Cable exex gathering in San Francisco for the National Cable Television Assoc.’s Cable ’93 convention at the Moscone Convention Center June 6-9 have spent the last year fretting over congressional reregulation, Federal Communications Commission-ordered rate rollbacks and telephone company forays into video. To that list can be added another worry: direct broadcast satellites.
Two companies–Hughes Communications’ DirecTv and Hubbard Broadcasting’s United States Satellite Broadcasting (USSB)–are readying an April 1994 launch of the first-ever DBS services in the U.S.
Not only will DirecTv and USSB compete against each other, they will also do battle against entrenched cable operators that have safely avoided serious competition for decades.
Though no one is predicting DBS will be driving cable operators to the poor house, the fledgling industry has grand plans to at least cut partially into the cable cash cow.
Stanley E. Hubbard, prez of USSB, predicts 20-25 million homes will be receiving DBS by 1999, and that at least half of those homes are currently receiving cable.
“Our business succeeds if we never get into a single cable home,” says Hubbard. “But our market and our target is the entire U.S.”
Even well-heeled cable operators concede they are a bit antsy over the threat from satellite TV.
“I wouldn’t say anyone in the industry is tearing their hair out worrying about DBS, but we and our counterparts take this very seriously,” says Richard Roberts, the new board chairman of the National Cable Television Assn. and president of Norfolk, Va.-based TeleCable Corp., the 18th-largest cable multi-system operator in the U.S.
Roberts says the new DBS companies will be “very agile competitors,” and not just in rural areas that remain unwired by cable.
Though popular in Europe and Asia, DBS has a tortured history in the U.S. Hubbard, for example, has spent nearly 15 fitful years touting satellite-to-home broadcasting without ever delivering the first picture. That’s all about to change, assuming the successful December launch of a high-powered Ku-band satellite being built by Hughes Aircraft. A second satellite will be launched later.
Once the services are up and running, DirecTv plans to beam 150 channels throughout the U.S., while USSB will be capable of sending as many as 40 channels.
The business strategies of the two firms are different: Hubbard’s USSB will carry what Stanley Hubbard calls a “focused basic package” of premium service films and a few pay-per-view events. DirecTv, with more than triple the channel capacity of USSB, will emphasize PPV. About 35% of DirecTv’s channel capacity will be set aside for PPV movies, while 30-40 channels may be devoted to PPV sports.
DirecTv hopes to take a lead role in delivering PPV sports, allowing, say, transplanted Bostonians living in Los Angeles to receive dozens of Red Sox games via DBS.
Hubbard also plans to solely produce two channels of programming for its USSB service. One channel will “look like an independent TV station, with news, sports and entertainment,” says Hubbard. It’s not been determined what type of programming will be shown on the second channel, according to Hubbard.
DirecTv won’t produce any of its programs, according to company prez Eddy Hartenstein. DirecTv has also signed an agreement with the National Rural Tele-communications Cooperative under which NRTC will market DirecTv Programming to its estimated 10 million homes.
Ironically, USSB is an initial partner with Hughes’ DirecTv, for the Minneapolis-based Hubbard is leasing transponder space on the Hughes birds. But once the satellites are airborne, the two DBS ventures will part company and begin to battle for customers.
At the outset, consumers will be required to shell out about $ 700 for a remote control, decoder box, and a napkin-sized dish that can be attached to a window ledge. The equipment is being built by Thomson Consumer Electronics’ RCA and will be sold at J.C. Penney outlets and by backyard dish dealers. Hubbard believes the equipment price could fall to as low as $ 300 after several years.
Both USSB and DirecTv have lined up an impressive array of programming deals in recent months. USSB has snared Viacom’s entire program lineup consisting of Showtime, the Movie Channel, Flix, MTV, VH-1 and Nickleodeon. USSB has also obtained rights to Time Warner’s HBO and Cinemax.
DirecTv, by contrast, has signed deals with the Disney Channel, Paramount Pictures, Sony Pictures Entertainment, and Turner Broadcasting’s Cable News Network, Headline News, The Cartoon Network, WTBS, TNT and MGM film library. In addition, DirecTv has lined up USA Network and the Sci-Fi Channel, The Nashville Network, Country Music Television and The Family Channel.
Perhaps the biggest fish waiting to be hooked is ESPN. There is speculation that DirecTv will announce it has corralled the all-sports web at the upcoming Consumer Electronics Show in Chicago. Stanley Hubbard says he hopes ESPN signs with USSB, but that “it’s not essential to us. It’s not going to make or break us,” if we don’t get ESPN. “Both services are going to succeed nicely alongside each other,” says Hubbard.
Other top cable nets waiting to be signed include the Discovery Channel, Lifetime, and Arts & Entertainment Network.
What’s unclear is whether programming deals cut by the two sides will remain exclusive. Included in the cable reregulation bill passed by Congress last year was a provision that forced cable programmers to provide their fare to all delivery technologies.
Hubbard, without much elaboration, believes he has exclusive rights to Viacom and Time Warner cable networks for USSB. DirecTv’s Hartenstein says flatly that “we don’t have exclusive deals. There’s nothing in any of our contracts that mentions exclusivity.”
Some program networks themselves may be balking at providing their fare to any and all comers. Viacom prez Frank Biondi, who negotiated the deal for delivery of Viacom programs on USSB, says, “We’re talking to DirecTv, but it doesn’t make sense to have our programs on both Hubbard and Direct.”
Hubbard says the price for USSB service will probably be in the $ 20-$ 25 per month range. DirecTv’s Hartenstein says it’s “too early to tell,” although he adds that “obviously, we’re going to have to be price competitive with cable to be successful.”
Despite the optimism expressed by USSB and DirecTv exex, there are skeptics who dismiss the potential of DBS. The Wall Street firm of Wasserstein Perella Securities recently unveiled a report predicting that DBS will lure only 5.6 million customers by the year 2000, and that DBS will be confined to rural areas. Wasserstein Perella analyst Drew Hanson concedes his firm “took a conservative view on how these markets are going to grow.” Hanson says that if telephone companies are permitted to enter the video arena, they will likely prove a bigger threat to cable than DBS.
“We think the telcos’ deeper pockets make them potentially a bigger player,” says Hanson.
DirecTv spokesman Tom Bracken shrugs off the Wasserstein Perella report, claiming telcos “are never going to put fiber optics everywhere. We can have a very successful business with 10 million subscribers paying $ 25 per month for programming,” says Bracken.