The Carmel Group has compiled data for five straight years about the fierce competition between cable and satellite TV services. This article offers highlights from our study of the battle and the results show that satellite services clearly remain the best value.

Significant changes have occurred in the past year. For example, cable operators are becoming much more agile and effective competitors in the multi-channel marketplace, yet cable needs to continue improving in the key areas of pricing and customer service. Advanced services, such as video-on-demand (VOD), digital video recorders (DVR) and high definition TV (HDTV), will present additional battlegrounds where the two will compete for subscribers.

Methodology

Short of surveying unreasonably large numbers of cable systems, the best method to study the competitive landscape is to examine five large-sized and five medium-sized markets served by the nation’s top five cable multiple system operators (MSOs), i.e., AT&T Broadband, Time Warner [AOL], Charter [CHTR], Comcast [CCZ] and Cox [COX]. We also have consistently returned to the same markets each year to obtain a consistent set of benchmarks.

Additionally, comparable tiers of service by cable and satellite providers were analyzed. Tier One represents a basic service, while Tier Two is between basic and the more comprehensive Tier Three at the top end.

To convey the real value of cable and satellite offerings, and to make fair comparisons for each tier of service, key indicators were used. They are: 1) average number of channels, 2) average price per channel per month, 3) monthly/annual programming charges, 4) hardware and installation charges, and 5) total annual consumer charges. In calculating the average number of channels that satellite TV offers, local network stations were excluded because they are not uniformly available to satellite consumers across the country.

Finally, in evaluating programming, hardware and installation charges, we have taken into account rebates and promotions that are available to consumers. The reason is that consumers typically take advantage of those offers. Thus, for potential satellite customers, free hardware or free installation promotions are very powerful marketing tools and, in many instances, a key driving force behind a consumer’s choice. Cable companies also push their digital tiers by offering free or discounted installation and by waiving the monthly fees for the lease of the digital set-top box and remote control (although many times these fees are hidden in the price of programming). This year, though, we discovered that some MSOs prefer to entice potential digital subscribers with discounted programming for the first three to six months, rather than via free installation.

Core Findings

Despite cable’s expanding rollout of digital services to match the quality of satellite signal reception, satellite services, in our opinion, remain superior overall. Whether one is an avid TV fan looking for abundant premium content or an occasional viewer who is happy with basic service, satellite is the choice. The only exception to this conclusion might be for those seeking a bundled telephony, video-broadband package that satellite cannot yet provide.

However, satellite operators cannot afford to rest on their laurels, since the top MSOs in the country are spending money and making strategic decisions that are heightening competition. On the programming side, cable operators have succeeded in offering their customers the same amount and variety of content that EchoStar Communications Corp. [DISH] and Hughes Electronics Corp.’s [GMH] DirecTV provide. Occasionally, the cable operators offer slightly better programming packages than satellite. Most recently, digital cable customers subscribing to Tier Two received access to more channels than their satellite counterparts. Moreover, digital cable Tier One subscribers have been able to access more channels than satellite’s Tier One subscribers for the past couple of years.

In the Tier Two package, where digital cable and satellite offerings are almost equal, digital cable customers spend approximately $174 a year more, or almost $15 a month more than satellite subscribers. That 27 percent more from the average digital cable customer obtains roughly the same amount and quality of content provided by satellite.

Advanced Services

As indicated by the three accompanying charts, Tier Two satellite subscribers receive a better value per channel for the price spent than Tier Two cable customers. Exceptions to this rule exist. Some cable system operators have offered better per channel values on their Tier One packages.

On the other hand, satellite TV offers a superior line-up of advanced services. That advantage stays with satellite TV providers no matter which digital cable system is used for comparison. DirecTV, for example, offers the following advanced services to its subscribers: electronic program guide, interactive TV (iTV), VOD/subscription VOD, HDTV, sports packages, international channels, and high-speed Internet (via DirecTV’s sister service DirecWay). EchoStar also offers these services (except VOD/subscription VOD).

Among the cable systems surveyed, those offering similar advanced services were the two Cox systems in Aliso Viejo, Calif., and Phoenix, Ariz., as well as the two Time Warner systems in North Manhattan, N.Y., and Round Rock, Texas. None of these digital cable systems offered iTV, only the two Cox systems provided bundled telephone packages, and three of the four cable systems did not offer DVR capabilities.

Summary

The survey shows that competition in the subscription TV marketplace is working well. EchoStar and DirecTV keep each other honest. Both of them together keep cable operators conscious about offering consumers a good value. The strong competition that the Federal Communications Commission has wanted satellite TV to provide cable is reaching fruition. In light of this survey, congratulations appear well deserved by the FCC for fostering a regulatory environment that has spurred competition and benefited consumers. Keep it up, folks.

Jimmy Schaeffler researches, analyzes and writes this monthly report. He is a subscription TV analyst at The Carmel Group, a publisher of industry databooks and the monthly newsletter DBS Investor, and a consultancy based in Carmel-by-the-Sea, CA (http://www.carmelgroup.com). The company specializes in telecommunications, computers and the media. He can be reached by e-mail or at telephone number 831/643 2222. A comprehensive study of the competition between cable and satellite TV providers is available through The Carmel Group’s monthly newsletter, DBS Investor, by calling (831) 643 2222, or by emailing . The cost of a yearly subscription to DBS Investor is $695, plus shipping and handling. A single copy is available for $100.