DTH says 'move over cable.' (direct-to-home television services challenge cable television industry)(Industry Overview)

Direct-to-Home Challenges Cable According To Experts

Although prosperous cable operators aren't feeling the pinch financially quite yet, direct-to-home TV operators (DTH) which includes the Direct Broadcasting System (DBS), is a burgeoning competitor - so much so that industry watchers forecast a serious battle between DTH and DBS in the near future. "[DBS] has been the most successful product launch in history, shattering previous levels set by the VCR. Over 10,000 retail locations are in place for DBS," Stan Hubbard, president and COO of USSB asserted. Hubbard added that the currently available RCA small dish (pictured) will be joined by a similar Sony product this June.

The hot DTH topic will be addressed by a panel at this month's Satellite Broadcasting and Communications Association's (SBCA) SkyFORUM at the New York Marriott Marquis, titled "DTH versus Cable: The Real Battlefield." In it, leading cable and DTH executives will discuss the pros and cons of their competing services, as well as how their companies are planning to capture a bigger piece of the home entertainment market. Featured speakers will include Charlie Ergen of Echostar and Stan E. Hubbard of USSB.

"Satellite TV really took off in 1994, thanks to the introduction of smaller-dish DBS systems as well as the continuing popularity of C-Band dishes" noted SBCA President Chuck Hewitt. "Now that we're riding high, it's crucial for all players to come together and plan for the future."

The popularity of satellite is also landed by some cable networks, although the cable operators we contacted were reluctant to comment on the impact of DTH on their business.

Addressing an earlier SkyFORUM in October, keynote speaker Michael Fuchs, chairman and CEO, Home Box Office, remarked, "Ten years ago... a home satellite receiver could cost as much as $10,000, yet people were buying them. This convinced us of the inevitability of the direct-to-home satellite business, particularly if the dishes could be made smaller and cheaper." Rather than viewing satellite as a threat to cable, Fuchs said, "We saw satellite transmission as a pipeline to every cable home across the country. [Today] with DBS, we are teamed with companies that have both the will and resources to match our level of marketing support for satellite-delivered programming."

The tremendous growth of DTH is bad news, however, for cable operators, especially since statistics show that fully half of DBS' initial subscribers have been consumers with access to cable. Said Echostar's Charlie Ergen of the head-to-head competition, "It's a classic battle." Ergen cited poor consumer relations and service as a major reason why consumers are making the switch from cable to DTH. "We wouldn't exist if they'd have done their job," Ergen maintained, adding, "We've got very strong word of mouth. Eight out of 10 of our subscribers would tell a cable-using friend to convert."

The cable industry has countered with anti-DBS advertising spots, but according to Ergen, the campaigns backfired, only heightening awareness of DBS. "Consumers figure if the cable companies are spending that much money to tell them it's bad, it must be good," Ergen said with a laugh.

The cable industry's campaign focuses on three perceived problems with DBS: that heavy rain disrupts the signal, that DBS does not offer local stations, and that it requires expensive equipment purchases (the small dish retafis for $700 and a $200 receiver must be obtained for each TV connected).

Disputing each of these claims, USSB's Hubbard said that the advertising campaign attacking DTH by cable operators is not, as it claims to be, an "informational" campaign, but a push to discredit a competitor. "TCI is telling the customer that DTH is a bad deal," Hubbard said. He added that the cable operators are not used to competition: "When you've been a monopoly forever and have never had competition; when you've always had the ability to ignore your customers' wishes and concerns - it's very disconcerting to suddenly have competition." Rather than forging a counter-attack on cable, Hubbard stated that USSB only approaches customers with "the positive story of DBS. We don't even acknowledge it [the anti-DBS campaign.]"

While DBS' initial costs are high, in some ways it is something of an entertainment value. HBO's Fuchs pointed out that DBS offers an advantage in terms of subscriptions to channels such as HBO and Cinemax. "The home dish subscriber is looking at eight channels of HBO and Cinemax for the same price of a regular HBO/Cinemax subscription; there's not a better home entertainment bargain available anywhere."

How big of a share will DTH ultimately take? The answer is open to speculation, but current statistics indicate that the share will be significant. DBS providers say that homes not passed by cable alone "would be enough to make our business extremely successful for players involved," Hubbard said. He predicted that 10 million to 15 million homes will take DBS, and that 60 per cent of those homes will be in cabled areas. Echostar's Charlie Ergen urged that it is important to look "at the big picture. At present, 60 million viewers pay for [cable] TV. In 10 years that will be 90 million." Of those, Ergen predicted, 60 million will be cable subscribers, 30 million will be DBS, and the remaining 10 per cent will be homes, with multidelivery (both cable and satellite). "We've got demand right now that so far exceeds availability. With 95 million TV households in America, we don't need more than a small fraction of those customers to profit."

Regarding cable's claims that heavy rain disrupts the signal, Ergen held that "bad weather interrupts the cable signal far more often than DBS. Statistics show their outages to be more common." Countering the claim that DTH does not offer local stations, both Ergen and Hubbard cited a switch on the DBS receiver remote that allows viewers to watch local stations using their home antenna (or, if they wish, cable). Finally, cable's assertion that DBS requires expensive equipment purchases, while true, is also "misleading," according to Ergen. He said that consumers pay for hardware whether they're renting it (through a cable service) or owning it (through DBS). With cable, the cost of equipment is simply amortized over monthly payments, Ergen stressed.

All in all, everyone interviewed seemed to believe that the increased competition that DTH has introduced will improve all subscriber TV services, including cable. According to Ergen, "customer service is already going up at the cable companies. I'm not a doom and gloom cable guy," he added. "Ultimately the battle will be fought with each company extolling the virtues of their services. Then people will make their choice."