1. Cause for Loss Cause for Loss A 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. Triple Play Package Advertised Price $79.99/mo89.99/mo Effective Price $116.48$135.90$129.25 Channels 150+Unknown (unclear)130+ Channels Internet Speed 15mbps 12mbps DVR Multi-Room DVR with 3 Boxes 1 HD DVR plus 2 BoxesWhole Home DVR with 3 Boxes Telephone Unlimited, Unlisted Install Time 4 Days9 Days7 Days Incentive $300 Prepaid Visa$200 Visa (Switchers)$200 Prepaid Visa Term 2 Years1 Year Best in categoryParityWorst in category Where is TWC in the Marketplace?

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

10. Who Is TWC In The Marketplace? ?

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

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 o 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 o 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 o Actively monitor Twitter and Facebook o 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 o Match message with strategy of customer service and retention o Forward-thinking o Debunk competitive value propositions o Give something the competitors aren’t and hook ‘em in

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

18. How it works – Tier specifics SINGLEDOUBLETRIPLE One free VOD Two free VOD An Additional Premium tier for a year, 2 months free 3 months free upgrade from Digital Basic to Digital 3 months free broadband upgrade 3 months off free HD Box Service with upgrade from Digital Order phone service and choose 3 months free broadband upgrade, 5-flick movie pass, or 3 months off DVR service The five-flick movie pack: 5 free VODs 2 months free of all four premium tiers for a year 4 months free service with upgrade to whole-house DVR 3 months free broadband upgrade Two premium channels for a year but pay for only one for 3 months Add Phone service for 15.99/6 Free installation and 3 months off service for whole-home 2DVR Order 2 sports passes and get 10% off 50% off data plans for 3 months when ordering internet-on-the-go Access to signature solutions advisor for 4 months Wideband for a year, first 6 months 79.99 Note: specific benefits and potential increased CLV can be referred to in index

19. Rewards Examples PAULORION A busy MBA student who works full time, has no time to watch TV. Single product tier with broadband is something he's very happy with Another part time student with currently digital cable. But cable service is something he's debating… Current Service: 29.99 broadbandCurrent Service: Digital Television REWARD/PROMOTION AC/Cost of reward to TWC Potential added CLV (If service kept) REWARD/PROMOTIO N AC/Cost of reward to TWC Potential added CLV (If service kept) 3 month free upgrade30$176.90 Upgrade to HD DVR, 3 months of service + added phone for 15.99/mo for 6 month 57$1566.21 2 month free upgrade from turbo to extreme 40$373.79 Sign up for broadband turbo and get 3 months half off 60$1078.24

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 o Reciprocation o Consistency and commitment o Foot-in-the-door o Social Proof o 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% ARPUAve. Cost Margin/Mont h ACChurnCLV One service 54.0829.6524.432000.04305.45 Double Play 104.6229.6574.972000.02681933.87 Triple Play 147.9329.65118.282000.01365192.71

24. Loyalty Program Detail – Economics TierREWARD Offer Value/Lost Revenue Benefits, possible increased CLV** Single One free VOD5.99 increase VOD purchases Single two free VOD movies12 increase VOD purchases Single An Additional premium tier for a year, 2 months free12112.14 Single 3 months free upgrade from Digital Basic to Digital30176.89 Single free broandband upgrade for 3 months30176.89 minimum Single Order phone service and get the five flick movie pack for free, OR 3 months of free service charge on dvr, or free broadband upgrade for 3 months 30820.60 -1108.12 Single Upgrade to HD DVR and get 3 months off HD Box service33587.48 Double the five flick Movie pack: 5 VOD movies for 19.9510 increase VOD purchases Double order two premium channels for a year and pay for only one the first three months36305.56 Double Upgrade to whole house HD DVR with 4 months off service44496.22 - 1349.83 Double All 4 premium tiers for a year, 2 months free48122.78 - 468.33 Double add phone service for 15.99/6 months241143.32 Double/Triple Wideband for a year, first 6 months 79.991801243.14 - 2096.48 Triple 10% off the sports passes when both ordered28.6257.8 Triple whole home, 2HD with FREE installation and 3 months off service83823.39 - 2605.14 Triple Access to a signature solutions advisor for 4 monthsN/A increase chance of upgrade Triple Sign up for a two-year contract for Internet on the go and we'll give you half off all your data plans for 3 months 30+ 881.85 - 3607.41 (3 devices) **CLV = (M -C)/((1 - R) + D) - AC M = Margin, C = monthly cost, R = monthly retention rate, D = discount rate, AC = Acquisition Cost assumptions: margin and monthly costs remain the same, yearly discount rate = 10%, AC = revenue lost on offer. Additionally, the churn rates are assumed to be Single Product: 4%, Double: 2.68%, Triple: 1.36%

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 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.jsphttp://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=0http://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_X001http://www22.verizon.com/home/aboutfios/?CMP=DMC-CVS_ZZ_ZZ_E_TV_N_X001 www.theacsi.orgwww.theacsi.org, Claes Fornell, 2011 Net Promoter (nd). Retrieved from http://www.netpromoter.com/np/economics.jsphttp://www.netpromoter.com/np/economics.jsp