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DBS Plays hardball: Can Satellite Go Head-To-Head With Cable?

By | March 10, 2001

      by Jimmy Schaeffler

      When viewing the basic data that underlies the growth of today’s U.S. Direct Broadcast Satellite (DBS) industry, the numbers are impressive, no matter where your bias lies. Launched in early 1994, this six-year-old amateur player has moved rapidly to professional status, and today brings signals into one out of every seven U.S. TV households. In fact, dishes of 39 inches or smaller have found their way into almost 15 million of the U.S.’s 102 million TV Households (TVHHs), as of year end 2000.

      For the year just passed, The Carmel Group’s estimates show El Segundo, CA-headquartered DirecTV added slightly more than 1.9 million net new subscribers, while Littleton, CO- based Echostar added almost 50,000 fewer, and together they added a record of almost four million new participants to the U.S. digital satellite experience. That figure amounts to 315,000 new subscribers on average per month, 72,600 per week, and 10,350 per day, during calendar year 2000. Additionally, revenue per subscriber has risen handsomely and, relative to its rivals (especially cable), DBS’s churn has remained quite small. Compared to cable, DirecTV and Echostar separately added more new subscriber accounts in the last year of the old millennium, than did the entire nation’s thousands of cable system operators combined.

      That said, however, the U.S. DBS industry today faces a most critical fork in the road: In order to propel itself and mature as an industry, DBS must truly begin rivaling the 45-year-old U.S. cable industry, head-to-head, in every market.In order to achieve that tall order, DBS has to 1) provide solid customer service, and 2) deliver new products and services that make existing customers want to stay and make non-customers want to subscribe.

      Spending For Service

      Taking that two-fold challenge apart, the first chore requires that DirecTV and Echostar continue to dedicate substantial sums toward call management centers, and toward training and paying thousands of subscriber management system representatives to sell their wares and solve their consumers’ problems. According to studies by consumer surveyor, J.D. Powers & Associates, DBS’s money has been well-spent. Year after year, each DBS provider continues to significantly surpass cable’s best when it comes to basic customer service. This, in turn, creates remarkable good will for satellite TV, at a time when cable is still struggling to improve its customer service. Customer surveys say that customer satisfaction arises largely from the ability of satellite providers to adequately address their problems and issues more readily than the competition.

      Additional customer service possibilities call for offerings that will allow consumers to go online in order to serve their own needs. In fact, DirecTV and Echostar are looking at Web site changes that will take customer services beyond what is typically offered by both companies today, such as the myriad information about each company, its services and products, and the standard Q&A pages. These new Web site services will include the capability of paying and reviewing bills and/or programming information at home, and many other yet-to-be developed and implemented innovations. Additionally, DirecTV is looking at customer segmentation, whereby those subscribers who are most loyal and pay the most money–those with a premium package and who are signed up to the NFL Sunday Ticket package–will be studied and specially served to further enhance their satellite TV experiences (and spending).

      On another level, unlike DirecTV and several large cable operators, Echostar focuses its revenues and energies on building and operating its own customer service centers, believing that ownership and direct control is the key to employee and customer retention and acquisition. Echostar claims that its call management center workers have dishes themselves, have a share in the company, and only deal with Echostar’s products and services, thus they know the product and the subscriber better, and can do a better job of providing the best customer service in the industry. Echostar also believes that this practice is the most cost effective, which it professes Wall Street favors, as well.

      Closely related to basic customer service is the idea of designing and implementing new services only on the condition they are simple and not confusing to the overwhelming base of subscribers. A perfect example is Electronic Programming Guide software that is designed to be unbelievably intuitive and responsive to customer solutions. Notes former SBCA Chairman and U.S. Satellite Broadcasting CEO Stanley Hubbard, “It’s incumbent on system operators to help their subscribers understand what these networks are. And it’s incumbent on programmers to help all subscribers use these channels. Quality and value are the only propositions. Make the customer feel smart, not dumb. Tell them what to watch, so they can get the value from their subscription. Do that in everything you do, in every communication with that customer.”

      An additional customer service challenge deals with the satellite industry’s efforts to properly install new set-tops and other equipment. Satellite TV installers have too often shown a marked unfamiliarity with the new products coming into the market, and a lack of experience in melding together all the new devices. This is a problem that will only increase, especially with numerous new devices typically coming from a whole set of different manufacturers. To fill this service vacuum, protocols like the Satellite Broadcasting and Communications Association’s (SBCA) Installer Training and Certification Program and other efforts by the SBCA’s Retail Council are absolutely critical. Ironically, steps like these will also impact the cable industry, as it moves towards its own additional level of set-top box and related device installations.

      Adding Services

      The next chore for the U.S. DBS industry involves adding cost-effective new services, especially in the category of Advanced Interactive Multimedia (AIM) services. From the early beginnings in the early 1990s, DBS’s mantra has always been “affordable choice.” As championed by founders Eddy Hartenstein and Bill Butterworth, the very nature of the early DirecTV system was one of more channels, better quality sound and picture, and at prices that clearly succeeded in battling the typical cable subscriber inertia that keeps even dissatisfied cable customers from switching to DBS. The 2000 introduction of local-into-local satellite-delivered network signals to almost 60 percent of America’s 280 million inhabitants is a perfect example of adding these new cost-effective services. In 2001, that mantra will be fully tested, as both DirecTV and Echostar roll out or further implement their own versions of new AIM services. Echostar will continue to introduce its Starband two-way broadband service, which will join the WebTV, Wink, and OpenTV services it already offers its estimated 5.3 million year-end 2000 subscribers. Echostar will also push its Digital Video Recording–a.k.a.: Personal Video Recorder (PVR) and Personal TV service–via a new set-top box offering up to 30 hours of programming storage capacity. In addition, Echostar in third quarter 2001, will introduce data-to-the-computer-by satellite, via its 1999 alliance with broadband provider, Geocast.

      In its own right, GM Hughes (GMH) will further deploy its two-way Hughes Network Systems’ (HNS) DirecPC Internet service. Meanwhile, HNS’s sister company, DirecTV, will further deploy its combination DirecTV-TiVo boxes, together with its own TiVo and Wink services, to DirecTV’s almost 10 million subscribers (as of year-end 2000). DirecTV will also introduce its AOLTV and Microsoft Ultimate TV AIM services during 2001. Finally, both GMH services are expected to also begin offering the recently-acquired Telocity broadband services to subscribers nationwide during 2001, which will provide two-way digital subscriber line (DSL) capability, thus complementing the existing DirecPC two-way service. In this vein, it is most interesting (and hardly surprising) that early studies suggest that most existing DirecTV subscribers would rather receive their broadband services from DirecTV than from their existing (or prior cable) system operator. The first of its kind, the GMH-Telocity system is expected to deliver customers almost unlimited bandwidth. It should offer a choice of DSL where available, and two-way satellite broadband in circumstances where customers prefer satellite delivery, or where DSL is not and will not be available. In the end, the long-term success of every telecom provider, including the satellite ones, may well depend on the ability to bundle other telecom services to customers nationwide.

      Ultimately, in order to truly penetrate the core of cable’s 65 million subscriber base, satellite TV must continue to provide what cable has not been able to during recent years of competition. The DBS industry must correctly create and deploy new services, which include the superior customer service and proper pricing highlighted above. The importance of this strategy is further buttressed by the J.D. Powers consumer studies that say subscription TV customers are also rating satisfaction levels based upon the number and pricing of new and existing content services. DBS might have an advantage in this area, based upon its ability to instantly deliver nationwide accessibility, whereas cable faces piecemeal implementation, system-by-system, and related infrastructure costs that are huge. Yet, in order to stay competitive with cable, DBS must continue investing in its own infrastructure, spending billions of dollars on new satellites that are necessary to offer the required national bandwidth and the necessary signal speeds. Further, the recent AT&T Broadband announcement of system-wide rate increases is a perfect example of what the DBS (and cable) industries must avoid in order to enhance customer loyalty. Plus, especially through its trade group, the SBCA, and its relations with various governmental entities, the DBS industry must vigilantly promulgate signal standards that deliver the maximum in technical quality for all its subscribers, all the time, nationwide.

      Even though some say that time is of the essence for both players, if the satellite industry continues to do what it’s been doing, many more predict that, except for the most sophisticated digital cable areas, satellite will continue its lead for another five to ten years, at least. This is especially true in rural areas, where as many as 30 million Americans will be unable to receive adequate digital grade services from cable modems or digital subscriber lines for many, many years (if ever). Because again, in the end, the key, whether urban, suburban or rural, is delivering what consumers will buy–price points, quality, and choice. In the years ahead in rural U.S. cities alone, DBS is expected to acquire at least two thirds of this subscriber base, which will easily take the industry into the 40 million subscriber range that industry pioneer Stanley S. Hubbard spoke of over a decade ago (only to hear detractors say “DBS actually stands for ‘Don’t Be Stupid”).

      In summary, if satellite is to fill cable’s shoes as the best choice for data, video and audio for the majority of the U.S. population, and if it is to become the reigning champion, it will all come down to what works for the consumer. In the end, it is the customer who will drive the “revenue per sub per month” vehicle down the 1,000-2,000 channel superhighway of tomorrow. That said, be it satellite- or cable-delivered, rest assured: things will work very well for the computer/telecom/media consumer of Sir Arthur Clarke’s 21st century.

      Jimmy Schaeffler is a subscription TV analyst at The Carmel Group ( He can be reached at e-mail:

      Ph: (831) 643 2222.

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