DTH Providers Seek Alternate Revenue Streams - Page 2 of 3

Broadband Tougher Sell In United States

While BSkyB is making great strides with its broadband offering in the United Kingdom, the impact of broadband on satellite pay-TV players in the United States is more difficult to judge, says Todd Mitchell, a media equity analyst at Kaufman Brothers,

DirecTV’s change in ownership from News Corp. to Liberty Global could impact its strategy. “I think John Malone (Liberty Global chairman) will use the platform to build up the stable of content,” says Mitchell. “It is not so much content that needs to be delivered real-time compared to [News Corp. CEO] Rupert Murdoch. Malone does not need to own the other components of the triple play. I think what his strategy will be is to push as many DVRs [digital video recorders] as possible and partner with wireline operators to get a return channel. I think the expansive strategy that Murdoch had for DirecTV has now been pulled back in. At the same time, EchoStar has used this disruption at DirecTV to be extremely aggressive in going after new subscribers but also looking forward into what is the technology and what are the distribution mechanisms that we need to have a much more robust two-way offering in the future.”

DirecTV has not been standing still, signing a wholesale distribution agreement in August with Current Group in order to offer customers Current’s BPL (Broadband Over Powerline) high-speed Internet service and Voice Over IP services beginning of 2008.

Swinburne believes both DirecTV and EchoStar will continue to deploy more diverse strategies. “I think both companies — particularly following the Liberty-News swap — will look to evolve their businesses,” he says. “Clearly EchoStar is looking at technology bets in the U.S. and new international opportunities particularly in Asia. In contrast to EchoStar, I see DirecTV looking more at content as a diversification strategy, given John Malone’s background and growing influence. I also am very bullish on DirecTV’s Latin America operations, which just three or four years ago was in bankruptcy. The market rationalization during the News Corp. ownership was significant and assuming the local economies hold up, there should be impressing growth in these assets.”

While diversifying seems to be necessary, Placido believes there are issues the satellite players must address in order to be effective. “We believe that looking forward, DTH players will be actively involved in hybrid triple-play offerings, although not necessarily by becoming triple-play operators themselves,” he says. “Per-platform competition borders are disappearing as service bundling takes place in an increasingly technology-agnostic way. The dilemma is that satellite’s broadcast characteristics, which make DTH so operationally efficient for TV distribution across wide extensions, work against them when it comes to competitively priced personal one-to-one communications and entertainment. As such, addressing two-way broadband needs in all areas necessarily implies the use of complementary last-mile broadband technologies,” he says.

Jimmy Schaeffler, president of the Carmel Group, believes the evolution of DTH operators in the United States already is taking place. “DTH operators must have triple-play services and possibly even quadruple-play services in order to compete effectively against cable and telco rivals. In fact, you could say that video, data and voice services have become prerequisites for participation the triple-play multichannel pay-TV platform. Additionally, advanced interactive multimedia services come into play. These services are an important part of the evolution of DTH, as well. It’s not unrealistic to predict that new features and services like DVRs, VOD [video on demand], mobile TV, interactive TV and home networking are going to make greater headway into millions of U.S. homes and eventually global homes.”

In the next two years, DTH providers need to continue investing in emerging technologies and applications that help differentiate DTH from the competition, says Schaeffler. “We’ve seen EchoStar acquire Sling Media and DirecTV introduce a mobile platform. Sure, neither is a killer app, but it’s more of that building an [advanced interactive multimedia] edge over rivals that makes a big difference down the road. We also see IP becoming an alternative route to push content down to subscribers, so expect to see more hybrid-type services in that arena.”