Is Satellite TV In a Slump?
Both DIRECTV and EchoStar report a sharp decline in subscription growth.
And it may not be a coincidence.
By Phillip Swann
TVPredictions
http://www.tvpredictions.com/satelliteslump081005.htm
Washington, D.C. (August 10, 2005) -- For more than a decade, the satellite
TV industry has been dishing it out, stealing customers from cable with a
dazzling array of innovative features and services. DIRECTV and EchoStar,
the nation's top two satcasters, each have amassed more than 10 million
subscribers and done so at a breathtaking pace.
But there are signs that satellite's wild ride may have finally hit a
roadblock. EchoStar this week reported that it added approximately 225,000
net subscribers in the second quarter, a 33 percent drop from the 340,000
subs it added in last year's second quarter. EchoStar CEO Charlie Ergen
cited increased competition from telcos, cable and DIRECTV as one reason
for the loss.
However, DIRECTV reported last week that its 2005 second quarter net new
subscribers dropped 45 percent to 225,000.
It should be noted that both satellite TV services also reported a profit
for the second quarter despite the subscription dips. (Although the profits
were largely the result of one-time tax and accounting benefits.) In
addition, DIRECTV now has 14.7 million subscribers while EchoStar is at
11.4 million. The two companies are hardly headed to the poorhouse.
But the subscription drop shouldn't be dismissed as either a one-time
occurrence caused by increased competition or a seasonal glitch related to
consumer spending and interest. The satellite TV industry is facing three
serious challenges, perhaps the most serious in its history:
1. Digital Cable
For years, many people purchased satellite dishes from either DIRECTV or
EchoStar simply because they provided more channels than cable -- a lot
more channels. In the 1990s, when cable carried 50 channels or less in most
markets, the satellite providers offered more than 200. When I was
publisher of Satellite DIRECT magazine in the 1990s, I commissioned Nielsen
Media Research to conduct four major studies over three years, asking
consumers why they were buying dishes. The number one reason in each study:
more channels.
However, thanks to new digital cable set-tops, cable TV operators can now
offer as many channels as the satcasters. Satellite's best weapon of the
past decade has been taken out of its arsenal.
2. New Technology
In the last few years, there has been an explosion of new TV technologies,
such as High-Definition TV, Digital Video Recording and Video on Demand.
Both cable and satellite operators have struggled to find more bandwidth to
add these new features. However, the battle has been more taxing for the
satcasters because they beam their signals from satellites in the sky,which
have finite capacity.
Consequently, DIRECTV and EchoStar have been slow of late to expand their
HDTV lineups (although EchoStar did add 10 HD channels from Cablevision's
Voom satellite service, which has been closed.) and they still do not
provide Video on Demand service, which cable does.
DIRECTV is launching four new satellites over the next two years to add
capacity for HDTV and other services -- and EchoStar promises to expand as
well. But satellite's recent subscription dip could be a byproduct of the
industry's current technology gap. More consumers now see cable as offering
more choice, which used to be satellite's most attractive selling point.
And while DIRECTV is attempting to close this gap with the new satellites,
cable operators are expanding their capacities as well -- and more cheaply
than launching rockets in the sky.
3. The Law of Diminishing Returns
The satellite industry now has more than 25 million subscribers, but future
growth could be limited simply because people can't get the signals where
they live. Unlike cable, whose wires can bypass pesky obstacles such as
trees and buildings, the satellite dish must have a clear view of the
southern sky (where the satellites are positioned) to display the signals.
Many consumers live in an apartment building with no place to install the
dish or in a house whose southern view is blocked. They might want to get
the dish, but can't.
The satellite industry has done a terrific job implementing programs that
permit multiple apartments to share one dish. But the southern sky problem
could become a larger one in the coming years as the industry tries to
expand its base.
DIRECTV and EchoStar, of course, are aware of these three challenges, which
explains why they are busily adding new services and investing in the
infrastructure necessary to add even more. And the two satcasters have
demonstrated extraordinary courage and creativity in the past when facing
similar battles. They shouldn't be counted out, particularly when you
consider that DIRECTV is owned by the deep-pocketed and resourceful News
Corp. (Under the crafty Ergen, EchoStar has also baffled the naysayers.)
But the satellite industry may soon find that it can no longer count on
rapid subscription growth -- no matter how much it spends.
================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923 Fax: 713-743-3927
antunes at uh dot edu
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