish-language networks such as Galavision on its basic tier. But exactly what it will offer on a yet-to-be-created Latino tier is up in the air. Cozzi wants to provide enough interesting programming at a low price point in order to win over these new subscribers.

And Cozzi echoed the sentiments of most other cable operators. Any package that targets a Latino audience will most likely be on digital. ?It's certainly most probable that it would be in digital because that's where the space is right now,? he says.

Unfortunately, that may cause more problems down the line. For most operators, digital adds to their costs ? making it difficult to keep prices low.