While a number of European satellite pay-TV operators have been struggling to add subscribers, both U.S. direct broadcast satellite (DBS) service providers — DirecTV and EchoStar Communications [DISH] — have notched new subscribers by the hundreds of thousands during each of the last four quarters.

In the last 12 months, both DirecTV and EchoStar collectively added three million net new subs. EchoStar has broken through the 10-million-subscriber number, and DirecTV added more subscribers in one year than Digital Plus in Spain, the survivor of a merger between Canal Satelite Digital and Via Digital, has amassed during its entire existence. The U.S. DBS growth is impressive when compared with other satellite-TV services around the world.

North America

The United States is a high-growth market for pay-TV right now. News Corp‘s [NWS] entrance into the market through DirecTV is likely to lead to even more intense competition. Both satellite pay-TV operators have performed strongly in the last 12 months. Combined, they have close to 22 million U.S. subscribers, and both operators are driving the Digital Video Recorder (DVR) revolution in their markets. As a result, they are putting pressure on their cable counterparts.

One of the interesting developments to look for in the U.S. market is how interactive services develop. In Europe, such News Corp-affiliated companies as BSkyB [BSY] are known for aggressive and innovative interactive strategies. It is likely that the United States is entering a period when pay-TV operators will become more innovative with interactive applications. Evidence of this trend already is underway. EchoStar recently launched The Olympic Showcase, a free service that claims to be the first U.S. interactive TV picture-in-picture application. Viewers can watch different feeds from the Olympics.

In Canada, direct-to-home (DTH) service provider BellExpressVu has added more than 90,000 subscribers in the last 12 months. The operator, a subsidiary of Bell Canada, is nearing 1.5 million subs. The company really has ramped up its interactive strategy in recent months. Like EchoStar, it is offering comprehensive interactive coverage of the Olympics. Last week, it launched GameGalaxy, a dedicated TV portal offering subscribers across Canada more than 25 free and subscription-based games, all easily played by using a remote control. Clearly, DTH carriers in North America are beginning to ramp up the availability of interactive applications.

Europe

Satellite pay-TV operators in Europe have struggled during the last few months. Many may suggest that subscriber figures alone do not paint a true picture of the market. In Germany, Premiere had a mixed quarter, although it announced that it had achieved profitability for the first time in company history during the second quarter. CEO Georg Kofler described the event as a “major milestone.” However, the good news is tempered by the operator’s scant subscriber growth during the last six months. Premiere ended 2003 with more than 2.9 million subscribers but, by the end of June, that number had slipped.

In the United Kingdom, it has been an interesting six months for BSkyB. For the first time in a while, subscriber growth significantly slowed for the operator. In the first six months of this year, it added fewer than 150,000 subscribers. This sluggishness calls into question whether BSkyB can reach eight million subscribers by the end of 2005, a stated goal. BSkyB now is hovering around 7.4 million subscribers and, if it adds 75,000 a quarter during the next six quarters, it will fall short of its target.

The operator also seems to be turning its attention to other areas, launching a Freesat initiative that will offer subscribers a multichannel TV service (box and installation costs) with no monthly charge. This is to counter the success of Digital Terrestrial Television (DTT) alternative Freeview, which already is in 3.5 million U.K. households. Freeview offers around 30 TV channels with no monthly charge. Customers just pay for the STB and installation where necessary. BSkyB hopes that by launching Freesat, it can eventually persuade these customers to upgrade to pay-TV services.

BSkyB also is looking to boost its multi-room penetration to 30 percent by 2010, and it hopes to have 25- percent penetration among its Sky+ PVR subscribers by that same time. The company also wants to serve 10 million DTH customers in the United Kingdom and Ireland by 2010.

France is unique among Europe’s major markets because it has two satellite pay-TV operators: Canal Satellite and TPS. Both started 2004 strongly, although it appears as though Canal Satellite has the edge. During the last 12 months, Canal Satellite has added three times more subscribers than has TPS, and it now has topped 2.8 million subs. TPS has close to 1.3 million subscribers. France is a vibrant pay-TV market and both these operators also are offering services over DSL as competition heats up in France. Both operators are looking to attack urban centers in France where it is difficult to offer traditional DTH services.

Overall, satellite pay-TV still is struggling to make an impact in Spain. Subscriber numbers at Digital+ are on the decline, yet these numbers don’t tell the whole story. The aforementioned merger required Digital+ to honor a number of contracts with Via Digital subscribers who were paying fairly low monthly charges for pay-TV. Most of these contracts are coming to an end, though, but a number of these consumers are unlikely to upgrade to Digital+.

There is a bright spot in Europe, however. Italy’s Sky Italia is the current star performer. The operator has added 300,000 subscribers in the first six months of 2004, and this surge makes it the fastest-growing pay-TV operator in Europe. Indeed, the carrier has added more subscribers than most of the operators combined in Europe, and it’s on track to reach 3 million subscribers by the end of the year — a considerable achievement. It looks like another great investment for News Corp.

Contact, Inaki Latasa, Hispasat, e-mail, [email protected]