DirecTV hits 4 million subs, nears profit

Satcaster chipping away at cablers' biz

In a milestone for the subscription TV biz, 4-year-old satcaster DirecTV is expected to announce today that it has hit the 4 million subscriber mark. These days, one out of every 26 TV households in the country is sporting a pizza-sized DirecTV satellite dish.

DirecTV, owned by Hughes Elecontronics, has become a significant player for studios and other outfits looking to launch new channels or bolster the reach of existing channels. The satcaster’s bullish growth and digital TV capabilities bode well for its continuing fight to chip away at the market share of rival cable operators.

DirecTV’s primary selling point against cable is its broader array of channels and pay-per-view offerings at competitive prices, although the satcaster is still handicapped by the need for subscribers to use an off-air antenna to receive local broadcast TV stations.

‘National footprint’

DirecTV and other satcasters are “extremely important to new services like Toon Disney,” Shirley Powell, veep of media relations for the Disney Channel, said of the studio’s newly launched all-animation channel. “They provide an important national footprint for new channels and stimulate competition (in the cable market) by providing a rich channel lineup to consumers.”

With 4 million subs and counting, DirecTV right now would rank fifth on the list of the nation’s largest cable system operators, behind Time Warner (12.6 million subs), Tele-Communications Inc. (11 million), MediaOne (4.9 million) and Comcast (4.4 million). All told, cablers reach about 66 million homes, or about two-thirds of the nation’s 98 million TV homes, while the three major domestic satcasters have a total of about 7.4 million subs.

PPV appeal

Pay-per-view movie sales is another reason why the studios love DirecTV and other satcasters. According to research by Paul Kagan Associates, sat-TV subscribers outpace the average PPV purchases of cable subscribers by a wide margin.

DirecTV in particular has tried to differentiate its programming lineup from cablers by offering exclusive premium sports packages, special events and even some original programming. The satcaster recently struck a deal with the legendary Johnny Carson to offer condensed versions of vintage “Tonight Show” segs as a weekly PPV item.

DirecTV, launched in June 1994, is far ahead in subscriber count of its two rival direct broadcast satellite (DBS) providers, Primestar (2.1 million) and Echostar (1.5 million). DirecTV passed the 3 million sub benchmark last November.

Profit predicted

DirecTV execs predict the service will turn its first profit by the end of next year; the service should hit the break-even point once it passes the 4.5 million subscriber mark. The DBS biz hit a slump in the first half of 1997, but the growth rate has rebounded this year, led by DirecTV.

“This year has been pretty remarkable for DBS,” said Bruce Leichtman, director of media and entertainment for the Yankee Group, a Boston-based research and consulting firm.

“Many people thought the market was beginning to wane, but clearly what we’re seeing (this year) is a second wave of people coming into DBS. So long as cable is slow to upgrade their plants (to add digital services and increase channel capacity), it leaves the market open to DBS providers to lure new subscribers by offering more and more channels.”

Focus on interactivity

Going forward, DirecTV prexy Eddy Hartenstein says the satcaster aims to build on its market leadership by rolling out the latest interactive TV features and promoting its ability to offer high-definition TV.

Many cable operators have yet to make the costly equipment upgrades needed to offer digital TV. DirecTV’s existing satellites, coupled with the digital antennas required for broadcast TV reception, are ready to deliver the new high-tech standard to the first technophiles who shell out for the digital-ready TV sets arriving in stores this fall.

“Our goal is to be first and at the forefront of all the new services that are available, and to give our customers the best value for these new services and the programming that they originally came to us for,” said Hartenstein, who has been at the helm of DirecTV since its inception in 1990.

“If we keep winning on those goals, our market share will continue to increase. We’re knocking on the door of profitability next year,” Hartenstein said.

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