Satellite TV refinds its roots
By Christopher Parkes in Los Angeles
Published: October 6 2000 19:02GMT | Last Updated: October 7 2000 01:24GMT
news.ft.com
Two months ago, as the local cable company pulled the plug on its television service, a fleet of vans drove into Ouray, Colorado, and disgorged 22 engineers.
They bolted free EchoStar satellite dishes on every home and hotel, leaving the residents to enjoy more than twice as many TV channels as before, at two-thirds the monthly cost of cable, and with the prospects of upgrading to 500 channels.
The experience of this mountain resort demonstrates that the US satellite TV industry has not neglected its roots in under-served rural America.
It also shows that the two remaining direct broadcast satellite (DBS) operators, EchoStar and DirecTV, have lost none of the marketing aggression that has won them a 13 per cent share of the US subscription TV market, from a standing start about five years ago.
Industry experts and analysts agree the duo are on track to double that share by the end of 2003.
They also agree that with the impending sale of DirecTV, the core of General Motors' Hughes Electronics subsidiary, EchoStar will also become a target for a bigger media group.
News Corporation, currently manoeuvring to bid for DirecTV, the market leader, is one of several potential bidders that could include Walt Disney, NBC and Viacom.
For Rupert Murdoch, News Corp chief, the prospect represents his third foray into the US satellite business. Attempts to start from scratch were aborted at a late stage, and a planned move into EchoStar ended bitterly.
Now the stakes are higher. With most of the nation's cable pipelines locked up inside, or linked with, large media groups (Time Warner leads with about 12.5m subscribers, compared with DirecTV's 8.5m), satellite offers the only remaining assured route for content providers to paid-for TV distribution.
Walt Disney, which bought the ABC over-the-air broadcast network in 1996 to guarantee distribution for its content, was dismayed to discover shortly afterwards that cable, upgraded to handle digital signals, was the medium of the future.
Since then, satellite operators have entered the picture with a vengeance. Their "subscriber acquisition" costs today hover at about $450 per household, and Jimmy Schaeffler, founder of the Carmel Group, sees no let-up until at least the end of 2003.
Although acquisition costs were once seen as a burden on DBS providers, returns on the investment start to flow in less than a year, with average customers paying $60 a month, as Mr Schaeffler points out.
By the end of 2003, Mr Schaeffler expects DirecTV to command 61 per cent and EchoStar 39 per cent of the direct-to-home market, which by his estimates will serve 21m-28m customers.
"Cable has been so slow to respond," he says, blaming risk aversion, lack of aggression and sluggish introduction of long-promised "bundled" TV, internet access, video on demand and telephone services.
On the other hand, cable companies have been held back by mounting costs. Their capital expenditure on upgrading rose 15 per cent last year, and programming expenses increased more than 16 per cent, according to the Federal Communications Commission.
At the same time, the cost of cable to the average consumer rose only about 4 per cent.
The FCC, which early last decade capped cable prices following consumer complaints, maintains a strict watch on the industry's billings. It has also helped to foster DBS with its support for legislation that now allows the services to beam local TV station signals into specific markets.
The lack of local-to-local programmes, and their regional news and weather services, has long been the main obstacle to satellite operators' expansion into urban markets.
Now, the impact of the new laws is showing up both in record subscriber growth rates this year and rising penetration of urban markets.
According to a recent survey by The Yankee Group, 7 per cent of urban and 13 per cent of suburban homes now watch satellite programmes, up from 4 per cent and 9 per cent respectively in 1999.
Other potential obstacles to progress are also falling away with the reduction of digital cable's current advantage in two-way signal traffic, which allows telephony and high-speed internet.
Hughes, DirecTV's parent, and three other providers will start selling new systems later this year that will convert the increasingly familiar dishes into receiver-transmitters, propelling the people of Ouray one stage further into the space age. |
