By Peter Brown
The good news for the satellite industry is that consumers remain eager and satisfied with old and new satellite products alike. Their appetite for satellite-delivered broadcast services worldwide shows no signs of abating. Digital Audio Radio Services (DARS) and Direct Broadcasting Services (DBS) are forces to be reckoned with as subscriber numbers swell, and for DBS in particular, as new high definition TV (HDTV) offerings and new hybrid receivers with built-in digital video recorders (DVRs) for storing HDTV content become more popular.
That said, Bruce Leichtman of New Hampshire-based Leichtman Research Group sees warning lights flashing when it comes to growth strategies; churn and subscriber acquisition costs (SAC) in particular.
"When the two DBS companies in the U.S. are adding more than two million subs in a quarter, and yet achieving only 800,000 net new subscribers, that constitutes considerable churn. Who did they lose? That is an important question in a saturated market," says Leichtman. "You cannot grow too fast without creating churn and increasing SAC in the process."
"The key development in the U.S. DBS sector this year is the transition to MPEG-4 compression and, for DirecTV, to the DVB standard," says Steve Blum, president of California- based Tellus Venture Associates. "Upgrading both their transmission standards and, eventually, their customer base will allow DirecTV and Echostar to add a deep lineup of HDTV services, but that's just a start."
Blum expects the DBS industry to move into the territory of other digital services providers--DirecTV into mobile video, Echostar into home audio and portable video, and more.
"Expect also a renewed emphasis on interactive services. Echostar is stealing a page out of the News Corp playbook, for example, with the introduction of gambling, in form of horse racing, at least in those states where allowed," says Blum.
"As far as HDTV is concerned, it is a matter of a shifting advantage. And right now, that advantage has gone back over to cable," says Leichtman.
On the DARS side in the United States, XM Satellite Radio and Sirius Satellite Radio exceeded projections by about 600,000 subscribers total in 2004, and appear poised to come within shouting distance of eight million by the end of 2005, according to Blum. XM intends to reach 5.5 million subscribers in 2005, and Tellus Venture Associates projections show that this goal is easily within reach.
"DARS is finally doing what it is really capable of. The challenge involves maintaining their focus. But are all the new products and initiatives going to distract them and take them away from the business of selling their core product, which has a huge opportunity?" asks Leichtman.
"The key challenge for XM is to turn the profitability corner. If they pass five million subscribers and cannot go cash-flow positive, they will have some explaining to do," says Blum. "Sirius is still playing catch up and remains four to five quarters behind XM. In the long run, that is just fine so long as both keep growing. Sirius' near-term challenge is to make sure it does not run out of financial steam during what promises to be a long chase."
MPEG-4, Mixes, Mobility And More
The so-called mix channels on DirecTV known as SportsMix, KidsMix and NewsMix show that the process of innovation in satellite TV is not over by a long shot. DirecTV announced a number of new services recently at the Consumer Electronics Show (CES) including a new non-TiVo DVR service. And because consumers want to take their content wherever they go or access it wherever they are--in the house or on the road--DirecTV is rolling out its Home Media Center so its customers can access all kinds of content on any TV in the house as well as offering a new programming package for automobiles.
"DirecTV Active will offer a wide range of interactive services that can be both personalized and localized including weather, financial market summaries, daily horoscopes and lottery information," says DirecTV spokesman Robert Mercer. "Our Home Media Center is an advanced new receiver and networked system designed to be a whole-house entertainment solution that, for example, allows DVR service on every TV in the household. We will also continue to roll out new international services in addition to the Vietnamese and South Asian channels we rolled out late last year."
Mercer says DirecTV continues to beat cable with its value proposition, all-digital quality and choice in most consumer side-by-side comparisons.
"We are also seeing excellent results from virtually all segments of our diverse distribution network, including strong numbers from our independent dealer organization," says Mercer. "Combined with our overall value proposition, we saw great success with promotions like our three-boxes-for-free and a $29.99 programming fee for the first six months for new customers."
"Our challenge is to continue to set ourselves apart from the competition and build on our leadership position. Cable services are growing increasingly aggressive with promotional offers and new DVR, HD and VoD services and bundled products that provide consumer's voice, video and data services," adds Mercer.
After a slow start, digital video recording technology is becoming increasingly popular. Cable has finally caught up with this trend and is aggressively pushing its DVR boxes in many markets, according to Mercer. DirecTV will introduce its own DVR service later this year that will offer many new enhanced features.
"The new DirecTV DVR, designed by NDS Americas, supports secure encryption and storage. DirecTV can now offer state-of-the-art pay-per-view movies. DirecTV subscribers using the new recorder will also be able to record several pay-per-view movies at a time and then pay for a movie only if it is viewed," says Dr. Dov Rubin, vice president and general manager of NDS Americas. "To encourage subscribers to switch, DirecTV will offer advanced features on its device, including longer recording capacity and the ability to use interactive services."
DirecTV has clearly demonstrated that it is well along in its preparations for MPEG-4 AVC/DVB-S2 (moving picture expert group-4 advanced video compression/digital video broadcast--satellite 2) HDTV transmissions via satellite. By 2007, DirecTV plans to implement MPEG-4 AVC via Ka-band satellites in three orbital slots so as to offer more than 1,500 local high definition (HD) and more than 150 national HD channels and other advanced programming services. The first 15 markets to receive these services have already been announced as well. This local HDTV programming blitz by DirecTV will get underway after the successful launches of Spaceway 1 and Spaceway 2 in mid-2005, and by DirecTV 10 and DirecTV 11 in early 2007.
Echostar Communications' Dish Network recently announced Dish On Demand, which will be available this month to new customers who order the new Dish Player-DVR 625. Another multi-room HD DVR receiver called the Dish Player-DVR 942 records HD in one room and standard definition in another. When customers subscribe to Dish Network's Digital Home Advantage package, they will soon have the option to purchase 30-inch or 40-inch HD LCD TVs for an MSRP of $1,599 or $3,999.
"Dish Network strives to bring the most diverse and advanced services to our customers, ahead of the competition," said Mark Jackson, senior vice president of Echostar Technologies. "Our latest product announced will provide customers with a one-stop solution for home entertainment, particularly for high definition and digital video recording."
Echostar has launched nine satellites and has plans to use the full capacity of two satellites launched by SES Americom in October and December.
According to Steve Serafin, president of Silicon Valley Satellite in San Jose, CA, the ranks of DBS dealers nationwide will see a surge of activity in the coming months as a result.
"DirecTV's announcement with HD locals off satellite will be a big boost. It will require a bigger satellite dish, so professional installation will be required," says Serafin. "An interesting twist is that they already launched national feeds for ABC, FOX, NBC and the existing CBS in HD over the holidays for both coasts. The customer qualifies, or does not qualify by zip code. If they don't, you can request a waiver on the spot and hope!"
Standard DBS channels are still what most customers request, not HD, Serafin says. "As for DVRs, people are still not convinced that this will make their life easier. The price of a standard HD box from DirecTV is under $300 and the HD DVR is $999. That is $600 for a 250 GHz drive, which is a little rich for the technology, but people seem enthusiastic about it," he adds.
These DBS initiatives are bolstered by the strong support from vendors who see this as a wide-open opportunity requiring the right mix of devices and technologies. DirecTV, for example, credits Tandberg, Radyne/Comstream, Conexant, Broadcom and STMicroelectronics (ST) for making the above-mentioned expansion of HDTV services possible.
Following the right set-top box (STB) upgrade path is essential here. Geneva-based ST has rolled out its DVB-S2 demodulator chip, the STB0899, for example, so that it now has a complete family of DVB-S2 chips available for all the main STB functions, including tuner and demodulator, along with a range of backend decoders for satellite STB manufacturers.
"ST's STB0899 enables manufacturers to deliver 8PSK, DVB-2 systems capable of much more bandwidth for additional data and channel services. This bandwidth can be used to increase the number of channels, to increase the data rate, or, in some cases, even to decrease the size of the dish that users use to receive the signals," says Armando Caltobiano, Retail Multimedia and Satellite Division general manager at ST. "The STB0899 is in production today in ST fabrics and will be shipping in volume this quarter. STB's with this powerful chip will be in the field, available to consumers, this quarter as well."
While MPEG-4 AVC/DVB-S2 and Ka-band seem to provide the added efficiencies and capacity to make next generation HDTV DBS a reality, Sony has its Passage solution, which was initially created for the cable industry, as a possible option.
"Passage has the ability to work with any digital stream (cable, satellite, telco, etc.) to enable multiple conditional access offerings and hence multiple business models to be deployed from within a single content stream," says Gregory Gudorf, vice president, TV Marketing Home Products Division, Sony Electronics Inc. "Thus, Passage could support a conditional access system addition or transition for a satellite operator or even potential spectrum sharing where the same content is being delivered via the same modulation scheme amongst multiple satellite operators."
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