A turnaround triumph: business transformation in the Pay TV industry

Rob Highett-Smith, Nikki King and Kylie Miller ESOMAR Consumer Insights, Barcelona, November 2005

Title: Author(s): Source: Issue:

A turnaround triumph: business transformation in the Pay TV industry Rob Highett-Smith, Nikki King and Kylie Miller ESOMAR Consumer Insights, Barcelona, November 2005

A turnaround triumph: business transformation in the pay TV industry

Rob Highett-Smith AUSTAR Entertainment, Australia Kylie Miller Blue Moon Research and Planning, Australia, Nikki King AUSTAR Entertainment, Australia INTRODUCTION This paper details the role played by research in affecting a significant business turnaround at AUSTAR Entertainment, the dominant Pay TV provider in regional Australia. A brief overview of the Pay TV industry in Australia and AUSTAR Entertainment's position within the industry is outlined. The paper then details the growth and stagnation of the AUSTAR business and explores the reasons behind this fall, one of which is an absence of consumer research and subsequent minimal understanding of AUSTAR's subscribers and the potential market. The differences made by the introduction of a research program are then described together with the impact research insights have had on the recovery in customer acquisition, customer management, disconnection levels and new product development. The fact that AUSTAR's recovery was realised via the integration of consumer research with other internal data analysis and strategies as well as the will of the company to implement change is also detailed. INDUSTRY AND MARKET CONTEXT The Pay TV industry began relatively late in Australia by international standards, starting in 1995. Industry concentration has always been high, with only three main competitors (Foxtel, AUSTAR and Optus) and several smaller localised cable operators. Of the three main industry players, Foxtel and Optus compete in the metropolitan areas that account for approximately two thirds of the national market. AUSTAR is the main supplier to regional areas. Therefore, there is minimal direct competition in the regional and rural areas, which are dominated by AUSTAR. However, Australia has a relatively strong free-to-air TV industry (with five stations) and national Pay TV penetration rates are around the 20% 25% mark (greater in metropolitan areas than in regional areas).
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These penetration rates are very low compared to countries such as New Zealand and the United Kingdom (both with penetration above 40%). While AUSTAR research has shown that sport is one of the main drivers of subscribing to Pay TV, in Australia rights to air popular sports exclusively are rare due to the highly regulated nature of the process of obtaining sports broadcast rights. This has undoubtedly prevented further growth of the Pay TV industry in Australia. ORGANISATION CONTEXT The focus of this paper is AUSTAR Entertainment, the second largest provider of Pay TV in Australia. AUSTAR was launched in 1995 as the sole Pay TV operator in regional (non-metropolitan) Australia. The company grew rapidly to achieve a subscription base of 325,000 in June 1999 (approximately 15% market penetration) and was floated on the local stock exchange shortly after, achieving a market capitalisation of $5 billion, with the share price ultimately peaking at a high of almost $10 in March 2000. Optimistic forecasts surrounding the company's future were based upon its perceived potential to replicate the industry successes experienced overseas, together with the potential to expand into other related markets. Therefore, as the Pay TV business model requires, the company invested heavily during the set-up phase, with an eye on future revenues. From inception through to 2000 the company had enjoyed significant growth in its Pay TV subscriber base. However, from mid-2001 through to the end of 2002, the company ran into difficulties as the growth of the organisation stalled at around 440,000 subscribers in June 2001 and fell following this period, ending 2002 with a decline of almost 10% of subscriptions over 18 months. Continued financial losses (net $131 million for the 2002 financial year), together with funding difficulties left the company in an extremely precarious position, with the share price bottoming out at around 9 cents in October 2002 (see Figure 1). The organisation was forced to go through a transitional period, during which the business was restructured and refocused on the core business of Pay TV. As a result of these activities all the key operational and financial metrics associated with the business have seen significant healthy improvements: subscriber growth was eventually restored, subscriber churn (proportion of active subscribers disconnecting their service each month) was brought down to 'industry best-practice' levels, ARPU (Average Revenue per Unit) has seen significant increases. The share price has rallied (see Figure 2); a huge turnaround in EBITDA from a loss of $89 million in 2001 to a favourable $100 million result in 2004 and, most importantly, positive free cash flow has been achieved. BARRIERS TO GROWTH The substantial rapid growth experienced by AUSTAR in its Pay TV subscriber base from its inception until late 2000/early 2001 was mainly due to the inherent appeal and the initial demand for the product. The underlying assumption was that this would continue unheeded, as experience had shown overseas. The subscriber decline in 2002 was therefore a surprise to AUSTAR. In hindsight, the problems facing AUSTAR in 2002 appear to have been the results of a combination of factors: 1. Inappropriate sales strategies 2. A lack of business rules and procedures
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3. Over-extension into other services 4. Upgrade of customer management system and loss of historical reporting 5. Financial difficulties 6. Lack of research into current subscribers and potential subscribers 1. Inappropriate Sales Strategies As a primarily sales and marketing driven organisation faced with seemingly constant demand, AUSTAR pursued a very retailfocused acquisition strategy early on. This strategy assumed the market had similar characteristics and dynamics to overseas markets, and relied heavily on the use of discounting and aggressive sales strategies (including 'pushy' door-to-door salesmen). This ultimately resulted in negative market perceptions of the brand and a lack of credibility amongst nonsubscribers. However, it also led to an underestimation of the effort required to achieve higher levels of market penetration, which in turn resulted in unrealistic targets and budgets being set. When these targets were not achieved, this created an urgency and short-term perspective that served to reinforce the reliance on increased advertising activity and promotional discounting a vicious cycle. 2. A Lack of Business Rules and Procedures Perhaps a less obvious side effect of this attention on sales to drive continued subscriber growth was the lack of focus on other parts of the business during this period. This was also partly due to the rapid growth experienced by the organisation. Since its inception, the organisation had expanded from a start-up organisation in 1995 to a business generating over $410 million dollars of annual revenue within five years. Unlike well-established organisations, there had not been sufficient time and focus on consolidating business rules and processes in order to ensure efficient and effective operation of the rapidly growing business. This deficiency in business rules and planning began catching up with AUSTAR. For example, the focus on discounting to increase sales volumes undoubtedly increased subscriber churn as there were few exit barriers in place to discourage gaming. Whilst twelve-month contracts were in place, and there was a nominal $80 fee for disconnecting prior to the end of a contract, this was usually waived. Consequently, a proportion of subscribers learned over time that they were, in effect, free to 'come and go' as they pleased. in one such instance, a subscriber was observed to have signed-up and disconnected over 12 times in two years, using a variety of names, including that of his dog! There was also a lack of documented processes in general within the organisation, and often decisions were made by gut-feel rather than with systematic analysis. This frequently led to solutions being implemented which would solve the immediate problem, which would often cause unintended results in other parts of the business. 3. Over-Extension into Other Services With the assumption that the Pay TV business would continue to grow steadily, the company embarked on a variant from the much-heralded telecommunications strategy of the triple-play(i.e. delivery of voice, video and data usually over a cable
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network). As a result, the focus of the organisation changed to a strategy of product diversification, rather than remaining focused on establishing its core business. In 2000 this resulted in the organisation establishing a mobile telephony business (as a reseller) and an ISP business. The result was to further stretch the already limited operational and financial resources of the organisation as well as distracting management attention. 4. Upgrade of Customer Management System and Loss of Historical Reporting To enable the integration of these two evolving businesses into the main architecture of the organisation, the bespoke Pay TV billing and customer management system was replaced during 2001. This was due to the fact that the legacy system was not capable of being modified to include the new products and services. Following implementation of the new system, the historical reporting capabilities were not immediately available. This gravely impacted the ability of the organisation to do anything but macro-manage the business, as during the second half of 2001 the visibility of all but the most critical business metrics was severely limited. 5. Financial Difficulties Together with all of these operational issues was a significant financial consideration. As with most Pay TV businesses, the substantial initial investment had been financed through debt (of approximately $400 million). Against the backdrop of missed covenants and declining performance, AUSTAR had failed to renegotiate the rollover of its funding arrangements with all of its financiers. All of these elements combined during the same period in 2001/2002 to stagnate growth and provide the potential to severely cripple the organisation. Culturally, the organisation had retained many of the youthful, dynamic, entrepreneurial and highcommitment values and characteristics often associated with organisations in their early stages of development. However, with the impending financial uncertainty facing the business towards the latter half of 2001 and beyond, the atmosphere of the organisation became very tense. 6. Lack of Research into, and Understanding of, Current Subscribers and Potential Subscribers Until 2002, there had been minimal market research conducted on AUSTAR's customers and there was only a basic understanding of the consumer. The remainder of the paper will serve to show how, against this backdrop, the implementation of a strategic research program played a role in AUSTAR's recovery. IMPACT OF CUSTOMER RESEARCH ON AUSTAR The Consumer Lifecycle A service organisation such as AUSTAR Entertainment relies on subscribers to survive. The Pay TV consumer lifecycle comprises: 1. acquisition of customers, 2. customer management and

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3. disconnection or churn(see Figure 3). New product development has an impact on all three of these stages and will therefore be covered separately. The following sections will describe the challenges facing AUSTAR in each of these four stages, AUSTAR's response and research conducted, and the impact on the business. In 2002 the immediate problem facing the business, and the first to be tackled, was stemming subscriber churn. Therefore, this will be covered first, followed by customer acquisition, customer management and product development. SUBSCRIBER CHURN It is often stated that it is 'cheaper for an organisation to retain a customer than to attract a new one'. This is certainly true of subscription industries in general, and the Pay TV industry specifically, due to the capital cost of setting up a home to receive the signal/product. One of the main challenges facing AUSTAR at this time was the above-average rate of churn. Until now, subscriber growth had been driven by high rates of sales activity. However as sales slowed, continued subscriber growth was beginning to be eroded by high disconnect rates (as shown in Figure 4). In effect, the figure above shows that with a monthly churn rate of between 2.5% and 3%, over 30% of existing subscribers were choosing not to continue their subscriptions each year. This is in comparison to overseas benchmarks of between 10% and 20%. This unacceptably high churn level was tackled in four ways, via: 1. Transactional analysis of the subscriber database 2. Consumer research 3. Establishment of the cross-functional churnbreakersteam 4. Statistical 'predictive' modelling 1. Transactional Analysis of the Subscriber Base Initial profiling analysis of the subscriber base indicated that there were correlations between several key variables: subscriber tenure, payment type, and package (product configuration). These variables were used to identify key areas of increased risk of disconnection, to formulate hypotheses and quota structures, and inform subsequent research design. The key observations discovered were: 1. Churn peaked between four to seven months after subscription. 2. Once a subscriber had subscribed consistently for over 24 months their churn levels were minimal. 3. Subscribers consistently paying by credit card or bank direct debit had a lower churn rate. 4. Involuntary churn (for non-payment) was more likely amongst those with a higher monthly payment
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5. Voluntary churn was more likely amongst subscribers taking only the Basic package. However, whilst this analysis identified the areas of increased risk of disconnecting, they did not help to uncover the underlying reasons for these trends. 2. Consumer Research To gain a more detailed understanding of who was disconnecting, and why, in 2002 exploratory qualitative research (in the form of traditional focus groups) was conducted and a churn tracking survey was established. This research was essential to stemming the flow of disconnections. It provided insights into the underlying motivations and reasons for disconnecting, the motivations for first acquiring Pay TV, relative satisfaction levels and the potential for retention and re-acquisition. The research found that the primary reasons for disconnecting to Pay TV were cost, time/lifestyle, Pay TV content and (less importantly) customer service or process issues: Cost The subscriber could no longer afford Pay TV, there were competing priorities for the monthly fees or it wasn't good value for money. We had the monthly Pay TV bill of $50, we had the mobile phone bill of about $50 a month and the Internet at about $50 a month, so all of a sudden you realise you're paying an extra $150 a month. So you have to keep the Internet because the kids need it for school, and the mobile phone is a necessity, so if one has to go it's the Pay TV. Time and lifestyle issues The subscriber felt that they didn't watch Pay TV enough, they were too busy or that Pay TV was making them watch too much TV. I thought I'd have more time and that I'd actually be able to sit down and watch some of the subjects on telly that I would enjoy. But I wasn't watching anywhere near the amount I thought I would and really wasn't getting any value out of it. Content That there were too many repeats and old programs, poor variety or too many ads. Repetitiveness, the same programs on over and over again. Customer service or process issues Poor customer service, problems with the billing system or installation problems ('Hygiene factors'). Further qualitative research conducted in 2004 added an additional layer of understanding of subscriber behaviour:
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The project identified that subscribers experienced an initial period of excitement and heightened interest following subscription. After this period the product was either integrated into their lifestyle or failed to meet their expectations and requirements.

Payment method (if cash) acted as a continuous prompt for re-evaluating the purchase. The package they had subscribed to directly impacted the number and variety of channels at their disposal, and therefore their perception of value, as well as the economic 'affordability' of the purchase. Beyond the inherent risk profile described above, the research found that certain events (such as hygiene factors, macro-economic and life changes)

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would trigger the decision to disconnect. 3. Establishment of the Cross-Functional ChurnbreakersTeam In October 2002, an internal AUSTAR team was set up in order to co-ordinate a truly cross-functional effort on reducing churn. Prior to this time there were few concerted strategies in place to address subscriber churn. The team comprised of middle management (with visible senior management commitment) from a wide range of departments such as Marketing, Sales, Customer Service, Field Operations, Credit and Collections, IT and HR. The creation of this team allowed the research to be effectively communicated to the appropriate stakeholders and the findings actioned. As a result, this team was able to use the research insights described earlier to make effective changes to the business:
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Business processes and rules were corrected, in order to reduce the gaming behaviour of some subscribers. This included enforcing the disconnect fee and increasing it from $80 to $250 to discourage subscribers from disconnecting in order to obtain sales discounts or avoid monthly subscription costs during, for example, the Rugby off-season. This strategy increased continuous commitment to the product on a month-by-month basis and decreased churn.

A company-wide focus on payment methods was introduced. Sales paying by credit card and direct debit were increased, as were 'upgrades' for existing subscribers. These preferred methods of payment were thus increased from around 26% at the end of 2001 to over 55% in 2004 as a result.

As a result of the observation of the early risk period, a survey was sent to subscribers at the three month mark, to identify 'at risk' customers and resolve their issues early.

The business introduced 24-month contracts and offered the sales staff incentives to focus on selling these. This allowed subscribers enough time with Pay TV to increase the likelihood of it being integrated into their lifestyles.

Communications strategies were devised to reinforce the programming 'gems' and value proposition, especially throughout the first two years of a subscriber's contract such as school holiday communications, programming highlights with the bill, and an improved use of the programming guide.

The business focused on reducing controllable 'trigger events', by ensuring a focus on quality service delivery and problem resolution in key areas.

Subscriber feedback on the level of repeats, advertising frequency and other programming issues has been constantly supplied to the channels, and has helped to inform them of potential areas for improvement.

This group also become an important forum for evaluating the potential impacts and risks associated with any key decisions and projects in effect, the guardians of the churn number. The importance of this metric is reflected by the fact that the churn number is sent daily via SMS to members of this team and senior management. The research itself generated many powerful insights and an overall understanding of the reasons behind subscriber motivations to disconnect as well as the key indicators of such behaviour. However, without the sponsorship of this team, it would have been infinitely more difficult to ensure that these findings and insights were turned into actionable results. As Figure 5 shows, the rate of churn has seen very significant improvements since the churnbreakerstrategies have been implemented.

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4. Statistical 'Predictive' Modelling Building on this understanding of the disconnection process as well as the on-going transactional analysis, an external analytics supplier was engaged to develop statistical model to append a 'churn score' to each active subscriber. This 'churn score' was based upon transactional and demographic data and quantifies the relative propensity of any given subscriber to disconnect. Since May 2005 the score has been used to proactively contact 'at risk' subscribers with the aim of nullifying any of the potential triggers, and resolving some of the key profile-related characteristics (e.g. payment method, most appropriate package, etc., or even simply customer education) in order to reduce their likelihood of disconnecting. To date, results have shown a significant decrease in the churn rate amongst the contacted subscribers, in comparison to a control sample. In conclusion, if the churn rates had remained at the 3% per month level, the subscriber base would have continued to shrink, and the continued operation of the organisation would have been in doubt. The significant reduction in churn would not have been possible without the interaction of all four of the strategies described above the transactional analysis, consumer research, churn predictive model and the corporate determination to action the resultant insights. CUSTOMER ACQUISITION Watching television is a popular pastime in today's society. Australians spend more time watching TV than any other activity. According to the Australian Bureau of Statistics, it is Australia's most popular leisure activity (1999, p.4). There are very few households in Western societies that do not have a television, and the number of TVs per household has increased since the introduction of the television almost 50 years ago. In fact, most homes in Australia have two or more TVs (see Figure 6). Furthermore, overseas experience, notably in North America, Europe and closer to home in New Zealand, has shown the Pay TV industry to hold significant appeal as a mass product (see Table 1). In Australia, as could be expected with the late introduction of a proven product into a market, there was innate demand in the market, and during the initial growth phase high demand for the product drove consistently high sales performance and significant subscriber growth (see Figure 7). In the beginning, AUSTAR's advertising messages predominantly focused on rational product-based advertising and promotional discounting in order to raise awareness of the product and reduce perceived entry barriers. The product-related advertising focused on the key genres of appeal for the product, which earlier surveys and overseas experience indicated as being sport, movies and documentaries. In terms of promotion, the key focus was the entry barrier ('installation fee') and this was discounted to half price, or offered for free. Later, as promotions escalated, a 'free month trial' of an additional tier was also introduced for new subscribers. As with many telecommunications organisations, outbound sales (cold-call telemarketing and door-to-door sales) were also heavily engaged. This led to negative brand perceptions amongst non-subscribers, as identified by an initial qualitative study undertaken in mid 2000. At that point, the image of AUSTAR was seen as being very pushy and sales-oriented in a negative way, with comments such as I have guys coming round it seems like every week, they don't seem to understand 'no'. This image was ingrained long term and has only recently changed. As a result of falling sales levels at the end of 2000 (inbound sales in 2000 were down 20% on 1999 figures) and in
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combination with high churn, subscriber growth stalled and started to fall (see Figure 8). AUSTAR's reaction was to increase the intensity of its marketing efforts, specifically increasing frequency of TV advertising and monthly saturation direct mail campaigns. The focus on continued offers (always a new 'deal'), together with increased marketing, strengthened the perception of the 'hard-sell' and desperation presented by the organisation and over time it began to lose credibility in the eyes of non-subscribers. In addition, even those non-subscribers with any level of positive predisposition were beginning to 'learn' the patterns of the organisation's approach with one focus group participant stating: They've always got a new deal on, it gets cheaper and cheaper, I'm waiting for free installation and a month's free movies. It is noticeable that non-subscribers were beginning to delay purchasing the product, choosing to wait for improved deals in the future, which they had come to expect. It is even more telling, that the organisation went on to offer these deals. With hindsight, it is possible to identify that the fact that the discounts were not linked to a 'valid' reason, and thus appeared arbitrary, as a reason for this behaviour becoming more widespread during this period. During the course of 2001 and beyond, a number of research projects were conducted in an attempt to reverse the declining sales volumes, poor brand image and the organisation's reliance on promotional discounting. These included:
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A usage and attitudes survey amongst the population Exploratory qualitative research amongst non-subscribers A brand health tracking survey amongst the population

Usage and Attitudes Survey A usage and attitudes survey of the market conducted in October 2001 helped direct AUSTAR's focus away from discounting. This project identified relationships between attitudes towards television as a medium, technology in general, and lifestyle choices. It found that the level of interest in Pay TV was not associated only with the cost of the product, but in inherent perceptions and attitudes towards Pay TV. This challenged the strategy of discounting, and identified the need to change the underlying perceptions of non-subscribers. This understanding resulted in a fundamental change in advertising strategy, which saw a move away from 'rational' productbased advertising to more 'emotional' benefit based advertising. The new approach saw the development of brand advertisements that conveyed the emotional benefits of the product, as well as repairing some of the earlier damage to the credibility and appeal of the brand. In addition, as a result of the study, AUSTAR's tagline changed from Get Switched On!(which reflected the hard-sell) to a softer Yours to Enjoy. Exploratory Qualitative Research In 2002 some exploratory qualitative research was undertaken to further the fundamental understanding of non-subscriber perceptions of the product. This project uncovered four key generic categories of barriers to subscribing, that still hold today: philosophical barriers, physical barriers, financial barriers and rejection of the offer. In essence all of these barriers are about
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not perceiving value in Pay TV. Philosophical barriers A philosophical rejection of the product was identified. Certain segments of the market would 'reject' the product on the basis of their belief that the product would have an intrinsically negative effect on their lives. In effect, that to obtain value for paying for TV would require them to watch more of it (seeing no significant difference in the quality of the product in comparison to the terrestrial alternative) and that this was at odds with the stereotypical perception of the good life an active healthy life. Variations on this theme included the perception that it would increase disharmony within the household, that it would have a negative effect on children in the family, or that watching TV was a waste of time. There's plenty more things I should be doing, I'd probably never get anything done, I'd feel guilty. As it is the kids spend too much time in front of the TV and I am trying to the change habit. If we had Pay TV my husband would sit there all day and all night long and would not talk to me and I would never see him. Physical Barriers Certain segments of the market perceived that they did not have enough time to watch Pay TV, or that they in fact did not watch enough TV to obtain enough value from it to make it a worthwhile purchase. The underlying motivations here are closely allied to those associated with the philosophical barriers, that is to say that there is little or no perceived quality differential between Pay TV and the free-to-air alternative. We already watch too much of free to air TV. We do not have much time to watch anymore. Money wasn't as much an issue. It was having the time to enjoy it. Financial Barriers Financial barriers were simply the economic reaction to the cost of the product those segments of the market that felt the product was unaffordable in practical terms, that it was not possible to incorporate into the household budget. I can't justify the cost. Quite bluntly they charge a lot for not much. I'd rather spend my money elsewhere. I think the standard packages are too expensive. Rejection of the offer Finally, the barriers associated with the rejection of the offer related in part to the above barriers. The core basis for rejection wasthattheywishedtoselectthechannelsinan'lacarte'mannerratherthanselectfromthepredefined'packages'offered. This in effect, was an implicit strategy for reducing the cost of the product, and reducing the 'guilt' of not getting value from all that was available. I would prefer it if you had the choice of picking out what we want to pay for so that we could choose just the channels that

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we want to view. There was also rejection of the repeated programs on Pay TV. There is apparently a lot of repetition and I have heard that it is great for the first few months but then starts getting repetitive. The same programs are on free to air TV. This qualitative research increased AUSTAR's understanding of the key drivers, attitudes and perceptions of the product, in order to improve the effectiveness of communications. The quantitative elements of these projects measured the relative size of these issues together with tracking the progress made in tackling them. Brand Health Tracking Survey With the decline in acquisition and the need to change attitudes of non-subscribers towards Pay TV, a monthly Brand Health Tracking survey was established in 2002. This survey tracks public sentiment towards AUSTAR. The key issues being tracked on a continuous basis included product and brand awareness, non-subscriber consideration of the product, barriers to purchase, brand image, attitudes towards Pay TV and awareness of advertising. In addition, questions on important topical issues to the organisation were included on an ad hoc basis. The key benefit of this research is that it provides the basis for quarterly discussions on product-consideration levels, and brand image within the business and amongst research, media and advertising business partners. All partner agencies and individual areas of the internal marketing department are invited to these presentations, which are conducted in a discursive manner rather than as a one-way presentation. These presentations directly and regularly encourage these stakeholders to consider and discuss these issues. A small proportion of agency performance-related remuneration is linked to some of the key indicators, to reinforce their importance. A New Direction in Advertising Strategy The projects outlined under Customer Acquisition had the objective of exploring and understanding the inherent attitudes and perceptions towards the product. However, understanding without action has limited effect. These insights were used to design new creative executions that aimed to reinforce the positive associations of the product and reduce the negative connotations. Success of the New Campaigns was Evaluated in Three Ways: 1. Through the brand health study described above, advertising recall, recognition, brand attribution and brand image was measured amongst subscribers and non-subscribers. 2. From 2002 onwards, a geographical market segmentation was implemented and sales reporting was aligned with these regions, in order to measure and optimise the effectiveness of media spend. 3. Campaign post-analysis, in the form of a small number of focus groups to further explore the underlying perceptions and take-away from these ads.

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Measuring the effectiveness of communications was especially important during this transitional period because the organisation needed to reduce advertising expenditure. Over the preceding period (prior to 2002) expenditure had increased as a reaction to declining sales levels. The results of these three projects enabled the organisation to reduce budgets to more sustainable levels without dramatically effecting sales levels. Advertising expenditure fell almost 30% between 2001 and 2003, whereas sales levels remained at relatively constant levels. There had been a substantial strategic shift in the advertising strategy with the objectives changing from short-term maximisation of sales through promotional discounting to focusing on creating and harvesting sustainable demand through the reinforcement of positive perceptions of the product and reducing the negative associations. Together with the improvements seen in churn, these helped to turn the subscriber growth trend around (see Figure 9). CUSTOMER MANAGEMENT As the earlier sections have demonstrated, the organisation first focused on the key areas of the business: subscriber churn and the acquisition of new customers. As improvements were made in this area, focus turned to current subscribers and an increased desire to understand the trends and drivers of satisfaction and thus retention. From March 2004, a customer satisfaction tracking study was initiated. While there is only a very small proportion of the market who are considering AUSTAR and acquisition is difficult, current AUSTAR customers are extremely satisfied, committed and would recommend AUSTAR to others. Furthermore, subscribers are much more satisfied with AUSTAR TV than they are with free to air TV. The hard work in reducing the level of churn appears to have really paid off amongst continuing customers, although lower satisfaction was reported for AUSTAR TV packagesthan other key measures tracked (see Figure 10). This study has allowed the organisation to understand the relative levels of satisfaction with the programming, package configurations, the AUSTAR magazine, call centre interactions, interactive applications introduced over time, and other topical issues. This has allowed the business to develop and substantiate a case for product redevelopment, which is explored below. It has also facilitated investigation of viewing habits and behaviour to help refine the customer management model, communications and application development. For example, by tracking the awareness of various interactive applications, it has been possible to identify potential areas for improvement and develop communications on these topics. NEW PRODUCT DEVELOPMENT One of the key observations from both the brand health study and customer satisfaction study was the relative lack of satisfaction amongst both subscribers and non-subscribers with the way the channels were packaged. Many customers wanted to create their own 'a la carte' package, channel by channel, rather than choose tierswhere 1015 channels are prepackaged. While a true a la carte option was considered impractical by AUSTAR, a comprehensive revision of the package configuration was conducted in an attempt to increase customer satisfaction with AUSTAR's packages. The changes to the product included reconfiguring the channels into a number of tiers, adding new channels and adding sports, news and movies interactive capabilities. Three major pieces of research were conducted to establish and support the new package: 1. New AUSTAR digital research 2. Customer satisfaction study the inclusion of a specific new package module
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3. Non-switchers research 1. New AUSTAR Package Research In September 2003, substantial qualitative and quantitative consumer research was conducted into the potential appeal of the proposed new package structure. This research project successfully identified the relative appeal of the proposed new product, interest in the new channels as well as identifying the most attractive features for inclusion in communications, and measured the potential uptake of the new product for forecasting purposes. The research findings also contributed to important decision-making on operational issues such as:
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whether to implement a return path strategy (the installation of an additional telephone line, to make ordering movies/voting, etc. more convenient);

whether to introduce interactive features (e.g. sports active, news active and box office movies) by quantifying subscriber interest for these elements; and

identifying the characteristics of interested customer segments for targeted communications.

The new package was introduced in March 2004 and currently over 80% of subscribers subscribe to the new package. Those on the new package are considerably more satisfied and more committed than those who remain on the old package. 2. Customer Satisfaction Study (Questions Covering New Package Issues) The on-going customer satisfaction study was adapted to include questions to understand why subscribers have or have not switched to the new package. This has helped AUSTAR to understand the improvement in satisfaction as a direct result of the new product (see Figure 11). In addition, continuous tracking has identified those packages and tenure segments that were most resistant to switching, the level of awareness of the new product, and the reasons for not switching. This has helped track the effectiveness of the tactics developed as a result of the non-switchers research. 3. Non-Switchers Research In September 2004 (six months after the launch of the new package), only 50% of customers were subscribing to the new package. Research was conducted, in conjunction with transactional analysis, to profile those not switching, to understand the barriers to switching and identify potential messages to encourage them to switch. The insights from the research were used to accurately target the most predisposed segments of non-switchers with the most appropriate messaging. The research identified that inertia and lack of trial opportunities were also key barriers. In response to the research, AUSTAR introduced Taster weekends. These were weekends when the new channels were made available to limited segments of the subscriber base that were still on the old package. This no-obligation trial was communicated to the subscribers by direct mail, and followed up with telemarketing activity in order to encourage permanent switching. The weekends have had great success with 80% of the subscriber base now subscribing to the new package. In conclusion, these three research projects combined delivered vital information to the AUSTAR so that it could make informed decisions about a major change to the product configuration. The budget for these projects was not significant, given
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the amount being spent on the relaunch of the new package, and it certainly pales into insignificance when compared with the subsequent gains in Average Revenue (ARPU). ARPU was increased from $56.45 at the end of 2003 to $65.54 at the end of June 2005. One of the insights was that subscribers would be more willing to pay extra each time to order a movie over the phone, rather than a larger lump sum upfront to install an additional phone line and enable automatic ordering. This saving alone would have paid for all the research ever conducted by the organisation. Furthermore, the higher satisfaction levels amongst subscribers on the new package are likely to have been a contributing factor in reducing churn. REFLECTIONS ON IMPLEMENTATION OF RESEARCH RESULTS Upon reflection, there are several elements of the research programme and implementation of results that have generic applicability outside of this case study. Keep it Simple The principle of parsimony is often stated as the simplest solution is often the best. One of the ways in which the research implemented at AUSTAR succeeded is that it did not seek to overcomplicate the issues at hand. It sought to identify key areas of concern for investigation, aligned itself with the data, and attempted to engage all interested parties. Engender Management Support In troubled business situations, which can often be characterised by fears over the future, research can give managers a method, devoid of personal risk and followed without question, of working through a situation. Whilst this can be dangerous if it is relied upon too much and treated as the only input into the decision making process, it can serve to reduce organisational inertia. It has been interesting to observe the growing importance of market research to decision-making within AUSTAR. Traditionally, in the growth phase of the organisation, the use of research was sporadic and less strategic in nature, less aligned with the marketing planning process. As time has gone on, and the value of research to the organisational decision making process has been proven time and time again, its importance has grown. The Role of Research Perhaps the most important role that research can play is to facilitate discussion which then assists in decision-making. Research in most cases does not provide an absolute answer to a problem or issue, it merely serves to outline in greater detail the context and parameters of the issue. Sometimes communicating the relevant information to the relevant parties is not sufficient. It is important to engage these stakeholders in the project. The initial debrief of results by an external, impartial party such as the research agency can often (in our experience) serve to ensure that the internal clients take greater ownership of the results and insights. This process can thus increase the likelihood of these results being actioned, not through passive receipt of the results debrief but through engaging an active participation in the research-based exploration of the issues and underlying business context in question. Research by itself cannot ensure that any insights are implemented. Indeed, most business issues are often cross-functional in nature and demand co-operation in the implementation of any solutions. There is little value in providing actionable insights if they are never actioned. The establishment of an internal cross-functional team, such as AUSTAR's churn-breakerscan

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greatly assist with successful implementation of research results. Alignment and Research Design It's important to recognise that good research is not only about the quality of the research itself. Client involvement is vital to recognise that a particular issue requires market research, in the setting of clear objectives and in the implementation of results throughout the business. Definite synergies can be created through the alignment of the external consumer research, and internal reporting and analysis functions. As demonstrated throughout the paper, the alignment of these elements often significantly improves both the design of the consumer research and implementation of results. The design of consumer research can substantially benefit from and inform the internal analysis and reporting being conducted within the organisation. The role of successful research design is not only to answer the immediate questions, but also to fully understand the underlying business issue and context and explore the parameters, potential solutions and underlying drivers for that area of study. Only when the agency and the client fully engage in a period of investigation prior to the design of the research will this happen. CONCLUSION As this paper has shown, a well conceived and executed practical research programme can have a significant effect on business performance. Whilst the research itself cannot change practices, the implementation of insights derived from research can. In the case of AUSTAR, the business was in a precarious situation for a number of reasons. In this context, the research delivered clear direction and actionable insights to inform management discussions and contributed to important decisionmaking. The research helped to identify some of the causes of business problems, such as the research into churn and the customer satisfaction work that helped promote a case for the redesign of the packages. The research also helped to identify opportunities and formulate strategies, such as research into product barriers and drivers that helped identify appropriate strategies for advertising and acquisition. Since 2002, when this structured research programme began, there have been substantial improvements in business performance. Insights from the research have delivered a better product, a better subscriber experience, and improved perception of the value equation. This has resulted in a significantly lower churn rate, saving the organisation millions of dollars. Together with consistently positive sales results, the falling subscriber number has been halted, and a growth trend has been re-instated. One of the key examples of the way in which research has played a significant role is the introduction of the new package. Research identified the need for developing new packages, as a way of increasing satisfaction amongst current subscribers, and improving the appeal of the product amongst potential subscribers. Research also played an important role in the configuration of the new packages, as well as a number of key operational decisions and the formulation of communications strategies. The introduction of the new packages significantly increased ARPU and satisfaction amongst subscribers, and boosted sales immediately afterwards. These improvements in business performance have significantly improved the financial performance of the organisation.
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Greater subscriber numbers mean more revenue, which is further bolstered by the improved average revenue per subscriber. The lower churn rate ensured that this growth is achieved at a more economical cost. Together all of these factors have allowed the organisation to achieve positive cash flow, and continue to grow as a business. The improving bottom line has been recognised and rewarded on the stock market. The share price has risen constantly from its low of nine cents in 2002 to currently sit at around $1.20 in 2005. Whilst there have been many factors that have combined to achieve this phenomenal business turnaround, there can be no doubt that the market research and analysis conducted during this period has had a significant and pivotal role. Increasing the understanding of the needs, barriers, motivations and preferences of current and potential subscribers has enabled this turnaround in performance to be achieved. REFERENCES AUSTAR Annual Reports. (http://www.austarunited.com.au/investor/default.asp) Australian Bureau of Statistics (1999), Culture & Leisure Recreation: How Australians use their free time, Australian Social Trends 1999. IBIS World Pty Ltd, IBIS World Industry Report: Pay Television in Australia, March 2005 OzTAM (Australian Television Audience Measurement) Ratings Snapshot, 2004. Yahoo! Finance, Historical Price Data, (http://au.finance.yahoo.com/q/hp?s=AUN.AX) (See Appendix) APPENDIX: CONSUMER RESEARCH PROJECTS All of the consumer research projects referred to in this paper were conducted by Blue Moon Research and Planning. Details of these projects are listed below. (see Table 2) NOTES & EXHIBITS

FIGURE 1: MONTHLY SHARE PRICE HIGHS AUSTAR ENTERTAINMENT (AUN) IN $AUD (JAN 2000 DEC 2002)

FIGURE 2: MONTHLY SHARE PRICE HIGHS AUSTAR ENTERTAINMENT (AUN) IN $AUD (JAN 2003 AUG 2005)
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FIGURE 3: THE AUSTAR CONSUMER LIFECYCLE

FIGURE 4: QUARTERLY CHURN (Q1 2000 Q3 2002)

FIGURE 5: QUARTERLY CHURN (Q1 2000 TO Q2 2005)

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FIGURE 6: HOUSEHOLD PENETRATION OF TELEVISIONS IN AUSTRALIA

TABLE 1: PAY TV PENETRATION INTERNATIONALLY

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FIGURE 7: ANNUAL SUBSCRIBERS 19962000

FIGURE 8: TOTAL SUBSCRIBERS (Q1 1999 Q4 2002)

FIGURE 9: TOTAL SUBSCRIBERS (Q1 1999 Q2 2005)

FIGURE 10: KEY CUSTOMER SATISFACTION MEASURES (JULY 04JUN 05)

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FIGURE 11: CUSTOMER'S PERCEIVED IMPROVEMENT OF AUSTAR'S PRODUCTS AND SERVICES (AUGUST 02 JUNE 05)

TABLE 2

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