Cause for Loss A Case Study for the Cable Industry

1. Cause for LossA Case Study for the Cable Industry November 29, 2011 Team Ten Share UCLA Anderson School of Management Dana Dubois Paul Getto Orion Prout

2. Time to Play “Mythbusters”

3. Myth Number One: It’s The Economy Source: Nielson Cross-Platform Report: State of the Media – Q1 2011

4. Myth Number Two: It’s Cord Cutters 141,000 Source: Citi Equity Research – “This Just In Pay TV Subs Contracted, Again”

5. It’s No Myth, It’s The Competition!

6. Then…

7. Now…

8. Where is TWC in the Marketplace? Best in category Parity Worst in category

9. The Competition Is Drinking TWC’s Milkshake Net Subscriber Gains Source: Citi Investment Research and Analysis, Company Filings

10. Who Is TWC In The Marketplace? ?

11. TWC is doing some things right… • Messaging Market leading broadband product • Something for everyone • Signature Home • “TV Essentials” Package trials in New York and Ohio • El Paquetazo • Slingbox for top tier bundlers • Wi-Fi Hot spots for “Cord-nevers” • $100 & $200 gift cards for signing up.

12. But They Are Also The Butt of Many Jokes… • Yelp – 1 Star Average Review (Out of Five). • “I wish I could give negative stars.” • “The sound went out on my cable and it took them a week to fix it.” • “I had to wait two days to get my internet turned back on.” • “Thank God for Fios.”

13. Video Provider Service Satisfaction Index Source: American Customer Satisfaction Index

14. Improved Customer Service Strategy • Expansion of the current SignatureHome service offering • Make elements of SignatureService available to more customers to increase the value that they feel as customers • Consider a “Net Promoter” model of accountability • Expand service hours to match DirecTV • 6-8am, 5-8pm, Sundays • “Technician Tracker” shows where your tech is and how many appointments are in the queue ahead of you • Send a text message 30 minutes prior to technician’s arrival • Leverage WiFi Hot Spots to Improve Social Media Presence • Actively monitor Twitter and Facebook • Respond to complaints via a service app

15. Customer Lifetime Value Improved customer service can further reduce the churn rate that already drops by bundling YES, BIGGER IS BETTER. But getting the customer there is the challenge…

16. Beyond the Bundle – A Bold Move THE TIME WARNER CABLE LIFETIME LOYALTY PROGRAM WE’RE LOOKING FOR PARTNERS TO STEP INTO THE FUTURE WITH… Revise message to consumer • Match message with strategy of customer service and retention • Forward-thinking • Debunk competitive value propositions • Give something the competitors aren’t and hook ‘em in

17. TWC Lifetime Loyalty Program • Overall Benefits • Reduce Churn • Reward Spending • Incentivize new services • Give a clear Goal • Tiers • Psychology – we like to look down • Reward based on tier • Communicate where the customer sits • “Rewards” • One point per dollar • Different valued awards • Designed to promote, not giveaway • Higher tiers have larger “rewards”

18. How it works – Tier specifics Note: specific benefits and potential increased CLV can be referred to in index

19. Rewards Examples

20. Rewards – “much obliged” The real benefit goes to TWC • Reward costs are minimal compared to the increased CLV when the promoted services are kept. • Promoted services are kept because of PSYCHOLOGY and INFLUENCE • Reciprocation • Consistency and commitment • Foot-in-the-door • Social Proof • Value of time and effort

21. A Proposed New Positioning Statement “For the consumer who demands premium video, high-speed data, and voice services, Time Warner Cable separates itself from all competitors by offering the best overall customer experience as exemplified by the finest customer loyalty program in the industry.”

22. Appendix

23. CLV Calculations Given: Churn rates are based on the Case write up data which gives a range of 3%-5% churn for single digital service. 2-product bundles reduces churn by 33%, 3 product bundle by 66%. Acquisition cost = $200 Assumption: based on a 4% single product churn. Given: ARPUs of services are found in the Oct. 2011 quarterly report, as well as Average Cost of Video Services Assumptions: Single product ARPU may not be cable, we use “primary service unit” ARPU = 54.08 Double Play assumes cable ARPU + weighted average ARPU of data and voice subscribers = 104.62 Triple play assumes ARPU Cable + ARPU data + ARPU voice = 147.93 Average Cost is only given for video. Assuming minimal costs for voice and data, we estimate cost of 29.65 for all CLV Formula used is the simplified version: (Margin – monthly costs)/((1-churn)+discount rate) - Acquisition Cost Other assumptions: monthly costs are included in average cost above, so = 0. Yearly Discount rate assumed as 10%

24. Loyalty Program Detail – Economics

25. TWC’s Current Customer Service Policy “TWC continues to upgrade its customer care processes and infrastructure. The introduction of SignatureServiceTM as part of TWC'sSignatureHome offering is a departure from its traditional "one size fits all" customer service. At the same time, TWC is upgrading its call center platforms to allow customer calls to be routed more efficiently and utilizing online approaches, such as eCare and MyService at www.timewarnercable.com, to give customers another alternative for engaging with the Company. The Company also continues to focus on improving reliability and the technical quality of its plant to avoid repeat trouble calls, which should lower customers' need to contact the Company. “– Time Warner Cable 10K 2.18.11

26. Current Costs of Improved Service

27. Implementation Economics • TWC 10Q From 10.27.11 note a net increase in double play customers due to acquisition of competing cable systems. 18,000 figure is attrition of double play customers from March 30 to June 30

28. Net Promoter Economics

29. Bibliography • AT&T (nd). Retrieved from http://www.att.com/shop/uverse/index.jsp?fbid=c70MiapvUy7 • BTIG Equity Research, “Could a Cable Company’s Best New Product Offering Be Quality of Service?” 2011 • Caldini, Robert B. Influence, Science and Practice. Fifth Edition. Pearson Education, Inc. 2009. • Citi Equity Research: “Pay TV Can’t Get No Satisfaction;”October 13, 2011 • Citi Equity Research , “This Just In: Pay TV Subs Contracted, Again.” 2011 • Credit Suisse Equity Research; “Weak Pay TV Sub Growth: It’s About Cord-Avoiders & Cord-Nevers, Not Cord-Cutters;” November 28, 2011 • Direct TV (nd). Retrieved from http://www.directv.com/DTVAPP/index.jsp • Dreze, Xavier. “Customer Value and Loyalty”. UCLA Anderson School of Management, Los Angeles, CA. 16 April. 2011. • Nielson, “Cross-Platform Report: State of the Media.” 2011 • Nomura Equity Research; “Broadband Pricing As A Weapon?”September 27, 2011 • Time Warner Cable (nd). Retrieved from http://www.timewarnercable.com/SoCal/?divhome=1&linkid=0 • Time Warner Cable Management Earnings Call Transcript; October 27, 2011 • Time Warner Cable 10-K Annual Report and Financial Statements Filed Period 12/31/2010; Filed on 2/18/2011 • Time Warner Cable 10-Q Quarterly Report and Financial Statements Filed Period 9/30/2011; Filed on 10/27/2011 • Verizon Fios (nd). Retrieved from http://www22.verizon.com/home/aboutfios/?CMP=DMC-CVS_ZZ_ZZ_E_TV_N_X001 • www.theacsi.org, ClaesFornell, 2011 • Net Promoter (nd). Retrieved from http://www.netpromoter.com/np/economics.jsp