Subscriber Bases: Quantity Or Quality

 

Satellite Pay-TV Leads Way

The leader in satellite’s trend toward higher-paying subscribers is TV and, specifically, DirecTV, analysts say. DirecTV is expected by October to offer nearly 100 channels of national high-definition (HD) channels as well as local HD channels in 75 percent of the United States. By March, DirecTV plans to ramp up to 150 channels of national HD, with local coverage reaching 90 percent of the country, according to a July report by Steve Mather, vice president of equity research for SMH Capital in Los Angeles.

DirecTV spokesman Robert Mercer says the company continues to expand its advanced products line of HD and digital video recorders in the hopes of adding “more quality customers.” Mercer notes that the strategy generates higher revenue and lower churn, or loss of customers, and DirecTV posted its lowest churn rate in three years in the first quarter of this year. Several years ago, DirecTV tightened its credit policies and dealer incentives, which “had an impact” on its gross subscriber acquisition numbers but, Mercer says, “had a decidedly positive effect on the number of quality, credit-worthy customers we were acquiring. That lowered our churn rate while improving financial returns.”

EchoStar is known for keeping quiet about strategic plans and officials declined to comment for this story, but analysts say EchoStar seems to remain focused on growing its base of basic service subscribers. EchoStar is adding subscribers and ARPU, although “their path is not as clear as DirecTV,” Mather says. Still, “They’ll keep increasing profits. They’re crafty and they’ll find a way,” he says.

“DirecTV gets significantly higher revenue per subscriber,” says Roger Rusch, president of TelAstra in Palos Verdes, Calif. “EchoStar goes after the consumer who is a little tighter with their money, ... [but] both models work because both companies are doing well.”

Both operators also are exploring options to leverage their subscriber bases with HD, broadband and digital video recorders “to grow 2007 revenues to $16.8 billion [for DirecTV] and $11.3 billion” for EchoStar,” says Mather. The market is ripe for growth. While only 8 percent of Americans have HDTV service, 28 percent have HD compatible TVs, he says. Cable is in 65 percent of homes — compared to satellite’s 27 percent — and cable providers are adding HD, as well, but they will be second to DirecTV, says Mather. Cable has not added subscribers in several years and their penetration rate is declining because of satellite, which is cheaper, he says.

If U.S.-based operators want to see a consumer retention strategy in its advanced stage, they can look internationally, especially to the United Kingdom, where BSkyB has been particularly progressive in moving away from its satellite pay-TV roots to generate even more revenue from its subscribers. In October 2005, BSkyB acquired telecoms operator Easynet, allowing BSkyB to bundle satellite pay-TV, broadband and telephony in a single package for subscribers. This triple-play strategy is taking away one of cable’s natural competitive advantages. BSkyB also has deals in place with Vodafone where subscribers can pay for mobile TV bouquets e through Vodafone’s 3G cellular service.

• Neelie Kroes Vice President, European Commission
• Analysts Break from Wall Street on November Sirius XM, DirecTV Predictions
• Sirius XM Wows Market Investors with First Quarter Sub Growth
• Countdown to New European Regulations in Final Stages
• A Closer Look at the ITU’s Radio Regulations Board

• Consumers: Served Well By Satellite
• Rich Media: Offers Wide Range Of Opportunities
• Asia Pacific Satellite Driving New Services
• The SNG Industry: Challenges Of Today
• Satellite Players Prepare For Bright HD Future