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TWC Bows Low-Cost Channel Tier

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Time Warner Cable on Thursday announced plans to introduce a new cut-rate video service designed to help reduce subscriber churn.

Speaking on a panel hosted by SNL Kagan, Time Warner Cable chief marketing officer Sam Howe said the “TV Essentials” tier is about to be test-marketed at two price points. At $29.95 and $39.95, the package will cost subscribers as much as $20 to $30 less per month than the operator’s digital Starter Pak.

The first test will begin Nov. 22 in TWC’s New York City footprint, while a second trial is planned for mid-December, in Northeast Ohio. From there the operator will analyze the results with an eye  toward rolling out the package in additional systems in 2011.

As one may well imagine, the cheaper packages provide fewer viewing options for penny-pinching consumers. Chief among the networks that will not be represented in the TV Essentials lineup is ESPN. The sports network carries an average carriage fee of $4.40 per sub per month, far and away the industry’s steepest affiliate rate. (Coming in at No. 2 among fully-penetrated nets is TNT, a relative bargain at $1.03 per sub.)

While a comprehensive roster is not available, Bernstein Research analyst Craig Moffett told investors that he believed “all content distributors appear to be participating” in the trial. Moffett added that Walt Disney Co. “will be represented by at least ESPNews,” although a TWC spokesperson said Disney Channel will also be among the networks offered as part of the new tier. Along with the Mouse, various networks owned by Viacom (MTV Networks), Turner Broadcasting, Discovery Communications and News Corp. will be included on the TV Essentials menus.

An ESPN spokesperson said the TWC offering was consistent with Bristol’s standing distribution requirement, “which has not changed in the last 25 years.” Essentially, terms of ESPN’s standard carriage agreements mandate that the sports network must be offered on the first- and second-highest penetrated service tier.

Should the low-end pricing plan win a large following, ESPN will be added to the TV Essentials lineup. Then again, it seems unlikely that most Americans would elect to go without ESPN; after all, there’s a reason why the channel can command such a lofty sub fee.

"The vast majority of people are sports fans,” the spokesperson said, adding that ESPN “is coming off its most-watched––and highest-rated––fiscal year in 20 years.”

Thanks to a strong automotive market and a flurry of telco and financial services business, ESPN boosted its quarterly ad sales by 22  percent in the three-month period ended Sept. 30, marking the most significant uptick in the cable space.

Long an advocate of affordable cable tiering, Moffett characterized TV Essentials as “a critical step in addressing the needs of lower-end video subscribers,” adding that the service “represents an extraordinary compromise between content owners and distributors. ... In agreeing to support this package at this price point, the media companies appear to be acknowledging the importance of lower-priced offerings to maintain relevance to lower-end customers.”

Moffett noted that despite claims of a youth movement away from traditional cable TV service, there is in fact “an enormous body of evidence suggests that cord-cutting remains primarily a low-end phenomenon, more typically a result of poverty than of Internet choice and convenience. ... There can be no question that would-be online competitors are bolstered by the increasing disparity between video price and disposable income.”

Historically, similar offerings have been met with ambivalence. For example, family tiers account for a relatively tiny fraction of cable opt-ins.