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Cable’s digital drive irks basic customers

Across the country, cable operators have been moving popular channels from analog to digital service.
/ Source: The Associated Press

LaRonika Thomas got upset when Comcast moved the Sci-Fi channel to its digital service this summer, ensuring she couldn’t continue to watch her favorite show, “Firefly,” without paying $20 more a month.

The Chicago resident received The Golf Channel instead on her basic, analog cable service.

“I don’t watch golf. I would rather have static on than that channel,” said the theater director.

“It’s an awfully big cost,” said Thomas. “I haven’t canceled my service yet, but I may.”

Across the country, cable operators have been moving popular channels from analog to digital service, which offers customers better picture and sound but also can handle much larger volume, allowing cable operators to use their networks for more lucrative options such as video on demand and Internet and telephone services.

Cable operators such as Comcast, Time Warner Cable, Cox Communications and Cablevision are tight-lipped about the changes, which affect many of the nation’s cable subscribers. Markets seeing the change include cities in Pennsylvania, Connecticut, Illinois, Michigan, Massachusetts, California, Louisiana, Nevada, Colorado, and Texas.

“They’re trying to reclaim some of the capacity, mostly for HD” or high-definition TV, said Bruce Leichtman, president of the Leichtman Research Group, a research and consulting firm in Durham, N.H.

Digital services let cable operators better compete with satellite TV and soon, phone companies, said Jimmy Schaeffler, an analyst with The Carmel Group, a market research firm in Carmel-by-the-Sea, Calif.

Another reason why digital is alluring to cable: “It’s hugely more profitable,” Schaeffler said.

Fees for advanced services can inflate a basic subscriber’s bill by 30 percent to 40 percent or more.

“If you’re paying $40, it could be $60 to $70 or higher,” Schaeffler said.

Advanced services such as digital packages have driven revenue per subscriber at Comcast to $83 in the second quarter of this year from $42 in 1998, John Alchin, co-chief financial officer, said at the Merrill Lynch Media and Entertainment Conference on Sept. 13. The figure does not reflect revenue from the company’s phone service.

But to increase their offering of digital services, cable companies need to free up space on their cable lines — which means cutting back on analog channels.

“If we ever find a way to take back our analog channels, we in essence triple the capacity of our system,” David Fellows, Comcast’s chief technology officer, told analysts in May.

A digital channel takes up from one-sixth to one-tenth of the space an analog channel occupies.

About 64 percent of 73 million cable customers still view in analog, according to the National Cable & Telecommunications Association. That’s down from 91 percent in 2000.

“It’s a clear industry strategy: They are trying to find ways to push customers to spend more,” said Gene Kimmelman, senior director of public policy at Consumers Union, the Yonkers, N.Y.-based publisher of Consumer Reports magazine. “There’s no other reason for this other than their greed.”

Cable operators were wary about giving details of the channel switches, but statements from Comcast, Cox and Cablevision said changes are made on a local basis as a means to improve service or create uniformity within a market.

“We have not (increased our digital business) by forcing people to move,” said Time Warner Cable spokesman Keith Cocozza. Customers who upgrade to digital do so because they like what Time Warner is offering, he said.

Cocozza also noted most subscribers of movie channels are digital customers, so switching the channels out of analog wouldn’t have a big impact.

“This is the trend that we see continuing,” said Cox spokesman David Grabert.

In a way, cable operators are in a bind. They don’t want to alienate analog customers, since they make up the bulk of their business, but they also want to add digital channels and services.

So they’ve also started to simulcast the same channels in analog and digital signals. The goal is to “wean” customers away from analog into digital, Schaeffler said.

In July, Time Warner rolled out its first, full-market deployment of simulcasting, in Raleigh, N.C. Other cable operators, notably Comcast, started earlier.

But price remains an issue.

The average price of monthly digital service, including equipment, runs around $45 a month, according to the cable trade group. That’s $31 over bare-bones basic and $18 over expanded basic.

Joe Pugliese, a Comcast customer in Lancaster, Pa., lost one of two analog HBO channels last year when the cable company moved it to digital service.

“They told me if I went to digital, I would get it,” said the pizza shop owner. He got the Hallmark Channel instead, which he said it’s not a fair trade.

But Comcast said this week any Lancaster customer can swap their analog set-top boxes for a digital box at no cost and get multiple channels of HBO without upgrading to digital.

Eventually, consumers like Pugliese and Thomas might have little choice but to capitulate one day since the movement toward all-digital channels seems inevitable.

“We’re in a digital world. Period,” Schaeffler said. Cable companies are “moving the technology forward and they are making consumers move with them.”