DBS Rolls Past 20-million Subscriber Mark
By Jimmy Schaeffler
Since its inception in mid-1994, the U.S. direct broadcast satellite (DBS) industry has undergone a remarkable consolidation. The playing field has winnowed from almost three- dozen entrants to just two operators.
The industry has hit the 20-million subscriber mark in the United States nine years after its birth. In fact, today one in five U.S. TV households (TVHHs) – and slightly more than one in four U.S. multichannel TVHHs – receive their video, and in some cases audio and data services, from either Hughes Electronics’ [NYSE: GMH] DirecTV unit or EchoStar Communications [Nasdaq: DISH].
So what’s next? Projections by The Carmel Group indicate there is still plenty of subscriber growth ahead. DirecTV had amassed roughly 11.6 million subscribers by the end of the second quarter, while EchoStar was not far behind with 8.8 million. In addition, both EchoStar and DirecTV subscribers are wined and dined on new services, top-level customer service, and reasonable prices. Fierce internecine battles will rage over new customers, as both cable and DBS operators try to lure sometimes-entrenched subscribers away from one another.
Nonetheless, significant technological and competitive threats abound for the two DBS powerhouses. Key among the competitive threats is the cable industry’s ability to bundle services and deliver a value-priced version of telephone, video/audio and Internet broadband to the majority of the 65 million U.S. cable customers served by more than 10,000 separate U.S. cable systems nationwide. In fact, summer quarterly financial announcements by mid-sized cable operators such as Mediacom and Insight suggest DBS operators are continuing to siphon off customers from their systems. Other mid-sized and small-sized cable operators are losing subscribers to DBS as well. Those subscriber losses will be exacerbated later in the year, as both EchoStar and DirecTV extend delivery of local TV stations to more then 100 U.S. markets. Experience shows that whenever DBS operators launch new local services into a particular market, cable subscriber defections in that market rise.
Another DBS industry challenge tackled specifically by EchoStar during the past several months has been the limited bandwidth for broadcast satellite services (BSS). Presently, EchoStar has 86 Ku-band high-power BSS channels assigned to it by the Federal Communications Commission (FCC) and International Telecommunication Union (ITU), whereas DirecTV has 45. In order to acquire more bandwidth outside of the BSS realm, EchoStar recently leased SES Americom’s AMC-15 fixed satellite service (FSS) satellite, for an undisclosed period, at a price of $50 million. With either more SES satellites and spectrum and/or more satellites and spectrum from SES’ FSS rival, Loral Space and Communications [OTCBB: LRLSQ], EchoStar appears to have a true lead against DirecTV and its soon-to-be owner and operator, News Corp [NYSE: NWS]. News Corp’s principal owner, Rupert Murdoch, will be faced with having to counter EchoStar’s bandwidth plays once he acquires control of DirecTV through a pending acquisition during late 2003 or early 2004. The Carmel Group believes that Murdoch also will start making key moves toward optimizing bandwidth, perhaps as he has suggested, in a “sharing” mode, and/or by competing in other spectrum bands, such as Wi-Fi and broadcast.
And The Numbers, Please…
DirecTV, after closing the first quarter with 11.42 million total subscribers, is estimated by The Carmel Group to have added an additional 59,000 net new subscribers during April, 60,000 net new subscribers during May and 62,000 net new subscribers during June. The Carmel Group estimates that for the months of July and August, DirecTV added 67,000 and 76,000 net new subscribers, respectively. Because neither DirecTV nor EchoStar provides monthly subscriber numbers, The Carmel Group offers estimates based upon developments during a given time frame, as well as historical comparisons and analyses.
DirecTV indicates it closed the second quarter with 11.56 million subscribers, aided by a gain of 181,000 net new subscribers during the period. DirecTV’s current reported subscriber total of 11.56 million equals one in every nine of the 104 million U.S. TVHHS and one in every 7.7 of the 89 million U.S. multichannel TVHHs. This remarkable nine-year growth pattern since 1994 makes DirecTV the second largest U.S. multichannel TV provider in the nation today. DirecTV follows Comcast [Nasdaq: CMCSA], which has 21.5 million video subscribers. AOL Time Warner [NYSE: AOL] is third, with its 11 million video subscribers. DirecTV also appears headed for another robust year in which it will gain an estimated 45 percent of the total 2.4 million net new subscribers we estimate will be added by the U.S. DBS industry under The Carmel Group’s “hot” scenario for all of 2003.
EchoStar closed the second quarter with 8.8 million total subscribers, by adding an estimated 88,000 net new subscribers during April, 90,000 during May, and 92,000 during June. In addition, EchoStar notched 350,000 net new subscribers during the first three months of 2003. EchoStar’s total for the half-year reached 630,000 net new subscribers. The company’s current reported subscriber total of 8.8 million equals one in every 11.8 U.S. TVHHS and one in every 10.1 of the U.S. multichannel TVHHs. This seven-year growth since the company began providing service makes EchoStar the fourth largest U.S. multichannel TV provider in the nation today. EchoStar, similar to DirecTV, appears headed for a superior year, bringing in an estimated 55 percent of the total 2.4 million net new subscribers that The Carmel Group estimates will be added by the U.S. DBS industry under our “hot” growth scenario for 2003. Just last week, EchoStar announced another subscriber growth milestone: DISH Network added its nine millionth subscriber.
Together, the two DBS providers totaled an estimated 20.8 million subscribers on Aug. 31. As of the end of June, 43.2 percent of the U.S. DBS market share resided with EchoStar, while DirecTV held the remaining 56.8 percent. Back in early 2000, DirecTV had 70 percent of the U.S. DBS market, compared with EchoStar’s 30 percent. The shift in market share indicates a strong gain during the past 42 months for EchoStar. A current example of this EchoStar momentum is seen during the second quarter of 2003, when EchoStar brought in 60 percent of the industry’s net new subscribers, to just 40 percent for DirecTV. The Carmel Group projects DBS will reach 30 million subscribers sometime in the late- 2008 time frame.
At this pace, The Carmel Group estimates conservatively that year-end growth for 2003 should exceed two million net new subscribers. If fulfilled, EchoStar and DirecTV would have 21.4 million total U.S. DBS subscribers by year-end. This growth compares well with prior years and suggests that despite technological and competitive drawbacks, U.S. satellite TV providers offer subscribers more than the services provided by cable. That comparison includes the bundled video, telephone and Internet services offered by many of the largest cable TV operators. What cable needs to do now is to step up the competitive juices in the areas of executive management, customer service, financial metrics, marketing, distribution, advanced services and pricing of products and services. What DBS needs to do is stay ahead in each of these areas, and find a way to match cable’s bundled packages. That’s the battle ahead.
Jimmy Schaeffler is a subscription TV analyst at The Carmel Group, a publisher of industry databooks and a consultancy based in Carmel-by-the-Sea, Calif. (http://www.carmelgroup.com). The company specializes in telecommunications (e.g., cable, satellite, broadcast and wireless), as well as computers and the media. He can be reached by e-mail, , or by telephone, 831/643 2222.