PREMIUM PERSPECTIVE

MIKE REYNOLDS

Patty McCaskill uses her experience to determine what programming Charter Communications' customers want to see and what platform they want to see it on

With more than 30 years of experience in management, operations, marketing, planning, budget development and advertising at such companies as Warner Amex (Qube) Cable, Travel Channel, Southwestern Bell Publications and her own consulting firm, Patty McCaskill brings a wealth of perspective to her position as VP-programming/pay-per-view of Charter Communications, a position she has held since 1995.

Through acquisitions and investment by chairman Paul Allen, Charter has emerged as the nation's fourth-largest MSO and is rapidly accelerating its position in the digital and interactive worlds. McCaskill addressed some of Charter's plans in these spaces and her views on other developments affecting cable's evolving video landscape. An edited transcript follows.

CW: What's been your biggest priority over the past few months?

The entire realm of digital and everything it offers today and everything it could offer in the future. First, my team and I have been working hard to identify the very best digital programming in order to attract more customers to our digital product, Charter Digital Cable. Just in the last six months, video-on-demand has come to the fore with a major rollout of the service in our Los Angeles market. Another area we've been spending considerable time on has been trying to identify and line up content providers for both the PC and TV portals we're developing with Digeo. Finally, an ongoing activity - and one that has been stepped up in the last year with the tremendous growth of Charter - is the renegotiation of programming contracts.

CW: What's your goal/mission for Charter? Does that depend on a system's bandwidth?

The programming group's goal is also the goal that just about every facet of Charter is focused on right now, and that is to introduce the digital platform into the home of every Charter customer. As the head of programming, I am on a mission every day to find the right content that appeals to our customers to convince them to become a digital cable subscriber. If they're already hooked up to digital, I want to give them content that makes them want to stay connected ... content that offers them the value they're looking for from Charter. Does that depend on a system's bandwidth? Sure it does, but remember that Charter is in the middle of one of the most aggressive upgrade schedules ever attempted by an MSO. We're well on our way to having the most robust architecture in the industry. In fact, by the end of this year, nearly 70% of our system will be 550 MHz or better. The vast majority of that will be 750 MHz. By the end of 2002, when our upgrade program is complete, 93% of our system will be at 750 or 860 MHz. So, the pressure is on to find the right content, because we won't be lacking the system capacity to offer it.

CW: How is Charter structured for programming decision-making? Is it centralized or decentralized? Do you make the corporate decisions, granting hunting licenses, and then the networks chase the systems for carriage? Or do you decide corporately? How much flexibility is at play?

The negotiating is very centralized. My staff and I at Charter's corporate office in St. Louis take care of the negotiations for all our systems. However, we are in regular communication with Charter's regions and systems to learn more about what's important to them and to their customers. We consistently strive to put our decision making as close to the customer as possible. We believe the people who operate our systems have a better sense of their customers' programming wants and needs. Charter traditionally hasn't done contracts with distribution requirements. We believe in doing deals with quality networks and then letting the distribution follow.

We enter into agreements with programmers that we are confident will have the value to help us grow the business and meet customer demands. If a system believes it will help them, we try to support them in that.

CW: What's the distribution climate from the networks' perspective these days? Like always, analog's tight. Are the networks still clamoring for this space? Or does that matter as much to them with digital expansion looming?

You're right, analog is tight, and many of the networks continue to clamor for that analog space. Some of them are only interested in analog distribution, but with our aggressive digital rollout plans, analog or digital is irrelevant. Our customers don't care about the distribution platform. I believe the networks should be focusing on being available on any platform where there are potential viewers. Customers want programming they can feel strongly about.

CW: What combination does it take to get a network on Charter's systems these days? Launch fees? How much? Marketing support? The right rate card? Corporate leverage? Retransmission chip? A channel that fills a niche? Your market surveys?

All of the above, but it has to start with quality, differentiated programming that will be valuable to our customers. With that as a given, the total deal, including the right rate card, the right local promotion and events, the right ad sales revenue and opportunities, the right fees, are all part of the larger partnership. When we review programming, we tend to look at unserved and underserved niches that will meet our customers' needs. If the programming is good quality, the customers will find it and value it. At Charter, we really pride ourselves on talking to our customers to find out what they like and don't like and to find out what's missing from our lineups. We do phone surveys, bill insert surveys, focus groups and an ongoing customer tracking study. With our tracking study, we talk to anywhere from 15,000 to 20,000 customers a year. Do you know what our customers consistently tell us they value the most about doing business with Charter? The programming. What we're providing them to watch. Obviously, customer service is ranked very high, too, but the programming is at the top. So, if we want to keep our customers and earn new ones, we've got to get this right.

CW: You had a 74% expansion in digital homes during the third quarter. I think you're supposed to approach 1 million by year's end. Can you give us a map of Charter's digital video plans? Are you devoting a lot of space to multiplexes? Are the take rates for the premium services significantly higher with the extra channels?

Our digital offering includes a mix of premium multiplexes, a navigator or electronic programming guide, digital audio music channels, pay-per-view, sports packages and a broad offering of digital basic services. We've been aggressive this year in our rollout. We ended the third quarter with more than 653,000 digital customers and expect to be more than 900,000 by the end of the year. And, we have no plans to let up next year. We went out with a balanced mix of basic and premium channels, and we certainly have found a considerable number of upgrade opportunities with the additional screens. Signing up for a premium service is certainly a lot more attractive when you can get eight channels instead of just one. It's more value, and our customers want the value for their dollar. Who doesn't?

CW: What about extra PPV channels?

In our upgraded systems, we're adding up to 34 channels of pay-per-view movies and events. On pay-per-view, we're seeing similar lift and buy rates as the other major MSOs who are actively marketing pay-per-view.

CW: What about digital basic? Have you found that to be a major selling point?

We've tried to bundle our digital basic channels into tiers that are focused on serving various interests or lifestyles. Typically, our systems offer a Family Choice tier, a News and Information Choice tier, and a Movies, Music and More Choice tier. Often, we price them so that it's a great deal to get all the tiers ... not just one or two. Certainly, a majority of our customers have found these packages to be a good value.

CW: Relative to HITS and its transport fees to non-AT&T affiliates, has Charter stopped using that service? You've encouraged networks to use their own transponders. What deals have you struck there?

We continue to use HITS for smaller systems and for systems being rebuilt that have limited digital capacity and benefit from the bandwidth-efficient delivery they provide. We are also using HITS2Home, which we have branded Charter Digital Direct, as a way to add incremental program and value in very small systems where it isn't economical to upgrade to digital at this time. We have absolutely encouraged digital networks to take control of their own distribution destiny and to either create their own transponder or join with other program network brands to create new transponders delivering multiple networks with bandwidth efficiency. Our larger systems are only using direct program network transponders, and we have to deal with most of them.

CW: Is OlympuSAT on your radar screen? They have a number of independent programming services bundled. Any interest there?

We have looked at it and talked to OlympuSAT, but we have no plans to utilize it at this time.

CW: By year-end 2002, Charter is scheduled to upgrade to two-way capacity in 93% of its systems? What kind of interactive strategies are under way? Is this really important at this juncture to programmers and to Charter?

Charter was one of the earliest supporters of WorldGate, and we have introduced the service in several of our systems. We also have implemented the Wink technology to 200,000 customers. We recently introduced video-on-demand to a large segment of our Los Angeles market, and that rollout will continue on a step-by-step basis through early next year. We're also offering VOD on a smaller scale in a Georgia system. VOD will continue to be introduced in other markets next year.

CW: Speaking of Georgia ... in June, you started VOD with Diva in 9,000 homes in Atlanta. What's been the consumer reaction and the price point for this service? Are similar plans afoot in Los Angeles?

In the Atlanta area, we're already seeing take rates nearly double those of traditional pay-per-view. Certainly, our customers there like the fact they can order and watch a movie without making a trip to the video store or having to make a return trip. Prices range from 99 cents to $3.95 for a selection of more than 300 titles. We've rolled out VOD on a much larger scale to customers in Pasadena, Calif. That rollout just started in September and will continue throughout our Los Angeles system into early next year.

CW: What categories work best for interactive? Sports and news? Are there others you see with strong applications?

Sports, news, entertainment and music are all good categories for interactivity, but it's very, very early to accurately gauge what works best. We are going to test a number of areas to find out what works best. We believe interactivity should enhance the television experience and not detract from it.

CW: Where do you see broadband and videostreaming fitting into your plans? Have you done anything in that space yet?

It's too early to tell, but our plans are to work together with Digeo Broadband to introduce a PC portal around the end of this year. A TV portal we're also developing with Digeo is now slated for the second quarter of 2001.

CW: Now, I'll turn to some network-specific stuff, if I may ... Are you surprised by the performance of any of the networks?

Nothing surprises me anymore. One area that's not so much a surprise, but one we strongly support is to see the networks strengthening their lineups with original programming. We're all for the networks taking risks in creating original, innovative programming rather than imitating what's already out there. Plus, we're always interested in hearing about new networks that can provide content to help us better serve our customers.

CW: Your take on the WWF transfer to The National Network and its long-term impact on USA?

The WWF in the short term will bring a younger male audience to The National Network. We are confident USA will create and develop programming that will help them remain a programming leader.

CW: Is it a sad commentary on our society that wrestling is the top draw on cable?

Personally, wrestling doesn't appeal to me, but we have to recognize that it does appeal to a lot of our customers. I just think it's a testament to one of the strongest positive points about cable, and that is the great diversity and ever-expanding nature of the programming that's available to viewers of cable television.

CW: Which digi-nets have impressed you with their programming?

The digi-nets we have chosen all have strengths. It's essentially the quality of their programming that has earned them a place in our lineups. That said, all of them have room to improve their programming and could add more original programming, which we would anticipate as their distribution grows and the economies make sense.

CW: This is more of the Viacom hour ... What is your opinion of the relaunching of TNN to a pop-culture network from its country roots? Does cable need another general entertainment network, albeit one Viacom officials claim will be branded?

Viacom has an excellent track record and a strong management team that has done a great job in creating, developing and building brands. If they can evolve The National Network to focus on the distinct and wonderful regional differences throughout the country while taking care not to turn off their core country audience, we believe they can be successful here as well.

CW: Your sense for Viacom's purchase of BET? Does that generate more carriage for the main service and Jazz? Will we see better quality shows on BET?

Again, Viacom has a great track record with building targeted niche networks. Nickelodeon is a great example. Nick does a great job in presenting entertaining and thoughtful shows for children. We're hoping Viacom will be able to take BET to even greater success in serving the African-American community.

CW: You've stated that there is room for other African-American services. Where do you stand with the New Urban Network and MBC? Does the Viacom/BET deal stunt the newcomers prospects?

Absolutely not. We believe that just as there is more than one network for sports and news and women, the African-American community can be served by more than one network.

We are certainly reviewing all the new services in this space and would anticipate distributing one or more sometime in the near future. But each of these networks is still very, very early in its lifecycle.

CW: Given the ownership ties, how deeply is Tech TV in your fold? What's your commitment level and feel for as big a channel as this can be in the digital age?

We were an early believer and supporter of Tech TV long before the Paul Allen investment. We certainly believe the network can be a valuable partner in our plans to roll out cable modem services as well as inform our customers about new technologies.

CW: National Geographic Channel ... A distinct service, or a Discovery me-too. Will we see this on Charter systems anytime soon? Are they offering $5 per subscriber in launch fees? Does that work for you?

We have spoken with National Geographic and believe they have a very strong consumer-recognized brand. We will continue to watch their development and schedule with interest.

CW: Where do you stand in the health wars? Is this the last great unattended-to segment in cable? Where do you stand with Discovery Health and/or Web MD Television?

We don't see this as a war. We see them as two networks in an area that is of great interest to customers in different ways. We have and will continue to distribute both or either in our systems.

CW: How about Oxygen? Assess its performance and receptivity among viewers ... Does the improvement in programming and ratings at Lifetime hurt Gerry Laybourne's agenda and distribution plans?

We have launched Oxygen in a number of our systems, and we will continue to do so when and where it meets the needs of our customers. Oxygen launched with an impressive slate of original programming.

Some of that programming has been a hit with customers, and some of it still needs some tweaking. Oxygen just came out with a new schedule, and we will continue to support them.

CW: Given its ratings performance and growing influence, are you happy you launched Fox News Channel? How many of your homes is it in now?

Sure, we're happy. We've always believed there is room for more than one perspective on the news, which is why CNN, MSNBC and Fox all have distribution with Charter. As capacity and customer interest grows, their distribution will grow as well.

CW: Your favorite cable channels and/or shows?

I love the news channels - all of them. I also watch documentaries on Discovery, Biography on A&E, classic movies on American Movie Classics, Behind the Music on VH1, Inside the Actors Studio on Bravo, Any Day Now on Lifetime. I'm also a real fan of top-quality original movies produced by any of the basic or premium networks.

CW: What networks that you think make sense for viewers aren't on your systems? Will they be soon?

Any network we've identified as making sense for our customers is being distributed now.