By Howard Horowitz, Horowitz Associates

When we think of the competitive market for multichannel services in the United States, we usually think in terms of satellite versus cable. Indeed, cable typically is viewed as the incumbent provider in areas where it is offered, and satellite is a relative new competitor. A different perspective emerges if we consider that satellite was the first and, for many years, the only provider of digital television services until cable in recent years upgraded its plant and equipment to compete.

What happens when we look at some recent consumer data from this alternative perspective? The data we will consider is from the recently released “State of Cable & Broadband 2004″survey, conducted in November and December 2003, by Horowitz Associates. The annual survey covers attitudes, interests and likely purchase behavior of television, cable, telecommunications and Internet consumers. It is conducted among a stratified, random sample of homes pass by cable – including those served by satellite. The survey does not include consumers in areas not wired for cable.

Consumer Acceptance

Among TV households surveyed, penetration of multi-channel services, both digital and analog, is 83 percent. Data from this year’s study show continued growth in the penetration of the digital platform. Acceptance is reaching upwards of 50 percent in cable-wired areas of the country. Among all multi-channel consumers, 32 percent are digital cable subscribers, 18 percent are satellite subscribers and the remaining 54 percent are analog cable subscribers. The total tops 100 percent because of certain households with cable and satellite services. Overall, digital penetration has reached 50 percent in multi-channel homes, with cable claiming a 64-percent share of digital homes and satellite claiming a 36-percent share.

Often we see survey data that show a clear advantage of satellite over cable in terms of brand image and customer satisfaction. We are never quite sure, however, whether the comparison is meaningful, because the data on a relatively small group of consumers who actively chose satellite over cable is being compared to data on a vast number of legacy cable customers. Now that there are meaningful numbers of digital cable customers, it may be more informative to begin comparing households that choose to get digital services from satellite providers directly with those that choose cable as their digital provider. In other words, an almost “apples to apples” comparison is now possible. We would note that the comparison is not quite “straight up” because it remains true that choosing to switch over to satellite is a much more conscious act than responding to an upgrade offer from the incumbent cable provider. As such, we would still expect satisfaction and brand image to remain higher for satellite than for cable, even among the narrower base of their respective digital customers.

Customer Satisfaction

Digital satellite and cable subscribers were asked to rate their providers on a series of product and service-related attributes, using a five-point scale, ranging from excellent to poor. On average across all attributes tested, satellite service is rated favorably at “four” or “five” on the five-point scale by 65 percent of its subscribers at the end of 2003 to mark a slight rise from 63 percent for the previous year. Among digital cable subscribers, the average positive “four” or “five” rating of cable service across the attributes at year-end 2003 is 50 percent, compared with 55 percent in 2002.

While comparable on such attributes as reception and reliability, satellite does dramatically better on such key dimensions as value for the money, satisfaction with premium channels, packaging choices and customer service. Among satellite subscribers, 75 percent gave their overall satellite service “four” or “five” ratings, compared to 58 percent among digital cable subscribers (see chart).

In fact, compared with last year, satellite subscribers are more satisfied on many key attributes, while the same data among digital cable subscribers do not show such an upward, year-to-year trend.

Brand Image

Utilizing another five-point scale, ranging from “describes very well” to “doesn’t describe at all,” digital cable satellite subscribers were asked to rate their provider on a list of brand image attributes. A comparison of brand image attributes between subscribers of digital cable and those of satellite again gives the advantage to satellite. Satellite does better on “a good service company,” “doing a lot to win my loyalty” and “being responsive when customers experience problems.” Cable edges out satellite on “cares about community” and “very involved with schools and education in your community” but only slightly, as indicated in the accompanying chart.

When asked about their subscription intentions in the immediate future, satellite subscribers’ more positive attitudes about their provider translate into stronger stated loyalties to their current level of service but not to their current provider. For example, among digital cable subscribers, less than half (47 percent) said they intended to stay with their digital service. This compares with nearly two out of three (65 percent) of satellite subscribers. The bulk of this difference, however, comes from the 24 percent of digital cable subscribers who express an intention to downgrade to regular cable. Among satellite subscribers, 8 percent indicate an intention to switch to regular cable and an additional 4 percent say they intend to switch to digital cable. Five percent are not sure whether they will switch to digital cable or stay with satellite. In total, 17 percent of satellite subscribers are immediately at risk for loss to cable. This compares to only 12 percent of digital cable subscribers indicating such vulnerability to satellite.

Conclusions

The “State of Cable and Broadband” survey data allow us to make a direct comparison of the attitudes of digital consumers towards their respective satellite and cable providers. On the one hand, satellite enjoys a distinct lead over cable, even on this more level playing field. On the other hand, the growth in the number and penetration of digital cable subscribers over the years has far outpaced growth in satellite customers, as cable companies have an easier time upgrading customers to digital than satellite does in making an outright conversion and sale.

Thus, satellite providers should not become complacent about their lead in satisfaction measures. It makes sense that those who have been converted would exhibit more satisfaction with their new circumstances than would upgraded or legacy cable customers. On the digital cable side, data clearly show that cable operators should not be complacent about the supposedly robust nature of their platform. They have a long way to go in catching up to satellite on the marketing of their advantages and should be concerned about retaining the customers that they have upgraded to cable. Satellite, on the other hand, has to be concerned with defections to digital cable. To be sure, cable operators are intensifying their marketing and sharpening their positioning of the latest technological advantages of their multichannel video marketplace-leading wired platform.

Howard Horowitz is president of Horowitz Associates, a multichannel video market research firm that has provided customized and syndicated consumer research on the cable, broadband, telecommunications and Internet business industries since 1985. For further information about the survey or the services of Horowitz Associates, contact Director of Marketing Adriana Waterston at 914/834-5999 or by e-mail, [email protected].