A Turnaround Triumph Business Transformation in the Pay TV Industry

8/2/2019 A Turnaround Triumph Business Transformation in the Pay TV Industry

1/22

A turnaround triumph: business transformation in the Pay TVindustryRob Highett-Smith, Nikki King and Kylie Miller

ESOMAR

Consumer Insights, Barcelona, November 2005


2/22

A turnaround triumph: business transformation in the pay TVindustry

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).

Title: A turnaround triumph: business transformation in the Pay TV industry

Author(s): Rob Highett-Smith, Nikki King and Kylie Miller

Source: ESOMAR

Issue: Consumer Insights, Barcelona, November 2005

Downloaded from warc.com

2


3/22

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 onthe 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/early2001 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


3
http://www.warc.com/fulltext/esomar/images/84726f02.htmhttp://www.warc.com/fulltext/esomar/images/84726f01.htm


4/22

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 retail-

focused 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 non-

subscribers. 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 anurgency 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


4


5/22

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 high-

commitment 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


5


6/22

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 churnbreakers team

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


6


7/22

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:

l 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.

l Payment method (if cash) acted as a continuous prompt for re-evaluating the purchase.

l 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)


7


8/22

would trigger the decision to disconnect.

3. Establishment of the Cross-Functional Churnbreakers Team

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:

l 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.

l 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.

l 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.

l 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.

l 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.

l The business focused on reducing controllable 'trigger events', by ensuring a focus on quality service delivery and

problem resolution in key areas.

l 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 decisionsand 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 churnbreaker strategies have been

implemented.


8
http://www.warc.com/fulltext/esomar/images/84726f05.htm


9/22

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


9
http://www.warc.com/fulltext/esomar/images/84726f07.htmhttp://www.warc.com/fulltext/esomar/images/84726t01.htmhttp://www.warc.com/fulltext/esomar/images/84726f06.htm


10/22

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:

l A usage and attitudes survey amongst the population

l Exploratory qualitative research amongst non-subscribers

l 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' product-

based 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


10
http://www.warc.com/fulltext/esomar/images/84726f08.htm


11/22

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

was that they wished to select the channels in an ' la carte' manner rather than select from the predefined '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


11


12/22

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.


12


13/22

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

packages than 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 tiers where 1015 channels are pre-

packaged. 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


13


14/22


15/22

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 levelsamongst 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 thesestakeholders 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-breakers can


15


16/22

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 decision-

making. 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.


16


17/22

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)


17
http://www.warc.com/fulltext/esomar/images/84726t02.htmhttp://au.finance.yahoo.com/q/hp?s=AUN.AXhttp://www.austarunited.com.au/investor/default.asp


18/22

FIGURE 3: THE AUSTAR CONSUMER LIFECYCLE

FIGURE 4: QUARTERLY CHURN (Q1 2000 Q3 2002)

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


18


19/22

FIGURE 6: HOUSEHOLD PENETRATION OF TELEVISIONS IN AUSTRALIA

TABLE 1: PAY TV PENETRATION INTERNATIONALLY


19


20/22

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)


20


21/22

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

JUNE 05)

TABLE 2


21


22/22

Copyright ESOMAR 2005ESOMAR

Eurocenter 2, 11th floor, Barbara Strozzilaan 384, 1083 HN Amsterdam, The NetherlandsTel: +31 20 664 2141, Fax: +31 20 664 2922

www.warc.com

All rights reserved including database rights. This electronic file is for the personal use of authorised users based at the subscribing company's office location. It may not be reproduced, posted onintranets, extranets or the internet, e-mailed, archived or shared electronically either within the purchasers organisation or externally without express written permission from Warc.


22
http://www.warc.com/

Documents

A Turnaround Triumph Business Transformation in the Pay TV Industry