Satcasters’ wings clipped

Bargain hunters ditch dish for cable stable's triple play

Satellite TV, the darling of Wall Street as its subscription rates soared, is now running into rough air. And the two players in this category have only themselves to blame.

With eye-popping offers of free installation of dishes and lowball sign-up fees they caused bargain hunters to cancel cable.

“DirecTV and EchoStar got lots of customers all right, but they turned out to be borderline customers,” says Bruce Leichtman, head of his own media-research consultancy.

As soon as the discounts morphed into standard retail prices, these customers bid farewell to their satellite dishes.

That’s called churn, and it had ballooned to a level that Chase Carey, CEO of DirecTV, called “unacceptable.”

DirecTV reaches 15 million customers and EchoStar 12 million. From June to December 2004, DirecTV added an impressive 940,000 subs and EchoStar signed up 805,000.

During the next six months (through June 2005), churn helped to push down those increases to 530,000 for DirecTV and 550,000 for EchoStar.

To keep these rates from sinking even further, both DirecTV and EchoStar have begun a drive to limit churn, cutting back on promotions and applying tougher credit checks against proposed subscribers.

However, these moves could end up stifling satellite’s gains, particularly because dropouts may turn out to be the least of satellite TV’s worries.

Cable continues to beat the drum for its triple play of television, telephone and warp-speed Internet access, all delivered on one monthly bill at retail prices that could attract satellite TV’s best customers.

Cable can also tout its smoother delivery of video on demand, which operators like Comcast are using as the lure to get more subscribers to buy digital boxes.

DirecTV is trying to counter cable’s VOD advantage by storing 60 hours of shows on its digital-video recorders for calling up at the subscriber’s whim.

But upgraded cable systems offer thousands of hours of VOD programming, including the robust on-demand catalogs of the pay TV channels HBO, Showtime and Starz, and of basic-cable nets such as Comedy Central, CNN and Court TV.

In another blueprint, DirecTV and EchoStar have cobbled together deals with the telcos to try to compete with cable’s move into phone service and Internet access. But satellite customers complain of frequent outages in these broadband hookups.

Also, satellite/telco alliances could end up with short life spans because Verizon and, to a lesser extent, AT&T have each created services similar to cable TV’s, and started competing directly with cable in markets throughout the U.S.

William Kidd, an analyst with Ladenburg Thalmann, says these phone companies could attract customers from both satellite and cable TV by offering almost unlimited capacity for bandwidth-gobbling technologies like high-def TV and by delivering even faster Internet hookups.

Not to mention, Kidd adds, that Verizon and AT&T, draped with pockets far deeper than those of the biggest cable or satellite companies, could slash prices drastically for the first few years, forcing their competitors into a Hobson’s choice: to reluctantly match the telcos, rate cut for rate cut (at the expense of cash flow), or to lose customers fed up with ballooning cable bills.

Dan Fawcett, exec VP of program acquisitions and general counsel of DirecTV, says he’s not losing sleep over the perceived advantages of cable and the telcos.

“DirecTV is a television service that people seem to want,” Fawcett says. “Death knells won’t be sounded if our subscribers can’t get phone service through us. Right now, we send out more channels than our competitors.”

Its new marketing campaign focuses on DirecTV’s programming, summed up in the slogan: “Good TV. Better TV. DirecTV.”

The most expensive of Fawcett’s exclusive programming is the $3.5 billion that DirecTV has ponied up to get exclusive rights to the National Football League’s “Sunday Ticket” package of live weekly games through 2010.

It’s a pretty safe bet that the 1.5 million or so DirecTV football fans who shell out close to $300 a year for “Sunday Ticket” will be immune to the siren song of cable TV and the telcos, at least until the exclusivity of these NFL games comes to an end.