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Springtime for Time Warner Cable: New Tier ‘Designed To Fail,’ Says Analyst

Surely you recall Springtime for Hitler, that intentionally misbegotten musical dreamed up by the schemers in Mel Brooks’ comedy classic The Producers. If BTIG Research analyst Richard Greenfield has it right, Time Warner Cable (NYSE: TWC) may have borrowed from Brooks’ playbook for TV Essentials, its new low-priced cable package.

Analysts like Greenfield are rarely shy about panning a corporate strategy, but accusations of self-sabotage…that’s kinda rare. And yet in an evisceration titled “The Sky Is Not Falling – TWC’s New Tier is Designed to Underperform/Fail” (subscription required), Greenfield concluded that Essentials was “idiotic unless a cable operator believed there was little chance of most consumers having interest.”

He concludes TWC is deliberately tanking because he can’t find any redeeming value in the product, including the absence of too many key channels like ESPN (NYSE: DIS) and Fox News Channel. But what’s more interesting is the rationale Greenfield offers as to why on earth TWC would bother failing on purpose: “The package appears to be more of a marketing tool than anything else, with an attractive marketing message (cheap) to economically challenged consumers – get the phone to ring and then upsell digital cable.”

Gotta disagree with Greenfield here. TWC would be ill-served to target the consumers least likely to open their wallets in hopes of getting them to purchase even more than they intended to spend then when they called. Yes, there’s such a thing as an impulse purchase, but there’s impulse purchasing and then there’s brain damage. Only consumers in the latter category would suddenly spend upwards of $70 when they entered the transaction with the intent to spend about half that amount.

As for Greenfield’s “designed to fail” proclamation, it’s plausible, but here’s an alternate rationale to the “upsell” theory. Before Essentials was announced, TWC and the other cable operators found themselves in a PR crisis, between the alarming drop in video subscribers over the past two quarters and the possibility that a new breed of “over-the-top” TV alternatives was its cause. While some media companies have pooh-poohed the latter phenomenon as a bogus trend, those executives risk looking very foolish if they turn out to be wrong. There’s nothing Wall Street hates more than a CEO that underestimates the enemy until it’s too late to fight back. That kind of hubris leads to ousters.

Now TWC CEO Glenn Britt may firmly believe in his heart of hearts that the recession and nothing more is responsible for subscriber declines. But what better way to his hedge his bet and also signal to the market that he is not tone-deaf than by deploying a product positioned as a counteroffensive to the problems plaguing his company. Sure, Britt may know full well that Essentials has a snowball’s chance in hell of catching on, but given that this is just a test in three cities for now, the cost of failure can be chalked up to the well-worth-it expense of good publicity.

And if by some miracle Greenfield is wrong and Essentials turns out to be a hit a la “Springtime?” The upside has a downside, he notes: “If TV Essentials caused mass service downgrades and reduced bundling at TWC, not only would TWC’s financials suffer, but it would be forced to add back all of the programming that it is excluding from the package in the first place.”

A corporate plan to purposely fail backfires by actually succeeding? Nah, that would be loonier than a Mel Brooks movie.

3 Responses to “Springtime for Time Warner Cable: New Tier ‘Designed To Fail,’ Says Analyst”


    As long at there is “NO HD” offered with “ESSENTIALS” this is a fail.

    How the hell is MTV an “ESSENTIAL”

    I say this

    $10 gets you FREE OTA + 5 premium channels
    $15 gets you FREE OTA + 10 Premium Channels
    $20 get you FREE OTA + 20 Premium Chanels.

    They must include HD channels, that’s the point! All I see in this industry is more lobbying, more control and higher prices. All these companies want to do is charge more and more and more due to less and less advertising dollars.