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Satellite
- A Brief History & Market Overview:
The formative years -
In 1990, Hughes Communications, NBC, News Corp. and Cablevision
Systems announce plans for Sky Cable, a high-power DBS service.
The partnership becomes troubled, however, and the plans eventually
land in Hughes' hands. The impetus for Sky Cable eventually
becomes DirecTV. At the same time, BSB and News Corp. backed
Sky TV merge to form British Sky Broadcasting. A year later,
PrimeStar launches first medium-powered Ku-band service, an
analog offering with limited channels and Hubbard Broadcasting,
which will later form U.S. Satellite Broadcasting, agrees
to buy five transponders on the first DBS satellite from Hughes
Communications. In 1992, Congress overrides President Bush's
veto of the Cable Act. Legislation guarantees access to satellite-delivered
cable programming services by alternative multichannel video
providers, such as DBS operators. Only two years later, DirecTV,
U.S. Satellite Broadcasting and Thomson Consumer Electronics
sell the first DSS (Digital Satellite System) offering in
Jackson, Miss. The Direct Broadcast Satellite (DBS) system
was launched and by year end 1994, DirecTV acquires 320,000
subscribers. Meanwhile, PrimeStar rolls out nationwide digital
TV service via a medium-power Ku-Band satellite. The company
ends 1994 with about 250,000 subscribers. In 1995, seeing
a huge opportunity for growth, DirecTV, USSB and PrimeStar
announce plans to spend nearly $170 million in advertising
in 1995. At the same time, four million shares of EchoStar
DISH stock are offered at $17, and $63 million is raised.
By the end of the year, EchoStar launches its first satellite
and by March of 1996, EchoStar launches DISH Network. By the
end of the year, DISH acquires 350,000 subscribers. Echostar
also begins the start of DBS price wars, lowering equipment
prices to $199 with a programming commitment from new subscribers.
By year end 1996, DirecTV had already broken the 2 million
subscriber mark.
DBS
has a beginning
- In 1997, EchoStar and ASkyB partners News Corp. and MCI
agree to merge DBS assets. The deal quickly sours, however,
when News Corp. begins discussions with PrimeStar. Both sides
launch billion-dollar lawsuits. PrimeStar agrees to merge
ASkyB into its DTH business under a transaction valued at
$1.1 billion, but the Justice Department later voices opposition
to the PrimeStar/ASkyB merger. EchoStar finally agrees to
purchase ASkyB assets from News Corp. and MCI/WorldCom. The
DSS trademark used by DirecTV and USSB disappears. DirecTV
reaches an agreement to buy USSB under a $1.3 billion deal.
Meanwhile, the DTH subscriber count crosses the 10 million
subscriber mark. In 1999, DirecTV agrees to acquire PrimeStar
under a two-part deal worth $1.83 billion. Part of the agreement
closes in the spring, along with DirecTV's acquisition of
USSB. The combined deal gives DirecTV more than 7.4 million
subscribers. EchoStar's DISH Network passes the 2 million
subscriber mark. The FCC approves EchoStar's ASkyB deal with
News Corp. and MCI/WorldCom. During 2000, DirecTV had its
best year ever with 1.834 million net high-power subscriber
additions, a 14 percent improvement when compared to the 1.606
million net subscribers added in 1999. EchoStar's DISH Network
passes the 5 million subscriber milestone in November. Also,
Two-way satellite broadband services debut. EchoStar's DISH
Network partners with StarBand, a two-way offering that has
VSAT maker Gilat and Microsoft as backers. Hughes Network
Systems, sister company of DirecTV, unveils two-way DirecPC
service. America Online partners for DirecPC/DirecTV services.
Satellite
Today
- As Q2, 2004, DBS satellite providers have surpassed the
20 million mark and still growing, although slower than the
previous 5 years. While some believe that the growth will
not level off until it reaches the 35 million mark, it's becoming
evident that the multichannel digital cable space is maturing.
Of the 108 million or so TV households, saturation is approaching
90%. In late April, 2004, Leichtman Research Group forecasts
that the total DBS market in the United States will grow from
21.6 million subscribers at the end of 2003 to 27.3 million
at the end of 2006. That's roughly a 5% gain for each company
of DirecTV and EchoStar over the next three years. Moreover,
for DBS satellite companies to continue expanding, a majority
of the new customers must come at the expense of Cable operators.
This is becoming increasingly difficult because the Cablers
are now coming to the table with DVRs and VoIP to add to their
package of Digital Cable, HDTV, VOD and High-Speed Data. To
counter those offerings, the satellite providers have partnered
up with the Baby Bells to offer a bundle of video, voice,
data and wireless. So far, those results have been lukewarm.
Both DirecTV and EchoStar have other plans to build their
competitive strengths. Both are looking at rolling out interactive
TV platforms and better DVR functionality including a quasi-VOD
service. They are also working on strategies for wireless
broadband data solutions and home media centers. One thing
they will always have a tough time with is their limited return
path. Until they get around that, either by through a merger
with a wireline provider like a Bell or some form of technology
breakthrough, compared to Cable, they will be at a disadvantage.
Important
issues facing the satellite industry
- Among the most important issues in the satellite community
are competition with Cable operators, SHVIA and bandwidth
space. In terms of competition, the multichannel home viewing
market is maturing, approaching a near 90% level. This means
for satellite operators to gain new subscribers, they are
going to have to increasingly rely on stealing them away from
Cable operators. This will become more challenging in the
future. Major MSOs will be continuing to rollout advanced
products like DVRs, SVOD, HDTV and VOIP, enhancing their chances
of reducing churn and providing for a better overall competition
bundle against the satellite providers. Another issue is about
SHVIA. The Satellite Home Viewer Improvement Act (SHVIA),
which became law in 1999, authorized for the first time the
retransmission of local signals via satellite to subscribers.
Local TV delivery via satellite has a permanent copyright
license, and isn't part of the satellite extension act. On
February 5, 2004, Sen. Orrin Hatch (R-UT) introduced legislation
that would extend a provision of the SHVIA allowing satellite
providers to transmit network signals to subscribers who can't
get local network affiliates with rooftop antennas. The "local-into-local"
retransmission for fringe reception areas was a contentious
issue a few years ago, before HDTV was available, and required
an act of Congress to resolve it. Washington observers say
the new Hatch bill could launch a "massive lobbying battle
between local broadcasters and satellite carriers over distribution
of ABC, NBC, CBS, and Fox programming in HDTV" according
to a Reuters news report. In essence, the bill would extend
"local-into-local" for another five years. If it
fails to pass, millions of satellite subscribers would lose
their network feeds after December 31 of this year (2004).
EchoStar has used a two-dish solution to resolve the issue,
which has also brought complaints that EchoStar forces consumers
to obtain a second satellite dish in order to receive some
stations, most often Spanish-language, religious and public
stations. As far as the issue of bandwidth space, DirecTV
and EchoStar are both looking to increase their capacity.
In April, 2004, the DirecTV 7S high power spot beam satellite,
built by Space Systems/Loral, was sent into space where it
is to be positioned on the equator over the Pacific Ocean.
DirecTV 7S will be used to deliver local TV channels to additional
markets served by the satellite TV company. EchoStar is looking
into the use of FSS satellites, and growing into Ka-Band spectrum.
Both EchoStar and DirecTV also may discuss sharing capacity,
especially for local channels.
MARKET
OVERVIEW
Satellite
gains
- Satellite TV giants DirecTV and EchoStar's DISH Network
are expected to report solid 2004 first quarter results in
terms of customer additions. John Hill of Schwab SoundView
recently raised his first quarter net subscriber additions
for each company. The analyst said DISH Network additions
are projected to be at 300,000, up from a previous forecast
of 280,000. And DirecTV's net subscriber adds for the three-month
period are expected to be about 307,000, up from a previous
estimate of 265,000. Television marketing efforts by DirecTV
and DISH Network reached record levels in March, Hill said,
building on a strong push by both companies in late 2003.
"DISH's aggressive marketing, especially in new local-into-local
markets, indicates that inventory levels likely have corrected,"
Hill said, adding that EchoStar "must feel better about
SuperDISH inventory levels." The analyst also said, "DirecTV's
aggressiveness leads us to expect strong gross adds in Q1
and Q2." In July 2003, DirecTV claimed that roughly 40%
of gross subscriber additions came directly from digital cable.
That said, while satellite TV providers have enjoyed new subscribers
at Cable's expense, for the second consecutive year, both
DirecTV and EchoStar have increased the prices for many of
their popular packages. DirecTV is raised the rates of its
main packages by $1 to $3 per month (3-9%) in Q1, 2004, and
Echostar is keeping some prices steady, raising others by
a few cents and increasing others by $3 per month, an average
increase of 1.7 percent. DirecTV says it has increased rates
in only four of the past 10 years, while local cable providers
typically raise their rates annually.
Cable
losses slowing - Since before the arrival of the
DBS satellite providers, yearly rate increases, below average
customer service and sub-par value have all to plagued Cable
TV's competitive positioning. While several MSOs have made
great strides since the mid-90s when direct-broadcast satellite
TV was introduced in the US, the rates have still increased
upwards of 10% each year and customers have had trouble justifying
the value. In 2002, the cable industry lost 1 million subscribers.
Some MSOs had it worse than others. For instance, William
Schleyer, CEO of Adelphia Communications, said his company
lost more subscribers than other cable companies because it
hadn't finished upgrades to offer digital services. In essence,
the worst hit were those in rural areas or other markets which
had not completed rebuilds, such as Adelphia. That said, though
Cable companies have had reputations to deal with, the tide
is turning. Most large cable operators, including Comcast,
Cox and Time Warner, had a good year in terms of 2003 subscriber
adds. As of year-end 2003, Digital Cable subscribers exceeded
satellite TV subscribers, 23 million digital cable compared
to 21.64 million satellite customers. What's more, some analysts
believe that trend will continue in 2004. Furthermore, Convergence
Consulting Group said in its report, "The Battle for
the North American Couch Potato," that at the end of
2003, 49 percent of all paying cable and satellite TV subscribers
took digital, and at the end of 2005 it's estimated the percentage
will reach about 59 percent. They also predicted that by year-end
2005, Digital Cable will have more than 30.5 million digital
TV subscribers and satellite TV will have more than 26 million
subscribers. With approximately $53 billion at stake in 2003,
a revenue figure will grow by about 11 percent in 2004, there
is much to fight for. Enter the new bundles offered by the
satellites and Baby Bells. They will continue to aggressively
push their services and promote fierce competition. This has
stimulated the MSO's into action. Over the first 3-4 years
of Digital Cable's product cycle, Cablers have not seen the
anticipated levels of growth in part because consumers just
haven't been overwhelmed by Digital Cable's value. In response,
the Cablers have beefed up their offerings by adding VOD,
HDTV and now DVRs, and soon they will be offering Triple Play
bundles of voice, video and data. This will help the Cable
operators become better positioned to compete in the coming
era. In any event, Cable and satellite companies will battle
it out and in the end, consumers should win with better overall
product offerings and values.
On
the horizon - The satellite companies will be concentrating
on expanding their products and technologies in several areas.
Tops on the list are DVRs and HDTV. Both DirecTV and EchoStar
have plans to offer 3-4 tuner, multi-room/wireless DVR solutions
that can also provide a VOD-like experience. Also slated for
expansion is HDTV, which will have more programming. Another
area soon to grow is High Speed Data, of which there will
be some product launches this summer, marking what could be
the start of a new era. Some satellite followers have said
the increased bandwidth has the on-demand capacity and flexibility
necessary to support the growth of non-linear content, which
could be the most significant programming development in the
coming 10 years. "With the launch of Wildblue, Space-Way
and EchoStar's America2Home capacity, consumers will soon
see a new generation of satellite services. The industry is
nearly recovered from the business failures of the past few
years, in particular the impact of failed satellite telephone
systems," says to Steve Blum, president of California-based
Tellus Venture Associates.. "We are shaking off the old
and launching the new. Combine that with an economic recovery,
and I expect we'll be seeing more new ventures and more smiling
faces in the coming year. "Value added, direct-to-user
data and multimedia services, particularly services such as
Subscription Video On Demand (SVOD), Tivo (DVR) and streaming
media, are opportunities for growth," Blum adds. Leslie
Taylor, president of Leslie Taylor Associates Inc. agrees
that the biggest growth potential throughout the next few
years will be in provision of services direct to consumers
such as DBS, digital audio and two-way broadband access. "Another
area will be providing primary and back-up communications
for Homeland Defense and first responders," she says.
"Residential broadband demand grows in the very short
term, but peaks within the next couple of years and turnover
of those customers to terrestrial service is expected to happen
rapidly thereafter," Taylor says.
(sources:
Looking Past Cable's Profits to the Rivals on Its Heels, By
Geraldine Fabrikant, NY Times 5/3/04; DirecTV's New Objectives
Will Be Challenging, by Bruce Leichtman, SkyReport, 4/7/04;
The Ruckus Rupert Will Make, by Diane Mermigas, Television
Week, 1/28/04; ITV Providers: Murdoch Aids Us With Ops, by
Matt Stump, Multichannel News, 12/1/03; DirecTV & Telco
Bundle, by Mike Farrell, Multichannel News, 7/21/03; SkyReport.com;
SBC, EchoStar bundle up, By Kevin Fitchard, TelephonyOnline.com,
7/21/03; Multichannel News, 6/23/03; Cable takes aim at satellite
customers, by Caroline Wilbert, The Atlanta Journal-Constitution,
6/12/03; DBS Sees Daylight in HD Delays, By Andrea Figler,
CableWorld, 6/9/03; Technology Battle Between Satellite Operators
and Cable, by Matt Richtel, NY Times, 4/15/03; ezboard.com
"digital television HDTV forum"; CableWorld)
Satellite
& Cable; Competitive Overview:
Overview - The satellite
companies have long enjoyed a competitive edge which allowed
them to lure away Cable customers in droves. After they burst
on the scene with multichannel offerings that featured digital
pictures and CD quality sound, they continued to aggressively
market their services while gaining a good reputation for
customer service. To narrow the competitive gap, the Cable
industry spent $85 billion to build out it's networks, resulting
in the ability to roll out new products like VOD, SVOD, HDTV
and DVRs as well as High Speed Data (and soon VOIP). According
to industry analysts, Cable and satellite offerings each appear
to have their advantages, and for the most part, DirecTV and
EchoStar have lost the large technological lead they held
in the mid-1990's. What's more, once they are offering the
triple play bundle of voice, video and data, they could very
well leapfrog satellite. But just like the rival phone companies
who've seen their bread and butter home voice market come
under serious threat, the Satellite companies have not sat
back. First, understanding the need for a bundled offering,
they have teamed with the Baby Bells to form an answer to
Cable's voice, video and data bundles. Second, they continue
to hit back with their strengths. For instance, both DirecTV
and EchoStar have been very successful selling the benefits
of DVR, and they've quickly adopted DVR functionality as a
centerpiece of their ongoing strategy. Likewise, they have
continued to use their big marketing budgets to push their
messages about cost savings and superior service. Third, both
satellite companies are pushing along new Interactive TV products
that will be tightly integrated with their current DVR platforms.
With innovative and convenient services, they hope to continue
pushing their image of being technology leaders. Fourth, DirecTV
and EchoStar have strong ties to the retail community and
will continue to focus on these channels to get out their
messages. Fifth, it's said that once a customer abandons cable
for satellite service, they do not want to lose the investment
they made in buying the dish. While that factor can diminish
as customers get their dish equipment at little or no cost,
it's still a worthy consideration because of the wiring and
set-up it takes to install a dish. This is why some operators
have been so aggressive about the dish buy-back programs.
Sixth, a new satellite entrant specifically targeting the
HDTV segment, VOOM, has set it's goal to become a viable competitor.
In the end, over the short to medium term, there are several
fronts where competition is becoming increasingly fierce,
including Digital TV, DVR, ITV, HDTV, retail and a new bundled
offerings. Below is a review of each:
Digital
TV - When satellite introduced their Digital TV
product, they quickly jumped out in front wit a strong product
that feature crisp pictures and CD-quality sound. Cablers
then spent billions on network upgrades in order to offer
multi-channel video services as well as High Speed Data. Initially,
customer reception to Digital Cable was lukewarm. Among the
biggest complaints was the overall value received versus the
added cost. Satellite providers continued to aggressively
market their services, capturing over 20 million video subscribers
along the way. But these days, the competitive gap has narrowed.
While Cable's picture quality is still not quite on par with
that of satellite's, it has improved on it's packaging, messaging
and ancillary products. In essence, the perceived overall
value has increased. In April, 2004, Convergence Consulting
Group said in its latest report for 2004 that most large cable
operators, such as Comcast, Cox and Time Warner, had a better
year in 2003 in terms of adding basic TV subscribers than
in 2002. The firm said 2004 also looks strong. At the same
time, they said the satellite TV competition, DirecTV and
EchoStar's DISH Network, will see a boost in subscribers from
new RBOC bundles going forward, which will have a small impact
on digital cable subscriber additions. Nonetheless, the MSO's
Digital Cable product will continue to slowly increase its
subscriber lead over satellite, Convergence Consulting Group
said in its report, "The Battle for the North American
Couch Potato." The firm said digital cable subscribers
now exceed satellite TV subscribers - 23 million digital cable
compared to 21.64 million satellite customers at year-end
2003. Convergence Consulting Group also said that by year-end
2005 digital cable will have more than 30.5 million digital
TV subscribers and satellite TV will have more than 26 million
subscribers. At the end of 2003, 49 percent of all paying
cable and satellite TV subscribers took digital, and at the
end of 2005 it's estimated the percentage will reach about
59 percent. The firm also said subscriber revenue reached
approximately $53 billion in 2003, and estimated the revenue
figure will grow by about 11 percent in 2004.
DVR
- Though less than 2 in 5 have it, digital video recorders
have been a hit for DirecTV and EchoStar. Once it became clear
that their customers would embrace the technology, the satellite
companies pounced. Not only did they tout DVRs as the next
big thing, but they positioned it as an answer to Cable's
looming VOD launches. It turns out that the strategy was effective.
Consumers have give video on demand a lukewarm reception,
and so far satellite DVRs have been exceeding expectations.
Helping that along has been the fact that quite often, DVR-based
satellite system were more or less given away for free. While
the number of satellite-based DVR customers is still fairly
low, many satellite executives believe that more subscribers
will want one once the fully understand the value. As such,
they are marching forward with aggressive DVR plans. In the
coming year, both EchoStar and DirecTV will introduce larger
capacity units with 4+ tuners, more recording time, the ability
to download music and movies to the hard drives, and eventually
HDTV. The service will also be part of a new platform featuring
interactive TV functionality. Also, with Rupert Murdoch now
controlling DirecTV, it is expected he will leverage the experience
and prowess BSkyB has enjoyed from deploying DVR services
and bring that to DirecTV. In any event, DVRs have become
a centerpiece of satellite providers' strategy and will only
continue as such. Not only have the satellite DVR customers
been proven to be more satisfied with their overall value
and viewing experiences, but satellite operators have found
a lift from the added ARPU. In response, Cable operators have
quickly adjusted their business plans. Once it became clear
that DVRs were viable - and could make money, it didn't take
long to come up with the justification required to roll them
out. As of Q2, 2004, most every Cable operator in the US is
looking to roll out DVR services this year. The problem for
the Cablers is that they are restricted to only a few compatible
DVR set-top boxes. For now, the options are limited to Motorola,
Scientific Atlanta and Digeo, and in the case of Motorola,
their offering does not even have dual tuners (meaning you
can't record one thing while you're watching something else).
That will change in the next year, as more models are introduced.
In contrast, satellite companies are already readying next
generation models. In the end, DVRs are a hot topic. The technology
is just barely hitting the mainstream, and though satellite
has broken out to an early lead, Cable will be closing the
gap.
ITV
-
Both DirecTV and EchoStar will be counting on Interactive
TV functions as part of their future business strategy. Both
have been investing heavily in Interactive TV technology in
order to offer new forms of entertainment and keep a competitive
edge, and both have plans in the works. Starting with DirecTV,
Rupert Murdoch's satellite company, BSkyB, has made inroads
in the UK by offering interactive programming that allows
television viewers to navigate text pages offering weather
and news information. That infrastructure also allows viewers
go shopping via their televisions. Late last year, as Rupert
Murdoch's News Corp. finalized its purchase of DirecTV, he
said the US operation will offer an array of advanced ITV
applications similar to those offered by News Corp. owned
BSkyB in the UK. This follows on the heels of two other developments.
One occurred late last year (2003) when DirecTV severed ties
with OpenTV on it's Wink enhanced TV service. The decision
cost the Wink interactive-advertising platform a base of 10.4
million DTV boxes. Prior to that, in June of 2003, DirecTV
chose Canal+ to supply it's MediaHighway middleware platform
on DirecTV set-top boxes. MediaHighway is DVB-MHP compliant
- meaning it is very compatible with OCAP, or the emerging
industry Cable TV standard for interactive TV platforms. With
the move, DirecTV wanted to provide a consistent platform
across their deployed set-top boxes, believing that a defined
user experience not only provided increased opportunities
for upsell, but it allowed for a migration path for future
upgrades. Whether that still happens is another story, but
rest assured Rupert Murdoch still believes in interactivity.
A longstanding philosophy of his has been to dream up and
test new applications and see what sticks - rather than competing
on price. As of now, BSkyB has various interactive TV applications
in it's UK operation, and some are quite popular. For instance,
there are applications which allow consumers to choose from
multiple feeds. Viewers can watch English Premiere League
soccer matches from a choice of eight different camera angles,
tracking their favorite players on the field. Likewise, Sky
News offers eight broadcast carousel channels from which consumers
can get eight different top news stories. Games are another
ITV application, as are parlor and arcade-type games. There's
also betting, which though illegal in the US, could translate
well to fantasy sports leagues, a big business. Not to be
outdone, rival EchoStar also seems to be ramping up its ITV
roll-outs. Earlier in the second quarter of 2004, for example,
it announced a launching of ITV games from Buzztime and Fantasy
Sports. The services, which are broadcast over 2 interactive
TV channels on its 8-million-subscriber OpenTV-powered DISH
platform, are another in a line for EchoStar who now offers
22 channels of ITV programming and services, all accessed
from the DISH Home ITV menu. Other interactive offerings include
"DISH Instant Weather" from AccuWeather which provides
5-day forecasts and information on current weather conditions
for around 1,400 US cities; a customer service app that allows
subscribers to view their statements, pay their bills, order
new programming tiers, and get answers to frequently asked
questions; Visiware's Playin'TV games channel; the KidsWise
educational service; OpenTV's PlayJam games channel; a "Fantasy
Sports" channel; an electronic magazine from premium
programming provider, Showtime; Zap2it; TV Mag; and news services
from Reuters and Bloomberg. On the flipside, the Cable industry
is behind. Most large MSOs shelved ITV for more profitable
and lucrative services such as HSD, VOD and HDTV. However,
the satellite ITV developments will force cable operators
to be ready to respond. The speed at which the industry is
rolling out DVRs is one answer, but most know that there needs
to be more in the pipeline. As such, interest in ITV on the
whole has been heating up. Cable operators know that while
interactive TV is by no means a mature technology, and while
its business models are still emerging, they can no longer
ignore the fact that the satellite companies are gearing up
for another competition advantage. Thus, in 2004, Cable companies
will be looking closer at OCAP and Interactive TV strategies.
In the end, satellite companies will no doubt hit the market
first with unified platforms. Whether they are a success is
not guaranteed, but what's known is that numerous deployments
around the world have proven Interactive TV's potential as
a differentiator and a potential churn-buster.
HDTV
- Satellite operators were quick to jump on HDTV, and hoped
the service would help continue it's image as a technology
market leader. So far, the results have been mixed. One problem
for the satellite providers has been content. For instance,
local channel HD reception will continue to be an issue for
Satellite operators because customers have to rely on over-the-air
antennas or cable TV for local signals. Rupert Murdoch, Chairman
of News Corp., told reporters after testifying before the
Senate Commerce Committee on News Corp.'s proposed merger
last fall that technology to enable local HD channel reception
for satellites is still "maybe in three or four years"
away. In addition, HDTV retransmission remains a sticky subject.
Must-carry rules have been in effect for local stations whereby
satellite companies must carry all of the local stations in
cities they serve and not just the most popular network affiliates.
Offering local-TV signals has allowed the DBS firms to improve
their competitive position against cable operators. EchoStar
Communications Corp. has repeatedly told the FCC that a HDTV-carriage
mandate would consume so much bandwidth that the satellite
carrier would have to abandon local TV markets. The FCC has
yet to decide whether direct-broadcast satellite operators
have to carry local stations in HDTV. And that brings us to
concern #2, which is bandwidth. Like the Cable companies,
the DBS providers only have so much bandwidth before it runs
out. Such constraints can limit their their HD channel offerings.
This makes sense because one HDTV signal is the equivalent
of eight analog stations, when converted to standard-definition
digital transmission. While there is new technology on the
horizon called H.26L that should allow DBS carriers to offer
8 HDTV signals per transponder, or double the number of HDTV
signals, not all industry executives are supporters. EchoStar
chairman and CEO Charlie Ergen is not sanguine that compression
technology would perform any miracles. Instead, EchoStar has
developed a set-top box that will integrate local HDTV signals
received with an off-air antenna. Satellite TV has other options,
such as the use of FSS satellites and the Ka-Band spectrum.
They can also look into sharing capacity. Doug Shapiro, cable/satellite
TV analyst with Banc of America Securities, says "Another
concept that gets floated is that DirecTV and EchoStar will
combine forces, sharing spectrum and collaborating technologically
in an effort to deliver local signals," Shapiro said.
"But even if they could work out the technical hurdles,
it's not clear what incentive Hughes would have to help EchoStar
out if it believes that it can solve the problem using its
Ka-band capacity." The analyst added, "And in any
case, even sharing resources wouldn't necessarily speed a
resolution; it would just make it cheaper for each."
So while bandwidth is an issue, both DirecTV and EchoStar
are working on plans in action to counter the problem and
add more content to their line-ups. Aside from DirecTV and
EchoStar, there is a new entrant called VOOM who offers a
satellite-based service dedicated to High Definition TV. It's
too early to say whether VOOM will be a success, but as of
March, 2004, or after five months of being in service, VOOM
revealed it had signed up only 1,627 subscribers. Phillip
Swann, of TV Predictions, predicted that VOOM would be a failure
because it is targeting the wrong audience. Approximately
8-9 million people have HDTV sets, and perhaps less than two
million actually have the digital tuners required to receive
hi-def signals. Although the HDTV numbers are growing, Voom's
target audience is too small. Swann also says the satellite
TV business has matured. DirecTV and EchoStar, which have
been in business for a decade, now have more than 20 million
subscribers combined. Although satellite TV officials are
loath to admit this, there may be only 15 million to 20 million
potential subscribers still out there. With long established
brands and strong retail relationships, it would seem well
positioned to get the lion's share of new subs. For VOOM to
succeed, it would have to take subscribers away from the existing
services or somehow manage to leapfrog them in marketing awareness.
That will be tough. In response to the satellite activity,
Cable companies have been adding more content and looking
at future bandwidth strategies. Most in the industry believe
that the eventual conversion to an all-digital network will
begin occurring over the next three years, opening up huge
swaths of bandwidth for alternative uses. In the meantime,
Cables will face the same bandwidth crunch that satellite
companies are (see more in 'HDTV').
Retail
- In terms of retail presence, satellite providers has enjoyed
an edge over Cable for some time. Both DirecTV and EchoStar
have spent years building relationships with large national
retailers such as Circuit City and Best Buy, improving sales
channels along the way. During that time, satellite was also
perceived as new and exciting technology by consumers, which
translated into excitement on the retail sales floors. In
addition to Cable's tenuous reputation with consumers when
it comes to customer service and rates hikes, retail salespeople
have at times positioned the cable companies as adversaries
or monopolies. Breaking down those perceptions to make gains
will take some time and effort for the Cable companies. Also,
retailers have offer bundled packages including the dish,
receiver and an HD television, at times even offering discounts
on DirecTV receivers if certain model HDTVs are purchased.
This makes for another reason why salespeople to support satellite
offerings and the retail community continues a strong relationship
with DBS companies. Just the same, if satellite providers
are able to continue integrating new technologies such as
HD-based DVR's, wireless access and multi-room services, they
will be able to continue to receive this support because it
will translate into sales. Clearly, Cable companies are ramping
up their retail strategies. Cox has been out on the forefront
by offering set-top boxes in some retail markets. Comcast
has been bulking up it's operations to increase it's retail
presence. Time Warner also has similar plans. Together, the
Cable operators will become much more aggressive with satellite
on the retail front. However, expect satellite to maintain
it's edge for the time being.
Bundling
with Bell operators
- In the summer of 2003, SBC Communications, the Bell telephone
company, and EchoStar announced a joint venture to offer a
Triple Play of communications services: video, telephone and
high-speed Internet access. In a carefully integrated plan
to lure subscribers away from cable, the two companies were
also looking to bulk up their market positioning in the face
of Cable's increasingly ominous product portfolio. Other Bell
telephone companies followed suit and joined forces with satellite
providers. BellSouth and Verizon Communications have deals
with DirecTV; Qwest has a deal with EchoStar. "The telephone
companies have finally realized that they need a video component
to their bundle of offerings and the satellite companies are
desperate for high-speed service,'' said Thomas Egan, a cable
and satellite analyst at Oppenheimer & Company. Basically,
the strategy is a quick near term answer for each partner
to provide the missing piece in order to stay competitive.
In Satellite's case, it gets the HSD and telephony products,
and in the telco's case, they get the video component they
lack. Both will have greater revenue and subscriber opportunities.
At the same time, in the long run it will be a question as
to who owns the customer, which in SBC's case, could end up
spurring the acquisition of EchoStar. Either way, DirecTV
and EchoStar will see a boost in subscribers from new RBOC
bundles going forward, which will have a small impact on digital
cable subscriber additions. So far, it's early to gauge the
results. On one hand, some industry followers have said the
bundled offerings are not aggressive enough, either being
too expensive or under-marketed. But Wall Street analysts
haven't been concerned. They pointed to SBC's enrollment of
40,000 DISH video customers. "This is despite the fact
that SBC has been quite passive in marketing the product,
with no TV advertising to date," said John Hill of Schwab
SoundView. In SBC's partnership, the companies decided to
streamlining their marketing by having SBC sell the combined
package, rather than requiring customers to buy services separately
from each company. SBC said Wednesday that so far its DISH
Network offering has generated ARPU (average revenue per subscriber)
above $60, and more than 60 percent of its DISH Network installed
base gets at least one premium package, whether it's HBO,
Showtime or Starz. In addition, 70 percent of sales include
a DVR, the San Antonio-based company said. Also, nearly 80
percent of SBC customers are bundling the satellite TV service
with other key products, such as DSL or wireless, the company
said. Penetration of SBC consumer retail lines with at least
one service - long distance, wireless or DISH Network - increased
to 50 percent at the end of SBC's first quarter. In the end,
the idea behind the satellite-telco bundles is to head off
Cable's impending Triple Play strategy. With solid enough
product mix which would include DSL, voice, wireless and video
services as well as new services related to DVR's, home networks
and WIFI, it is a move that has helped both satellite and
telco providers. Interestingly enough, some analysts have
recently (Q2, 2004) soured on cable. Despite solid first-quarter
earnings reports from the major MSOs, some analysts are not
optimistic about cable's long-term competitive prospects.
They cited the speed at which phone companies were adding
high-speed data subscribers, as well as their efforts to form
partnerships with satellite operators to offer video services,
as being of particular concern. How it plays out in the long
term is a question, but rest assured it has served to dramatically
increase the competitive environment.
CABLE'S
COUNTER STRATEGY
Finish rebuilds - Most
major MSO's were on schedule to finish system rebuilds by
the end of 2003. Now that this is out of the way, they can
concentrate on rolling out next generation products throughout
their entire footprint. Several of the large Cable operators,
such as Time Warner and Cox, have introduced services like
VOD, SVOD and DVRs in a majority of their markets. Comcast
is not far behind. However, while the larger companies are
progressing, smaller operators are still behind. This will
continue to play into the hands of satellite until those Cable
operators can create an effective counter punch. In addition,
any market which the satellite operators view as weak will
be aggressively targeted. For instance, in the Bay area, Calif.,
the three largest cities (San Francisco, San Jose and Oakland)
are still undergoing a rebuild to one extent or another. But
once Cable companies complete these projects, they aggressive
pursue added value services like VOD, SVOD DVRs, HDTV, and
HSD as well as bundled discounts, giving them much better
chances for acquisition and retention.
Marketing
campaigns, programs and targeted messages
- After losing droves of customers to satellite television
offers, cable executives have been working much harder at
winning some back. Comcast has found success with it's dish
buy-back program. Cablers have been much better with marketing
messages of their own products, stressing value. They have
also found better ways to price and package their services,
including tiers, bundled discounts and different kinds of
product mixes. James Robbins, chief executive of Cox Communications,
said cable's best advantage against satellite is the ability
to offer multiple services -- not just cable television, but
also phone service and high-speed Internet access. Thus, cable
will need to focus on specific messages that speak to it's
strengths while also repositioning any possible market misperceptions.
Continue
improving service
- Modernization in processes, provisioning tools and service
techniques can help operators improve service in the long
run. New OSS platforms are offering more complete capabilities
for CSR's. Database overlays and CRM solutions can give strategic
planners and marketers key snapshots of customer activity,
trends and other valuable information. Also, Cable can continue
to drive home the point of localism. TV spots featuring CSR's,
installers and the like talking about how they serve the community
can go a long ways towards improving service perceptions.
As plants are rebuilt to modern specs such and more network
monitoring tools are in place, there should be fewer outages
and service disruptions.
Add
value and bundle services
- As engineers fine tune the Cable networks for advanced products,
MSO's can begin to offer new and exciting products such as
VOD, SVOD, HDTV, DVR's, home networking, telephony and other
new services that may be coming down the pipe. Among the top
differentiators in the short term are HDTV, where cable can
package together more channels. DVRs will also help Cable
add value, not only by offering a product that consumers want,
but by enabling them to realize more from the service they
already have. SVOD has also shown to be another value-added
service that customers appreciate, and this is a something
that is not available on DBS. And in the short to mid term,
MSO's will begin to roll out VOIP telephony. When combined
with the video and data services along with other options
such as home networking and super-fast HSD, DBS providers
will have a harder time competing. "Cable has moved from
an inferior platform to a superior one," said Jessica
Reif Cohen, the media and entertainment analyst with Merrill
Lynch. The trick will be how to best capitalize on that before
erosion takes its toll. Satellite is doing everything possible
to prevent that, and by partnering with the Bells, they may
make some head way. In any event, the race is on.
(sources:
Street Likes What it Sees from DirecTV, SkyReport, 5/6/04;
DirecTV: 1Q Subs Up, Churn Down and Bird Flies, SkyReport,
5/5/04; Top Cable Executives Are Willing to Buy Operators,
Reuters, 5/4/04; Looking Past Cable's Profits to the Rivals
on Its Heels, By Geraldine Fabrikant, NY Times 5/3/04; Bells
Join Race to Offer TV, by Almar Latour, The Wall Street Journal,
4/29/04; DVB-S2 Technology to Stimulate Demand for Broadband
Interactive Services via Satellite, Satnews, 4/27/04; Digital
Cable Topping Satellite TV, SkyReport, 4/9/04; EchoStar's
new target: Turner, by Greg Griffin, Denver Post, 4/8/04;
DirecTV's New Objectives Will Be Challenging, by Bruce Leichtman,
SkyReport, 4/7/04; Next Generation Satellite Vital to U.S.
Broadband Economy, Spacedaily, 3/17/04; Stations to Feel DirecTV's
Effect, Murdoch May Seek Cash From Cable for Local Signals,
by Diane Mermigas, Television Week, 3/1/04; Big Plans for
DirecTV 2004; Hughes Reports 4Q, SkyReport, 2/11/04; US: Media
baron muscles in on Murdoch, by Christian Catalano, The Age,
1/23/04; ViaSatellite, January 2004; SkyReport, 12/15/03;
'Unprecedented Competition' Coming - News Corp. Chief Murdoch
Vows Innovations When He Gets DirecTV, by Mike Farrell, Multichannel
News, 12/1/03; ITV Providers: Murdoch Aids Us With Ops, by
Matt Stump, Multichannel News, 12/1/03; The North American
Satellite Market: What Lies Ahead, Via Satellite, November
2003; DISH Launching DVRs, SuperDISH, SkyReport, 10/31/03;
Sky Lights Up With Interactivity, by Matt Stump, Multichannel
News, 10/6/03; Hartenstein Eyes Cable/Satellite Competition,
SkyReport, 9/24/03; SBC, EchoStar bundle up, By Kevin Fitchard,
TelephonyOnline.com, 7/21/03; DirecTV & Telco Bundle,
by Mike Farrell, Multichannel News, 7/21/03; Cable takes aim
at satellite customers, by Caroline Wilbert, The Atlanta Journal-Constitution,
6/12/03; Technology Battle Between Satellite Operators and
Cable, by Matt Richtel, NY Times, 4/15/03)
News
Corp - DirecTV
Merger:
Overview
- In December, 2003, by a 3-2 vote, the FCC gave a green light
to the $6.78 billion takeover of the country's biggest satellite
provider. Importantly, the Justice Department's anti-trust
department indicated it would not challenge the decision,
thereby consummating the deal. DirecTV serves 12m subscribers.
In the deal, News Corp acquired General Motor's 19.9% stake
of Hughes Electronics for about $3.8B in cash and stock. News
also made a tender offer for 14.1% of Hughes shares from public
shareholders, GM's pension funds, etc, for $2.8B in News Corp
securities. Essentially, this gave News a 34% stake in Hughes
and subsequent control of DirecTV because the GM shares are
"super-voting" and therefore hold more than half
of the shareholder votes. It also meant that News Corp owns
81% of PanAmSat, a satellite operator, and Hughes Network
Systems, which offers HSD broadband services. With the consummation
of DirecTV, News Corp becomes the second largest multichannel
video provider in the US with around 12 million subscribers,
trailing only Comcast (22M). Also, with DirecTV and British
Sky Broadcasting (BSkyB) units, Rupert Murdoch's News Corp
now has satellite service in roughly 100M households worldwide.
This is in addition to the fact that News controls Fox Network,
Fox News Channel, FX and 23 regional sports networks. Aside
from ramping up acquisition efforts against Cable, the combined
company will look to reduce programming, marketing and subscriber
acquisition costs.
FCC
sets conditions on the merger - In order to gain
approval for the acquisition of DirecTV, News Corp had to
agree to certain conditions. According to an FCC official
said. "We don't want to give these guys any incentive
to pull their programming off cable and drive customers to
DirecTV." On major concern was that smaller and independent
programmers that do not have large distribution deals could
be in a tough position when negotiating carriage deals with
News Corp. One of the commissioners, Jonathan Adelstein, pointed
to News Corp's operations in the UK, saying "In both
the U.K. and Australia, News Corp. employs a strategy of seizing
key sporting rights and using them to secure favorable carriage
terms. Indeed, as early as 1996, Rupert Murdoch made clear
his intention to use his company’s formidable sports
programming assets as a 'battering ram' to squeeze out concessions
from his rivals." In turn, the FCC, in issuing its decision,
concluded that the combined control of DirecTV with the Fox
television programming businesses could enable News Corp.
to drive up the fees that other cable or satellite companies
pay for its programming. To address the situation, News Corp.
must agree to arbitration to solve disputes with companies
that carry its broadcast and cable channels. News Corp. must
also treat all stations equally, and not favor its Fox broadcasting
network and cable properties. The commissioners ordered that
during an arbitration, the local station or sports network
must remain on the air, limiting potential harm to cable operators.
Either side can appeal arbitrations to the FCC. “Cable
and satellite customers will continue to have access to programming
from a diverse source of media outlets,” said FCC chairman
Michael Powell after the vote. “With these conditions,
I believe the transaction serves the public interest.”
However, despite conditions imposed by regulators, analyst
Jimmy Schaeffler, chairman and chief executive of The Carmel
Group, an industry consulting firm in Carmel, Calif., in an
interview with CBS MarketWatch said that Murdoch still has
virtually limitless options due to News Corp.’s combination
of programming and distribution power.
Competitive
edge not what it used to be
- While the scale of a merged company will be formidable,
the competitive edge will not be as significant as in the
early 90's when satellite first burst onto the scene and lured
cable customers away by the millions. Today, Cable TV offers
a much more competitive video product complete with advanced
services like SVOD, VOD and DVR, not to mention high-speed
data. Also, the large MSOs are looking to expand their footprint,
which will probably start with the purchase of troubled Adelphia,
the nation's 5th largest Cable operator. Aside from that,
there's a some damage to repair at DirecTV. Its staff has
gone through more than a year of turmoil, not knowing who
their new boss would be or even if they'd have jobs. The results
are in the numbers: DirecTV is still bigger than Dish, but
its customer growth has fallen behind. So while News Corp.
has installed a talented staff, the momentum, once lost, can
be hard to get back. This is especially true when your direct
competition is Charlie Ergen, one of the most entrepreneurial
guerrilla marketers in America or anywhere else. So the game
between the two DBS companies will be very competitive, not
to mention that with Cable.
Market
share strategies
- In order to gain market share, News Corp could compete on
price or service. Competing on price would risk profit margins
however, and Rupert Murdoch has not been known for his price
competition. Instead, he will look to innovation and advanced
products for much of his growth. Undoubtedly, he will tap
into the successful marketing and technology prowess of his
European satellite unit, BSkyB. To date, BSkyB has been very
successful with it's Interactive TV services and, more recently,
DVRs. Murdoch has made it clear that DVRs will be a centerpiece
to his strategy, and to that end, he believes most satellite
installs going forward will have a DVR-based receiver. Thus,
it's reasonable to assume that going forward, News Corp will
have Interactive TV and DVRs as a core strategy for it's DirecTV
unit. As mentioned above, News Corp will also turn to some
of it's other strengths, including it's strong ties in the
retail channel and it's excellent reputation for service.
With a long history of promoting, discounting and partnering
with retailers across the US, satellite companies have forged
a strong alliance with the retail sector. This has also paid
dividends for the retailers also, who enjoy the luxury of
having DBS promote the sales satellite receivers as well as
other home electronics such as HDTVs. As for service, it would
makes sense for Satellite operators to exploit their strength
here because compared to Cable, they have enjoyed far better
satisfaction ratings on service. Since the merger, early moves
on the part of News Corp to add more customers has been to
change channel line ups, create more value with new packages,
adjust pricing schemes, offer more free equipment, and improve
DVR services.
Product
strategies
- As competition between Cable and Satellite operators continues
to become more fierce, product innovation, bundling and value
will come to the forefront. Aside from their partnerships
with the Bells, satellite providers will continue to aggressively
develop DVR technology and Interactive TV platforms as well
as expand their HDTV offerings. Most know that DirecTV has
already deployed user-intensive products in the market with
UltimateTV and TiVo. But now that News Corp has consummated
it's purchase of DirecTV, it can tap into the experienced
learned from BSkyB's successful "Sky Plus" DVR services
deployed in London. Such insight could be valuable. In any
event, News Corp and EchoStar have fully embraced DVRs, and
going forward, both will add functionality in the way of more
tuners, bigger drives, multi-room capability, wireless functions
and more tightly designed user interfaces. Interestingly enough,
News Corp. and Fox are striving to cushion their energetic
embrace of personal video recorder technology in DirecTV's
set-top boxes with limitations and standards that do not overly
threaten the advertising revenue that is key to Fox's TV stations
and broadcast network. They will include elimination of the
30-second skip button and place limits on the time allowed
to download and store programs. "At the end of the day,
we have to have PVRs competitive with the marketplace,"
Hughes CEO Chase Carey said. "We do think the satellite
and the broadcast industries have a shared interest here,
especially as cable goes after the local advertising market."
Aside from DVRs, Interactive TV will also move to the forefront.
Right now EchoStar has a platform with multiple applications,
and it will continue to build on it. News Corp has it's own
plans, staring with their ability to leverage their in house
experience with BSkyB. In the UK, BSkyB has aggressively deployed
Interactive TV (ITV) services and has learned through experiences
with the consolidation of ITV providers. BSkyB uses an OpenTV
middleware platform that offers TV Email, TV chat, TV Gaming,
news flashes and multiple camera angles with sports events
and can apply that knowledge in the US market. With DirecTV
being strongly positioned with sports, including a high percentage
of sports-package subscribers and a multitude of sports related
networks, it can take advantage by creating compelling user
experiences by leveraging it's experience and assets. Rupert
Murdoch was a strong proponent of ITV on BSkyB and it is expected
that he will eventually make a push for a US product. If that
happens, it will offer advertisers the opportunity to make
an international ITV ad buy. With experience and familiarity
with ITV, News Corp's combined ITV offering could pave the
way for new opportunities with advertising clients. Satellite
ITV in Europe has been ahead of the curve largely because
satellite is more widely accessible than Cable and therefore
more dominant. As far as HDTV, News Corp. believes that technology
is not far away from allowing direct-broadcast satellite carriers
to retransmit local TV stations in high-definition format.
"Eventually, the technology is coming for that, maybe
in three or four years," Murdoch told reporters after
testifying before the Senate Commerce Committee on News Corp.'s
proposed merger with DirecTV parent Hughes Electronics Corp
in 2003. In his testimony, Murdoch said he would attempt to
offer local TV signals in all 210 markets, if technically
and economically feasible. Murdoch hinted there might be a
way around the capacity problem. "I think HDTV is basically
going to be done by networks. We won't need to repeat each
HDTV 200 times," he said. Murdoch said at merger hearings
that DBS-delivered high-speed data services would not be an
immediate benefit of the News Corp-DirecTV merger. Because
the current costs of installing two-way equipment in a DBS
home are eight times those of cable, Hughes under Murdoch
would need to examine other options. "We are investigating
two or three technologies to go provide broadband that we
have via the electricity grid and the utility companies,"
Murdoch said.
Leverage
opportunities
- The purchase of DirecTV has given News Corp. a U.S. distribution
platform for its news and entertainment programming, providing
them tremendous leverage in both distribution and content.
Doug Shapiro of Banc of America Securities - "Why does
News Corp. want to own a stake in DirecTV? We believe there
are several reasons: It believes it can run it better, it
gives it the opportunity to achieve global scale in procuring
programming and equipment, it gives it a platform on which
to launch new programming inexpensively and it helps equalize
the leverage of a consolidating U.S. cable industry and the
two rapidly-growing U.S. DBS providers." Similarly, Hughes
CEO Chase Carey said "We're looking to distribute a broad
array of content, whether news, sports or entertainment, local
or national, backed by great marketing capabilities. We have
a scale that dwarfs everyone else in the business, including
Comcast. We're going to leverage that to make sure we get
our program costs in line and the best price for product while
developing new content." The leverage opportunities also
extend to Gemstar. By owning a large stake in the parent company,
News Corp can leverage it's relationship with TV Guide to
create more marketing and promotion opportunities.
(sources:
Street Likes What it Sees from DirecTV, SkyReport, 5/6/04;
DirecTV's New Objectives Will Be Challenging, by Bruce Leichtman,
SkyReport, 4/7/04; Stations to Feel DirecTV's Effect, Murdoch
May Seek Cash From Cable for Local Signals, by Diane Mermigas,
Television Week, 3/1/04; Big Plans for DirecTV 2004; Hughes
Reports 4Q, SkyReport, 2/11/04; The Ruckus Rupert Will Make,
by Diane Mermigas, Television Week, 1/28/04; US: Media baron
muscles in on Murdoch, by Christian Catalano, The Age, 1/23/04;
US: Media baron muscles in on Murdoch, by Christian Catalano,
The Age, 1/23/04; ViaSatellite, January 2004; FCC grants Rupert
Murdoch control of DirecTV, Broadcast and Engineering, 12/22/03;
Nabi Forecasts DBS Gains for 2004, SkyReport, 12/08/03; Nabi
Forecasts DBS Gains for 2004, SkyReport, 12/08/03; US regulator
favours News's acquisition of DirecTV - with conditions, Sydney
Morning Herald, 12/4/03; Via Satellite, October 2003; DirecTV
Ups 2003 Sub Guidance, SkyReport, 9/30/03; DBS Sees Daylight
in HD Delays, By Andrea Figler, CableWorld, 6/9/03; Grilled
Murdoch Drops HD Hints, By Ted Hearn, Multichannel News, 5/26/03;
SkyReport; Murdoch's not as big a threat to cable as people
fear he'll be, by Mike Luftman, CableWorld, 5/19/03; Multichannel
News)
DirecTV: Current State of Affairs:
Overview - Since being
formed in the early 1990's (see 'History' above), DirecTV
has become a powerhouse and formidable competitor. Each year,
the company has continued to defy many in the Cable industry
by making yearly gains at their expense. While still growing,
the trajectory seems to be leveling off. For instance, in
2000, DirecTV was the growth leader in the Satellite industry,
adding 3M subscribers that year. In 2002, DirecTV added 1M
new subscribers, a considerable drop. At the same time, EchoStar
added 1.4M subscribers last year and essentially achieved
around 55-60% of the market's growth. Still, even while EchoStar
has made some nifty gains, several in and out of the industry
have said the market is beginning to mature. But that doesn't
seem to stop DirecTV from outdoing itself, as the company
has posted one of its strongest quarters in years, driven
mainly by better-than-expected subscriber growth. The results
tell where DirecTV is and where it's heading:
2004
Q2 results
- DirecTV saw revenue grow 22 percent to $2.511 billion during
the first quarter. The net loss for the period was $639 million.
The satellite TV service reported an all-time high of 460,000
net owned and operated subscriber additions for the first
quarter. DirecTV also achieved a low monthly churn rate of
1.4 percent for the period. In addition, DirecTV said it saw
an increase in its average monthly subscriber revenue (ARPU),
which grew to $63.60 in the quarter. Craig Moffett of Sanford
C. Bernstein and Co. said he liked what he saw from the satellite
TV company. "The very strong subscriber additions this
quarter continues DirecTV U.S.'s strong momentum." Television
marketing efforts by DirecTV reached record levels in March,
building on a strong push by both companies in late 2003.
Other Q2 highlights - As for other first quarter highlights,
company executives pointed out that they moved on the sale
of PanAmSat and sold its XM Satellite Radio stake. As for
Hughes Network Systems, rumored to be the focus of a future
sale or divesture, CEO Chase Carey said DirecTV is still determining
the "appropriate relationship" between the company
and the satellite broadband/technology/set-top box unit. "Obviously,
they are a valuable set of businesses," Carey said of
HNS and its consumer/enterprise efforts.
Past
quarterly performances - In February, 2004, DirecTV
reported strong fourth-quarter results, driven by the addition
of 405,000 net new subscribers in the period and 1.19 million
over the full year, both records for the DBS operator. Revenue
had risen 24% to $2.26 billion and operating profit before
depreciation and amortization declined 17% in the quarter
to $166 million from $200 million a year earlier. DirecTV's
parent company, Hughes, reported a fourth quarter net loss
of $310 million, compared to net income of $113 million for
the same period in 2002. The net loss was attributed to a
number of factors, including a reorganization expense of $193
million tied to agreements reached with creditors in the DirecTV
Latin America bankruptcy proceedings. Also, in fourth quarter
2002, Hughes saw a pre-tax gain of $600 million from its settlement
with EchoStar in connection with the termination of their
failed merger. Hughes said its fourth quarter revenues grew
by 14 percent to more than $10 billion. Overall, DirecTV continues
to grow. First quarter subscriber adds in 2003 were 275,000,
followed by 181,000 in Q2. Soon to be ousted DirecTV President
and COO, Roxanne Austin, said in July, 2003 that roughly 40%
of gross subscriber additions came directly from digital cable.
That is up from about 38% in the first quarter of the year.
Cash flow has also been rising. DirecTV more than doubled
its EBITDA in the second quarter, 2003, to $324.8 million,
marking continued trend of growth. DirecTV has also reported
low monthly churn rates, averaging about 1.5%. DirecTV executives
have said that DVR helped cut churn to less than 0.5% per
month. At the same time, subscriber-acquisition costs (SAC)
have been slowly increasing. In the second quarter, 2003,
it rose to $595 per subscriber, compared to $565 the previous
year period. DirecTV has said it is likely to continue to
grow because of additional expenditures for additional advertising,
the introduction of digital video recorders into more homes
and DirecTV's focus on driving multiple set-top boxes into
new customers' homes. DirecTV said that DVR capability in
the STB has added about $10-15 to the SAC.
Fiscal
outlook
- In May, 2004, Banc of America Securities' Doug Shapiro said
"Besides strong secular dynamics, we believe DirecTV
still has substant |
