I have discussed the basic business models for direct-to-home (DTH) broadcasting (wholesale and retail) and the implications of these models for the structure of the organization that provides them. I also have noted that in order to provide DTH directly to consumers an organization must have an infrastructure to deal with issues like billing and customer service as well as equipment installation, advertising and all of the other functions required by any consumer facing business.
The trade-off is between providing broadcast service directly to the consumer and receiving the entire cash flow or providing a product for others to sell and receiving less of the total consumer spend.
The key word is “broadcast.” Even though a DTH provider may deal directly with consumers, they still are broadcasting. The satellite transmits a signal with all possible programming and lets the set-top box on the consumer’s TV sort out what can be watched and what cannot. The system treats all viewers as identical. There are issues of local programming spot beams and of ensuring that the total programming selection has something for everyone, but in principle, everyone gets the same information. The difference is whether you pay to get access and can actually use the information in the form of video programming.
The great strength of this model is that it plays perfectly to a satellite’s greatest strength, the one-to-many relationship. Any number of viewers can be added to the subscriber rolls without adding more satellite capacity in the short run. In the long run, more viewers mean more revenue, part of which can be used to improve programming options, resulting — one hopes — in even more viewers.
With this formula, the history of small dish, Ku-band DTH has been one of moving from success to success. If nothing else, cable providers always have had lower customer satisfaction. This is not entirely surprising, as the cable infrastructure offers many failure points while there are only three for a satellite system.
The most likely problem for DTH is rain fade. While good antenna pointing and ample link budgets can help, this is a problem. It may become more of a problem as Ka-band is increasingly used for high-definition DTH services. Clearly DirecTV feels that performance will meet customer expectations, but rain fade will always be an issue.
It also is possible for a DTH satellite to fail entirely. Still, most people get programming from more than one satellite, and it is highly unlikely that satellite failure would result in a widespread total blackout. In any case, in terms of conventional video broadcasting, DTH providers are in good shape, regardless of the details of the business plan.
But terrestrial video providers are in the course of changing the rules of the game. Cable companies today follow the same practice as DTH providers and send all possible programming to everyone. In fact, if you get cable broadband but not video you may still be able to access the lowest tier of programming because, as the lowest common denominator, it is often not encrypted. The problem for cable companies, however, is the same as it is for DTH providers, available bandwidth. This is a problem IPTV providers already have been forced to deal with, and they use an IP-based switched video system in which only the program a subscriber wants to see is sent to them. Cable providers are testing similar switched video systems — although not IP based — in order to free up bandwidth for new services such as video on demand, faster broadband and Voice Over IP.
“So what,” you might ask. Satellite has plenty of bandwidth and does not have to worry about those other offerings. One answer is that triple-play offerings may be enough to lure customers away from DTH. Another is that video on demand is at the core of this change. As the amount of video on demand increases, stopgap solutions like preloading popular content on digital video recorder may no longer allow DTH providers to claim that they offer all of the video options offered by their competitors. The success of the recorder shows that consumers like to control video. A static DTH product will have trouble competing with a dynamic, video-when-you- want-it, terrestrial product.
Suddenly, satellite’s greatest strength becomes a weakness for its competitors to exploit. It is not impossible, however, for satellite services to have this sort of one-to-one relationship. Satellite broadband providers such as Hughes Network Systems and WildBlue already offer such services