The Satellite TV “Innovators” vs. The Followers
Direct broadcast satellite (DBS) services are dominating the development of new applications, products and alliances. That situation is occurring despite major telecom operators delivering an array of services that include video/audio, voice, Internet/broadband and two-way interactivity. It also is taking place despite stiff competition from cable operators and broadcasters.
In the 10 years since DBS providers launched operations in the United States, they have amassed almost 22 million subscribers. EchoStar Communications [DISH] and Hughes Electronics’ DirecTV are on a roll.
Yet the key to tomorrow’s cable vs. satellite growth is not so much what satellite can do that cable cannot, but rather almost the other way around. What can cable do that satellite cannot?
The key for DBS is what all the other competing technologies do with their businesses as the decade speeds ahead.
During a recent conference in Atlanta, Ga., The Carmel Group was asked to present a dinner keynote before 150 top-level broadcasting groups, stations and networks. The presentation looked at the legacy of each provider. Broadcasters were labeled as “wanderers,” telcos were called “wannabes,” cable operators were pegged as “followers,” and, of course, satellite providers were dubbed the “innovators.” The latter moniker is tied to 10 years of DBS innovation. That process began with satellite’s introduction of pure digital service and continues now with the launch of HDTV, digital video recorders (DVRs) and interactive TV (iTV).
The speech explained that broadcasters are in the midst of a pitched battle. The fight is not unlike “open range warfare,” into which broadcasters have wandered, cable operators have followed and telcos have wanted to join. At stake are new businesses and revenue streams.
Those that falter in the battlefield will have others make decisions for them. For example, one of the “others” is Comcast [CMCSA]. It currently is attempting to buy Disney [DIS]. Another of the “others” is Cablevision [CVC] and its development of the VOOM satellite TV service, as well as whatever plans it pursues with spectrum it recently acquired in the multichannel video distribution and data service (MVDDS) auctions held by the Federal Communications Commission (FCC). Another one of the “others” is EchoStar, which is pushing its influence out into consumer electronics (CE) products with its manufacture of HDTV monitors that offer built in DVRs and soon will include mobile DVRs. If broadcasters, cable operators and telcos are going to create rather than react to their futures, they, too, need to ask, “Why not me?” or “Why can’t I be the next one to enter the so-and-so business?”
Cable Vs. Satellite 2004
A recent trend of consolidation has emerged among cable operators. Comcast bought AT&T’s [T] cable assets and last month made a bid to acquire Disney [DIS]. The result is stronger cable competitors that have greater “economies of scale.”
That enhanced cable competition leaves a limited number of choices for satellite companies to respond. One option is for the satellite TV providers to spend more heavily on new subscriber services in the hope of maintaining subscriber growth and increased revenues. A second option is for players, such as Cablevision’s Voom and Hughes’ DirecTV, to look across multiple platforms to develop new opportunities for their customers. EchoStar is at a distinct disadvantage, especially if its mission remains simply delivering digital signals. A third possibility for satellite is to seek unique alliances, services and products. A fourth course is for satellite companies to buy out bigger providers, such as the broadcasters and the telephone companies. The combined operations could cover the broader telecom market. EchoStar already has been forging marketing arrangements with telcos. DirecTV is tied to News Corp [NWS], which was willing to buy all of Hughes Electronics to obtain the U.S. satellite TV market leader. News Corp is highly unlikely to jettison control of its crown jewel – DirecTV – after five failed attempts and about fifteen years trying to acquire a viable U.S. DBS service. Moreover, EchoStar Chairman Charlie Ergen, 50, still is a relatively young man. News Corp Chairman Rupert Murdoch has said Ergen loves his business too much to sell it “today.”
Yet cable is not heading to greener pastures, either. As noted in a recent cable versus satellite study by The Carmel Group, using year-end 2003 data, nine out of 10 medium-to- large U.S. cable systems are not taking advantage of the part of their new bundle that includes telephone services. This indicates that unlike DirecTV and EchoStar – cable as an industry continues to be slow to take advantage of clear innovative advantages, unless it is pushed hard by a competitor such as satellite.
Other key areas in the pivotal cable versus satellite multichannel turf battle involve the fights over local service delivery. The edge in that battle goes to cable due to its localism. Give the turf war involving DVRs to satellite for the next 12 months. However, cable then will be ready to ride in and turn America into a DVR-dominated society. On the HDTV frontier, satellite still is ahead of cable, especially with services such as HD-focused Voom. However, satellite has no technology advantage and it may be challenged due to its inability to match cable’s bandwidth. On the retail trail, cable needs to start hiring savvy satellite consumer electronics people because satellite has controlled this key corral since its 1994 inception.
At year-end 2004, DirecTV had amassed 12.2 million subscribers, compared with an estimated 9.4 million for EchoStar at the same point. That estimated DBS industry total of 21.6 million excludes any subscribers from startup Voom. EchoStar’s numbers are only estimates, because the company will not announce its 2003 fourth-quarter results until March 11.
DirecTV’s market share is an estimated 56.5 percent, whereas EchoStar’s DISH Network retains an estimated 43.5-percent market share. During November and December 2003, DirecTV added an estimated 128,000 and 153,000 net new subscribers, respectively. EchoStar added an estimated 105,000 in November and 135,000 in December. DirecTV also bested rival EchoStar during fourth-quarter 2003, according to our analysis, by adding 405,000 net new subscribers to EchoStar’s 340,000. Together, the two providers added an estimated 2.4 million net new subscribers, or roughly 200,000 a month, during 2004. More importantly, until the cable companies, telcos and broadcasters start putting more powerful ammunition into their competitive fire arms, satellite will continue to be a burr under their saddles Expect DBS to notch 30 million subscribers by year-end 2008.
Jimmy Schaeffler researches, analyzes and writes this monthly report. He is a subscription TV analyst, a conference organizer, and a publisher of industry databooks and the monthly newsletters DBS Investor and Satellite Radio Investor. Schaeffler also heads The Carmel Group, a consultancy based in Carmel-by-the-Sea, Calif. (www.carmelgroup.com, that specializes in telecommunications, computers and the media. He can be reached by e-mail, email@example.com, or by telephone, 831/643-2222.