By DAVID BORAKS
DavidsonNews.net
The board of the town-owned MI-Connection cable system on Thursday approved a $23 million budget for 2009-10 that trims some expenses and anticipates higher revenues from the company’s new “triple-play” lineup of TV, telephone and internet services.
One of the most important cost-cutting moves came in an amendment to the operating agreement between MI-Connection and BVU, the Virginia company hired to run the system for the towns of Davidson and Mooresville. To help MI-Connection control expenses, BVU has agreed to accept lower per-customer compensation for its services in the coming year.
At a meeting in MI-Connection headquarters in Mooresville, general manager Junior Miller also told board members the system’s $20 million upgrade to cable lines and equipment is now 100 percent complete. That means the company now can offer state-of-the-art TV services, including its recently launched video-on-demand service, as well as local telephone service and faster Internet connections.
MI-Connection officials hope the addition of those new and improved services will help generate additional revenue per customer. But the company also is battling to hold customer levels steady amid tight competition from satellite TV services and defections because of the weak economy.
SEEKING GROWTH
MI-Connection now has about 15,128 customer relationships, down about 800, or about 5 percent, from where it started when Davidson and Mooresville acquired the system in December 2007, board chairman Evan Webster said Thursday. That includes about 13,200 TV subscribers, also down about 5 percent.
Mr. Webster, also a Davidson town commissioner, said the system last year was occupied with the upgrade – its major overhaul in years. With that finished, officials now must concentrate on growing again.
“I think we’ve proven we can operate the system. We’ve gone through the upgrade. We just need people to sign on,” Mr. Webster said. He said MI-Connection’s task over the coming year will be to “get the message out” about the system’s improvements, as well as make the case that “the money we make here stays here.”
The fiscal 2009-10 budget anticipates about $510,000 of revenue from telephone – a line that was absent from the current year’s budget. And it anticipates higher revenue from TV, including video on demand, and from internet and data services.
The company announced last month it was raising cable TV rates by an average of 9.3 percent. But it also has a variety of promotions underway that offer packages of its services at big discounts.
Altogether, the budget projects services revenue of $17,370,983, up 20 percent from 2008-9 projections. (The fiscal year ends June 30. Mr. Webster said actual year-end financial results would not be available until later this summer.)
Stacey Bright, MI-Connection chief financial officer, told board members the budget projects adding 900 telephone customers, 265 cable customers and 620 internet or data customers.
“This is a very obtainable budget. … This is something that sitting around the table our team thinks that we can obtain. But more importantly we’re going to all stretch to beat this budget,” Ms. Bright said.
Again this year, the budget calls for no outside funding from the towns. It’s balanced on paper, in part with the help of several one-time cash infusions. The system expects $542,000 in tax and other refunds in the coming year. And officials also will transfer $5.1 million from an escrow account that holds proceeds from bonds town issued to pay for buying and upgrading the system.
Without them, the system would show a net loss again next year, Mr. Webster said, though likely smaller than this year’s. MI-Connection officials have projected a net loss of about $7.65 million this year, though Mr. Webster said final figures are not yet available.
Before they bought the system in 2007, officials from Davidson and Mooresville projected it would break even in 2012. It’s not clear how that picture has change, given higher-than-expected costs for upgrading the system and slower growth in subscribers. Asked Thursday if the 2012 date was still reachable, Mr. Webster said he didn’t know. “We haven’t redone those projections,” he said.
CONTROLLING EXPENSES
Before they acquired the system, the towns of Mooresville and Davidson were projecting annual increases in customers in part based on natural growth of the area’s population. The weak economy has all but stopped that growth, and the system has seen a net loss of customers since the towns acquired it.
That has put a crimp in revenues. Meanwhile, some expenses have grown as well. The new budget anticipates that MI-Connection will pay18 percent more for TV programming next year.
So system officials have been looking for ways to hold costs down. The revised agreement with BVU, approved at Thursday’s meeting, is a major part of that strategy. Mr. Webster said BVU will get $66 per subscriber in the coming year, down from $81 in the current year.
“It’s really more of an indication of our partnership with BVU. They know we need to control costs and they’re willing to work with us on it,” Mr. Webster said.
Mr. Webster said MI-Connection also has negotiated similar reductions with other contractors.
In exchange for the lower fees, MI-Connection agreed to raise the buyout fee it must pay BVU if the system is sold in the coming year (though officials are not contemplating any sale). That rose from $1.5 million to $1.7 million.
DOCUMENTS
Download a copy of the 2009-10 budget approved Thursday (PDF), CLICK HERE>
Note: MI-Connection did not provide year-to-year comparisons. Chairman Evan Webster said audited results for 2008-2009 will not be available until October.
PREVIOUS COVERAGE
See previous stories on the cable TV system in Davidson in our Cable TV categeory.
Trying to figure out the financial performance of MI-Connection is a bit like figuring out how Bank of America is doing – not easy. That in and of itself is troubling.
I’m not writing this comment to be critical of MI-C, but rather to (a) make people aware of the financial challenge that the Town of Davidson will face if MI-C’s performance does not improve, and (b) offer a couple of suggestions that might improve the performance of MI-C.
To recap, Davidson has guaranteed payment together with Mooresville on about $90 million in obligations. Our share is 50 percent, or about $45 million. Our share of the annual interest bill on that debt is about $2 million. Our annual budget is $7 million. So, the debt potentially can create quite a burden for Davidson if MI-Connection is not able to cover it.
The projected net loss for MI-C this year is $7.65 million. I’m not sure if that is a loss based on cash accounting, or whether it is a loss based on typical accrual accounting. In either case, it is a very large number. Per Chairman Webster, the projections for the upcoming fiscal year do not appear to be much better.
What is clear is that $5.1 million is being transferred to MI-C out of the proceeds that were left over when the bonds were issued to buy the system. If those leftover proceeds were not available, then presumably MI-C would have had to go to the Towns of Davidson and Mooresville for additional funding.
Eventually whatever funds are leftover from the proceeds of the bonds will run out, and if MI-C cannot stand on its own, the Town of Davidson will have to foot the bill. At the current pace, it is easy to envision a scenario where the majority of our discretionary (i.e. non-police, fire, road maintenance) spending goes towards funding MI-Connection. There are many other more pressing priorities.
Unless MI-Connection shows improved financial performance, our Town could face a significant cost in years to come. So, what to do?
First, citizens need to get more involved in this matter. Attendance at board meetings is sparse, even at meetings where MI-Connection results are on the agenda. Citizens need to let elected officials know that they are following this matter (and others) closely. Citizens of Davidson are great about getting involved, but they have to realize that MI-Connection potentially jeopardizes many of the great things we want to do as a town.
Second, there needs to be stronger oversight on the part of the elected officials. MI-Connection was presented to us in 2007 as a profitable venture. It is not acceptable that it be a cash drain on the town. It doesn’t matter how clear or fast the signal, or how many channels we get and how many are in HD – MI-C has to make money for the town, not lose it. My observation from going to most Board meetings where MI-C is discussed is that Commissioner Venzon is the only elected official asking the questions that should be asked. We need others to step up.
Third, there needs to be clearer leadership of MI-Connection. There is not a CEO. There is a Chairman of the Board (Evan Webster) but he serves on a volunteer, part-time basis. While it is commendable that Mr. Webster devotes considerable time to MI-C without compensation, at the end of the day it is more costly for the town to not have full-time leadership at MI-Connection. Now that Mr. Webster has announced he is stepping down as Chairman of MI-C, it’s time to hire a full-time CEO.
Finally, MI-Connection needs to realize that marketing is equally as important as the product, if not more so. When you look at the bios of the two top officials at MI-Connection, you repeatedly see the words ‘installation, technician, operations, project management.’ You do not once see the words ‘marketing’ or ‘sales.’ In my opinion, this is the primary reason MI-Connection is losing customers, not the economy. You have leaders with great experience in installing a system, but apparently scant experience in selling it.
A couple of examples: Recently MI-Connection floated a proposal to the Town Board whereby the Town would guarantee another $2 million loan so that MI-C could apply for some federal stimulus money that is meant to encourage the installation of broadband service to underserved, rural areas. At this meeting, Chairman Webster said that MI-C did not want to spend money on market research because they felt it was too costly. The cost? $12,000. The feeling was that if MI-C put out a good product, the buyers would come. The universe is littered with the remains of companies that had good products but bad marketing. MI-C has undoubtedly put out a good product; their marketing is lacking.
Another example: I watch very little TV; maybe 30 minutes a day (except in the two week period following the death of the King of Pop). But, I know that if I refer a friend to DirectTV, I can get $100. I know this because I am repeatedly told it by the folks at DirectTV, to whom we subscribe. I don’t recall ever being marketed to by MI-Connection, even though we get our internet from MI-C, and every month they send us a bill. It seems to me that MI-C would enclose a mailer about all of their great products, and maybe provide an incentive to switch. If they’ve done this, they’ve not done it enough. It has to be done over and over. MI-C has a number of customers who get one product from them, but not two or three. These customers need to be marketed to repeatedly.
Product development and marketing go together and must be done concurrently. Chairman Webster stated that now that MI-C has completed the upgrade and has a good product, they have to go sell it. They needed to start selling it 18 months ago. The problem with building the product and then selling it is that in technology by the time the public catches on to your great product another one has already been developed that replaces your great product. An example is the Apple iPhone. When first launched the iPhone sold nearly 1 million units the first weekend alone. Apple didn’t develop the product and then put it out and try to sell it. One million people didn’t coincidentally learn about this product the first weekend and buy it. Rather, Apple was marketing it as they were developing it. Now, scarcely a year later, Apple released the latest version of the iPhone, and it too sold a million units the first 3 days.
Granted, MI-Connection’s products aren’t as sexy as an iPhone, nor do they evolve as quickly, but the point is still the same. You have to market as you develop the product, not after you develop the product. Especially with a technology product.
So, in summary:
1. MI-Connection’s financial performance to date has not met expectations, and if this continues the Town of Davidson will have to foot the bill.
2. As citizens, get involved. Go to Board meetings. Ask candidates for the Board and Mayor in 2009 what their thoughts are about MI-Connection. If not turned around MI-Connection will impede our ability to do great things. They need to show they have an understanding and a plan.
3. MI-Connection needs clear leadership and accountability.
4. MI-Connection needs more emphasis on marketing.
Thank you for taking the time to read this comment.
I have both cable and Internet with MIA few months ago I wanted to move my MI Internet connection from one part to another. The “customer service” person said the charge would be $65. When I said AT&T would install new service for free, why does it cost $65 to move a modem, she was “like whatever, that’s the fee.” MI won’t support wireless LAN, AT&T does. When I asked MI why, they said “too much trouble.” When I called to cancel, the response was “yeah whatever, drop off the modem.” When I dropped the modem off, the clerk hardly said a word; didn’t ask why, didn’t offer a “come back” offer. I haven’t been contacted by anyone asking why I stopped a $500 annual contract. That is weird service. It wouldn’t have taken much to convince me to stay with MI. A little later, when my AT&T Internet connection kept dropping, their customer service fell all over themselves, express shipped a new modem and gave me 2 months. free service to compensate for the interruption. This is the new AT&T. MI reminded me of the very, very old AT&T. I’d be happy to come back when MI joins the 21st century and supports wireless and someone just calls to ask if I’d like to try again.
Just a quick note to bring everyone to reality.
M-I will lose money.
M-I will cost the towns money.
The towns will compensate for this in raising the cost of other services.
2012 will NEVER be the break even point – as I said in the beginning – they “MAY” break even in 2020.
The town leaders have entered into something that they had no clue about and it is going to bite them in the budget and in rasing costs of other town services. This has happened before and it will happen here.
Get use to it!