At a moment of disruptive uncertainty in the cable industry Atlantic Broadband has formulated an innovative approach to navigating the current turbulence while shaping a vision for the future where gigabit broadband will eventually become the foundation for all its services.
The Tier 2 triple-play provider, now serving about 226,000 basic video subscribers in four regional clusters reaching 510,000 households across five eastern states, has kept pace with consumer demand for a better cable TV user experience while expanding broadband throughput to as high as 100 megabits per second in half its markets and 75 mbps in the rest. At the same time it has pursued a robust growth agenda in commercial services, which, together with broadband, are more than compensating for shrinking margins in the pay TV business.
Most notably, perhaps, Atlantic Broadband’s willingness to push the envelope in pay TV has paid off with an aggressive bundling strategy that leverages TiVo’s most advanced platform across all pay TV categories and includes a low-cost high-speed data/TV package featuring local broadcast channels and some premium networks. With over a year’s experience offering the TiVo T6 whole-home DVR and a universal UI with back-office support that allowed the MSO to bring Netflix into its service mix, “we’re very pleased with what we’ve seen,” says David Isenberg, an 11-year company veteran who recently assumed the role of president and chief revenue officer following the retirement of president and CEO Ed Holleran, who is staying involved with the company on a part-time basis. Richard Shea, previously COO, now holds the title of president and CEO.
“We’ve seen a strong take-up of the Netflix app on the TiVo platform,” Isenberg says, “We really believe a tightly integrated experience with linear and OTT is the right experience going forward. It’s clear this is something customers want.”
Noting the company’s subscriber performance has been especially strong over the past six months, Isenberg adds, “I can’t say that’s all or mostly due to Netflix. There are a number of things we’ve done to deliver strong results. Improving the product with a strong focus on tactical sales efforts and increased investment in our marketing and online marketing initiatives has also born fruit.”
Holleran admits to being “surprised how our subscribers have hung in with us,” given the general trends in pay TV as OTT options and rising programming costs continue to impact subscriber counts industry wide. “Even before we integrated Netflix I think the UI we were able to implement with TiVo allowed us to compete on a better footing with DirecTV,” Holleran says. “It gave us parity – some would argue it was better than parity – with a superior viewing experience that makes it easier for people to find what they want to watch.”
TiVo’s support for TV Everywhere has helped as well, Isenberg says. “We believe the most important TVE capability is the function of the core TiVo T6 platform, which is the ability to stream any live or recorded show to any tablet or smartphone while you’re in your home,” he says. “The majority of usage happens within the four walls of people’s homes. That’s an experience which is at once robust and simple.”
At the same time Atlantic is leveraging TiVo’s support for out-of-home access to streamed content to create a uniform multiscreen experience wherever subscribers are. The TiVo-enabled TVE portal also allows Atlantic to extend the TiVo UI recommendations engine to users on the go, Isenberg notes.
By last spring, when it added Netflix to the mix, Atlantic had made TiVo available across 95 percent of its footprint with a deployment strategy that put the T6 in a much higher percentage of households than has typically been the case with such rollouts. “I believe we have one of the most aggressive bundling programs in the industry,” Isenberg says. “We have built TiVo in as a base-level component of all our bundles so that the user experience and DVR capability have become a fundamental driver of value and competitive differentiation compared to other providers. Even our entry level double-play bundle at $79.99 includes the fully capable TiVo T6 DVR.”
The attraction of the TiVo experience has been a key factor in converting HSD-only customers to the Atlantic bundles, he adds. “These customers are switching pay TV providers to get the TiVo experience,” he says. “We’ve seen an acceleration in that phenomenon over the last six month.
The TiVo experience, sans DVR, is also a key part of another service innovation Atlantic has used to great effect, which is its Prime TV package consisting of basic broadcast channels, Starz, Showtime and the TiVo HD set-top with TiVo guide together with 30 mbps HSD at a cost of just $49.99. “If you want HBO and faster Internet, you pay another $15,” Isenberg says.
The strategy, patterned on a service introduced by Comcast, has paid off, Holleran says. “From the beginning, we saw broadband customers who had shown no interest in pay TV services signing on for this service,” he reports. “We launched on a limited basis, and now we’ve expanded the rollout with good results. There’s a real market for this level of service.”
Atlantic is eager to build on this experience with other offers of limited packages tied to broadband bundling, if it can get programmers to cooperate. But that’s hard, Holleran acknowledges.
“We’re looking to develop smaller, more affordable packages,” he says. “We don’t see a willingness on the part of many programmers as yet, but the world is changing. ABC/Disney’s deal with Dish is a good indication that programmers are coming to realize it’s not in their self-interest to try to pound everything into one big package. We all have to find a way to get those non-pay TV households to subscriber to something.”
For Atlantic there’s no downside to something like Prime TV when it comes to comparing the margins on those sales versus getting people to take an expanded basic package. “Our gross margin on the Prime service is the same as an entry-level bundle that includes expanded basic,” Isenberg says, notwithstanding the difference in pricing between the $49.99 Prime bundle and the entry-level bundle at $79.99, where the Internet access speed is 5 mbps versus the 30 mbps offered with Prime. “Financially, I don’t care whether I sell someone the low-end Prime bundle or the bundle with expanded basic.”
“That gets us to a kind of watershed moment,” he adds. “I think as more of those packages start to appear and we are financially motivated to market them, programmers will start to notice and their attitudes will start to shift. But we’re not quite there yet.”
Such developments underscore the appeal of moving to all-IP broadband services where the packaging flexibilities and lower costs of cloud-based operations offer a way to escape the margin squeezes of legacy pay TV while augmenting the operator’s ability to compete in the pay TV market. “This is a critical evolution for the industry, because it enables service innovation,” Isenberg says.
“In the past competing in pay TV was about how many channels you offered,” he continues “Today and even more in the future it’s more about what you can do with your TV service – how you manage and deliver the TV experience on different screen in different ways, which is much more of a software problem. I’d hope the things we can do here would be a win/win for programmers and ourselves by creating opportunities to build the business together.”
For Atlantic, the key to getting to that all-IP future is expansion of its broadband capacity to one gigabit levels, which, as Holleran notes, isn’t about big expensive plant upgrades but rather a combination of using next-generation PHY-level technology at the access level together with high-speed backbone consolidation across the service footprint.
“We’ll continue to move on bonding channels to get to 16, 24 and 32 QAMS on a path to one gig over the next several years,” Holleran says, noting the company’s use of DTAs (digital terminal adapters) has been essential to freeing up analog bandwidth for broadband use. The company is investigating both DOCSIS 3.1 and EPoC (EPON Protocol over Coax) as the path to one gig on the HFC plant. “We’re definitely wanting to be Internet led in getting towards one gig either of those ways with the goal of continuing to offer video off that platform,” he says.
As for backbone consolidation, this is a process now well underway, Isenberg says. “We have been on the first part of a several-year program to consolidate and interconnect our headends and operations,” he explains. “This has been especially important to us in our central Pennsylvania cluster, which is a collection of five major systems spread across 15 headends. Some are interconnected today, but we’re in the process of interconnecting all of them.” Similar moves are on the drawing boards for its other clusters in Maryland/Delaware, South Carolina and southern Florida,
At the same time Atlantic is working with Cogeco in Canada, which purchased the U.S.MSO in 2012, to consolidate operations on a larger scale. “With Cogeco’s support we’ve been in the process of doing some long-haul interconnections so that we can build more connections between our regions,” Isenberg says. “Both of these [consolidation initiatives] are important to us as we start to evolve to the next-generation delivery platform for TV. It’s all part of the master plan.”
Along the way, the company is exploiting its enhanced broadband and interconnection capabilities in an ever-more aggressive push into the commercial market. “We’ve been seeing 20-25 percent growth in commercial services going back to 2007,” Holleran says. “Over the past couple of years we’ve stepped up the pace with creation of a separate commercial services unit with dedicated personnel. It has become a major source of EBIDTA growth for us.”
“Our primary focus has been on moving up market and attacking even larger opportunities we can serve over the fiber plant,” Isenberg adds. “Over the last year we formally structured up a series of Metro Ethernet products that are now available in our markets. We’ve launched a fairly unique PRI (Primary Rate Interface) and SIP (Session Initiation Protocol) platform on the telephony side delivered over fiber and DOCSIS. And we’ve started developing partnerships with datacenters, particularly in the Miami area but also in the Pennsylvania region. All of those are bearing fruit.”
