The U.S. direct broadcast satellite (DBS) players are diversifying their offerings as California-based DirecTV Group Inc. and Colorado-based Echostar Communications Corp. try to outmaneuver cable giants like Comcast and Time Warner Cable, who are making bold moves into the TV space.
In the third quarter, Dish Network and DirecTV reported combined revenues of more than $6 billion and finished the quarter with a total subscriber base of 28.5 million customers. DirecTV is doing a good job growing its average revenue per unit, and the company’s churn, a measure of the number of existing customers that cancel the service, is stable, says Todd Chanko, media analyst at New York-based Jupiter Research, a division of Jupiter Kagan Inc. But DirecTV’s subscriber growth is slowing, with net quarter additions down nearly 60 percent from the same period a year earlier.
“DirecTV prided itself on getting higher quality subs, which presumably cost more to ferret out but end up both subscribing for longer periods and being better targets for additional revenue producing services such as DVR and HD,” he says. Dish Network, which “is out to get subs at what feels like any cost,” increased its net subscriber additions by 14 percent — with modest declines in churn — during the same period.
But the two direct-to-home providers cannot be content with their current offerings and expect to remain competitive in the pay-TV market. The battle for subscribers will become even more intense as “all of pay-TV is slowing, and it is becoming a commodity as well with few differences in the programming packages offered by DBS and cable,” says Chanko.
Steve Blum, president of California-based Tellus Venture Associates, projects that these two DBS providers will lose ground in the subscriber battle against cable companies throughout the next two to three years as the cable providers beef up their high-definition (HD) offerings. “Cable will be better able to deliver local HDTV signals across all markets and maybe even nationally distributed HDTV programming. As plant is upgraded and technology improves, cable has more scope to improve bandwidth,” says Blum.
Cable also is riding high as it rolls out voice, video and high-speed Internet services in a bundled offering known as the triple play, and alliances involving cable companies and wireless firms like Sprint Nextel have set the stage for a quadruple play by adding cellular service to the package, thus putting even more pressure on DBS players.
The lack a competing bundled broadband offering leaves the DBS sector weak and vulnerable, says Aditya Kishore, director of global media and entertainment at Boston-based Yankee Group. “The next stage of bundling will involve integration of products — programming your DVR via your cell phone, caller ID on the TV and the day’s TV highlights on your broadband portal,” says Kishore, “Naturally, DBS will be hard pressed to match it. There may be some marginal regional variations timewise, but I think DBS is vulnerable globally. Because their technology platform is not ideally suited for bundled services, [the DBS companies] need to partner or acquire a new technology platform,” he says.
The cable companies are not the only delivery platform ramping up to provide competition in the pay-TV arena. Over time, the telcos will expand their own triple-play service via Internet protocol-based TV (IPTV) offerings, a process that makes the future of existing telco-DBS alliances very hard to predict. However, in the United States today, telco’s IPTV presence is minimal. “Even if the majors such as AT&T and Verizon were to deploy a true IPTV infrastructure — Verizon Fios is not IPTV, for example — it would not mean much to most pay-TV subscribers,” says Chanko. “There is not much uptake of U.S. telco-provided multichannel video service, since true IPTV is not yet being deployed by the majors in the United States”.
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