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Satellite TV Chips Away At Cable

By | February 2, 2004

      Intensifying competition from high-powered satellite TV services has left cable TV subscriber growth at just 2 percent a year and caused certain cable operators to suffer net subscriber losses, according to the Federal Communications Commission’s (FCC) annual study of television competition released last week.

      Overall, cable remains the predominant technology for the delivery of video programming, but satellite TV slowly is narrowing the still-vast market share gap. Ten years ago, cable operators served almost all the subscribers to the U.S. multichannel video programming distribution (MVPD) services but their market share had slipped to 75 percent by June 2003. Meanwhile, high-powered satellite TV service providers accounted for 22 percent of MVPD subscribers last June, while other video delivery technologies took the remaining 3 percent.

      Cable subscribers grew in the United States by 15.2 percent between year-end 1993 and June 2003, according to the FCC’s report. The actual subscriber base of U.S. cable operators during the same time frame moved from 57.2 million subscribers to 65.9 million.

      Last year, cable prices outstripped the rate of inflation, continuing an annual trend, the report found. Cable prices jumped by 53.1 percent between year-end 1993 and the end of June 2003, compared to a 25.5 percent increase in inflation, according to the Bureau of Labor Statistics. The trend held true to form between June 2002 and June 2003, when cable rates rose an average of 5.1 percent and inflation climbed only 2.1 percent, the bureau found.

      Cable rates tended not to fall in markets where satellite TV services were available. Instead, cable operators responded by offering additional channels and services to enhance the value of their content. Specifically, the number of video and non-video services offered by cable increased, along with the number of video channels, and advanced services, according to the FCC’s report.

      Rising programming costs and higher labor costs accounted for much of the difference between the pace of cable rate hikes and inflation, cable industry officials said. That view was backed, at least in part, by a recent U.S. General Accounting Office (GAO) report that found programming costs, infrastructure investments, and increased spending on customer service by cable operators put upward pressure on rates.

      High-powered satellite TV service providers began operating in 1994 and now have 20 million subscribers. The big impetus for satellite TV’s growth is the expansion of local- into-local service that provides local market channels to subscribers. The authority to provide that service, granted to the satellite TV operators under the Satellite Home Viewer Improvement Act of 1999 (SHVIA), has been especially important in attracting former cable subscribers, as well as new MVPD viewers, the report found.

      Consumers have benefited from new products, including digital cable, high-definition TV, high-speed Internet and telephone service, that have been offered as a result of cable’s nearly $85 billion digital broadband investment, said Robert Sachs, president and CEO of the National Cable & Telecommunications Association (NCTA).

      “To the benefit of consumers, deregulation and competition have produced a vibrant digital video and broadband marketplace,” Sachs said.

      Bruce Leichtman, president and principal analyst of the Durham, N.H.-based Leichtman Research Group, said that the FCC report confirms that the U.S. multichannel video marketplace is more competitive than it has ever been. However, the report’s claim that increased competition has been spurred by congressional action may be a bit overblown, he added.

      “In my mind Congress has little to do with the change in the marketplace, and DBS [direct broadcast satellite] has everything to do with it,” Leichtman said. “Competition from DBS has made cable operators better, and the ultimate winner is the consumer.”

      A new study released last week by Leichtman indicates that 70 percent of DBS subscribers nationwide are “very satisfied” with their provider, compared to a customer satisfaction rate of 53 percent for cable customers. Despite the difference in overall customer satisfaction, there is virtually no variation in the likelihood for consumers to switch from either, he added. The findings were based on 1,600 randomly selected households throughout the United States.

      Steve Blum, who heads the Marina, Calif.-based satellite broadcasting consulting firm Tellus Venture Associates, said cable’s drop from 100 percent MVPD market share to 75 percent in the past 10 years is significant. DBS has begun a process of reducing the dominance of cable that could take 20 years to complete, he added.

      Cable TV’s 75 percent share of the MVPD market, despite the emergence and growth of DBS, indicates reauthorization of certain expiring provisions in SHVIA and other measures are needed to create a “more level playing field,” according to the Satellite Broadcasting and Communications Association (SBCA). Congressional and FCC support, along with advances in technology among competitors, should allow satellite companies to continue to bring greater choice, value and service to consumers, the SBCA added.

      In a related development, the FCC announced last week that $118 million had been raised in its auction of spectrum for multichannel video distribution and data services (MVDDS). The auction included 214 geographic area licenses that resulted in 192 winning bids. Each license offered one 500 MHz block of unpaired spectrum in the 12.2-12.7 GHz band for use with any digital fixed non-broadcast service, including one-way direct-to-home/office wireless service.

      “Previous auctions of frequencies for wireless cable and Internet access have largely benefited the U.S. Treasury and rarely led to widespread introduction of service,” said Tim Logue, a telecommunications consultant in the Washington office of the Coudert Brothers law firm. “It’s actually encouraging in this case that the primary winners, related to Cablevision/Voom [NYSE: CVC] and EchoStar [Nasdaq: DISH], are already in this business and are likely to seek both to protect and enhance their existing services. Time will tell whether they can succeed where [other services] have largely failed.” –Paul Dykewicz

      (Bruce Leichtman, Leichtman Research Group, 603/397-5400; Brian Dietz, NCTA, 202-775-3629; Michelle Russo, FCC, 202/418-2358; Joy O’Brien, SBCA, 703/739-8356; Tim Logue, Coudert Brothers, 202/736-1816)

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