GM Hughes Electronics makes the biggest roll of the dice in its $ 600 million gamble Friday when the company launches the first of two satellites that will transmit 150 cable and broadcast channels to 100 million homes in the United States and Canada by the end of next year.
For Hughes, the satellite that will blast off at 8:27 p.m. on an Ariane rocket from French Guiana represents its effort to land a spot on the emerging informationsuperhighway.
With the new satellite, Hughes’ DirecTv will be able to provide 75 to 80 channels of programming for subscribers by April. After it launches a second satellite next summer, the company will be able to double its programming output.
The gamble, of course, is that even though Hughes spent major coin to build it, it’s an open question if anyone will use the satellite.
To sign up, customers have to buy a $ 700 receiving system from retailers such as Sears and Circuit City. The system includes an 18-inch satellite dish, and customers will have to pay monthly subscriber fees. That could be a tough sell, particularly given the rocky history larger satellite dishes have had outside rural America and the relatively cheaper cable systems that already exist.
But Hughes plans to offer cable services, such as CNN, the Disney Channel and E! Entertainment Television, for less than cable companies currently charge. Hughes is banking on the lower fees and the system’s immense channel capacity — to be filled out with dozens of pay-per-view movies and sporting events — to draw subscribers.
“It’s a lower cost,” DirecTv spokesman Tom Bracken said, “and it’s available now, as opposed to five or 10 years,” the time frame most cable companies are projecting for launch of similar systems.
DirecTv will have the ability to be interactive, too. The receiving system will have a dataport that can be hooked up to computers to connect subscribers to online services.
With all its other-worldly promise, the system has its down-to-earth limitations. Because of the position of the satellite, for example, the system only works at homes or apartments with unobstructed south-facing views. That eliminates a good chunk of urban America and most of Manhattan.
So initially, Hughes plans to market DirecTv to roughly 10% of the country — families with a combined income above $ 25,000, largely in rural or suburban America. And one of their most important target groups will be those who can’t currently get cable.
Hughes expects to sign up3 million subscribers by 1997, the level at which it will break even. It projects hitting 10 million subscribers by 2000.
Because of the price, most analysts don’t believe Hughes will make much of a dent initially in the cable business. But the dish price could come down when RCA’s exclusive manufacturing deal ends, which happens in either 18 months or after a million units are sold.
As that price drops, DirecTv could become a direct threat to the cable industry, which already has problems with pricing and service.