Static In Rupert's Satellite Dreams

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cablewithaview

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Apr 18, 2005
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New technology lets cable offer goodies DirecTV can't -- and customers are noticing

For Rupert Murdoch, gaining control of DirecTV was supposed to be the hardest part. When he finally won a 34% stake in the satellite operator in late 2003, the man considered by many to be the most powerful media executive in the world had finally closed the loop on his satellite empire. Now he would be able to offer cut-rate prices, provide cool services, and leverage his vast collection of movies, TV shows, and news to lure new subscribers. Murdoch put in charge 51-year-old Chase Carey, a former college rugby player with a handlebar mustache, to execute his plans to dominate programming and distribution. In Carey's two years as CEO of DirecTV Group Inc. (DTV ), the gruff-talking exec has delivered, siphoning off 2 million customers from rival cable operators, bringing DirecTV's total to 15 million.

What Murdoch didn't account for, however, was that in that same period the media world would be reordered by technology. Today his bid so quickly to make DirecTV No. 1 isn't looking like a cakewalk after all. For one thing, DirecTV has had problems sustaining the growth that made it a powerhouse rival in the first place. In the past six months it has added just over half as many subscribers as it did in 2004. And it pays a steep $626, on average, in promotions alone to win a new subscriber. That comes to about 75% of what that customer will pay in fees the first year. Moreover, DirecTV's churn rate -- the number of folks who cancel their subscriptions -- has risen to what Carey calls an "unacceptably high" level.

Meanwhile, competition from cable has stiffened, and phone companies are joining the fray, too. After spending nearly $100 billion in the past decade to lay high-speed fiber-optic lines, cable outfits are rolling out services such as Web access, video-on-demand (VOD), and Internet phone calling, helping to keep subscribers from jumping ship. Time Warner Inc. (TWX ) and Cablevision Systems Corp. (CVC ) say they're adding new customers by bundling these services and even offering discounts -- undercutting satellite's long-held price advantage.

RESHAPED LANDSCAPE
The problem at the heart of DIRECTV's model is that it can't yet offer the two-way technologies that are so hot now -- from Voice over Internet Protocol to VOD. Satellite's one-way feed can send shows to TVs, but there's no path back to the satellite, making its pay-per-view offerings much less popular since they start at scheduled times. Plus, cable is a more attractive platform for ads because it can target spots to specific neighborhoods. "Last year satellite had all the advantages. Now cable has attacked them on just about every one," says Craig E. Moffett, an analyst at Sanford C. Bernstein & Co.

Looming but still a bit distant are threats from phone giants Verizon Communications Inc. (VZ ) and SBC Communications Inc. (SBC ), which are gearing up to offer programming services. With its first trial under way in Keller, Tex., Verizon is offering a full menu of TV channels, part of a bundle with its own high-speed Internet services.

Murdoch, who doesn't take being No. 2 lightly, isn't blinking. DirecTV blames much of its slowdown in subscriber growth on an effort to weed out poor-paying customers. Even though it earned $215 million in the first three quarters of this year and its revenues increased 20% on higher rates, to $9.6 billion, DirecTV faces major expenses in the next year to keep pace with cable. It is already spending more than $1 billion to launch satellites to offer local channels in high definition. And advertising expenses for this year could top $200 million, a 30% jump over last year, estimates Merrill Lynch & Co. (MER ). Numbers like those have turned investors sour: DirecTV's stock is down 18% in the past year, to about $14.

Meanwhile, cable is just warming up. On Nov. 2, three of the largest operators signed a deal with Sprint Nextel Corp. (S ) to offer wireless phone service, enabling them to package yet another goodie into their promotions. Others are rushing to offer VOD, joining giant Comcast Corp. (CMCSA ), which offers a library of more than 4,000 TV show and movies, most of them for free. Despite losing customers in its most recent quarter, Comcast claims VOD and other services have helped it lure back so far this year 300,000 former customers who had defected to satellite. One market for other cable operators to emulate is Southern California. Cox Cable has signed up a third of its customers in San Diego and Orange County for TV, Internet, and phone service, leaving satellite's penetration in the area at just 14% of households, vs. a national average of 20%.

These new threats are reenergizing Rupert's crew. Using a key weapon -- its exclusive deal to offer every Sunday National Football League game -- it's marketing a screen with eight games playing simultaneously. To battle cable further, DirecTV will soon offer its own, slimmed-down version of VOD with 100 or so recent movies loaded ahead of time into a customer's set-top box. DirecTV has also announced that it will make some of NBC's hit shows, such as Law & Order, available for a fee on VOD. Still, "to me VOD is a lot of hype," says Carey. "The cable guys offer a lot of second-tier bulk. We're going to offer the ones that [customers] want."

DirecTV is looking for new partners to match cable's Internet and cell-phone services. That would be taking a page from Murdoch's playbook in Europe. News Corp.'s (NWS ) 37%-controlled British Sky Broadcasting Group (BSY ) satellite service recently paid $363 million to buy Internet service provider Easynet Group and said it will offer wireless phone service via Vodafone Group (VOD ).

Of course, DirecTV is still a huge jewel for Murdoch. Its mass audience, second only to Comcast's 22 million subscribers, is crucial to the mogul's ambitions to expand his Fox TV brand. He wants to use DirecTV to create a new cable outlet a year, such as the recent Fox Reality channel launched on the service, and as leverage to press cable operators to pay more for his existing channels.

But Carey knows that technology can be a game changer. "I don't think anyone is standing still," he says of the competitive landscape between cable and satellite. "They've moved forward, and so have we. We're not done."

http://www.businessweek.com/magazine/content/05_49/b3962090.htm?campaign_id=rss_tech
 
Good article. This is why I predict DirecTV and Dish Network will have to merge at some point in the not-too-distant future. DBS overhead, high subscription costs, shrinking market, and churn do to more cable choices will be the driving factor.
 
I agree, the cost in new technology will make paying satellite more unreal then it already is. Merger? I could see happening. Charlie take all??? Rupert goes back to keeping up with his other interest??? Anything coiuld happen. I would like to see Bell Ex Vu or S* also make it into the market here if the two here merges. It would give more choice and other alternatives.
 
They won't allow both sat companies to merge. Already been ruled on over 2 - 3 years ago when they turned down Dish's takeover of Directv.

I would think if both companies would work together, to do say a subsidary company that both co owned and did all the locals for the country in hd they could save costs. Then if both companies did a subsidary company that did all the national hd channels they could again save costs. The best of Dish national hd channels and the best of Directv's local hd channels. No more duplication in efforts by both companies they would save both companies money. Then they could really compete with Cable companies.

Now as far as video on demand and internet I really don't know how they can compete unless they work a deal with the existing phone companies to do so. That isn't likely with all the phone companies doing their own video services soon. Satellite will have to be able to compete with all these services or they will see a decline just like Cable has.

The phone companies look like they will have the best model in the near future. Video, internet, phone , and the ability to do video on demand over the internet. The future will be internet over the tv. Kind of funny when you remember Webtv on the dishplayer 7100/7200 model and the ultimate tv receiver from Directv. Maybe they should of stayed with that one.
 
MikeD-C05 said:
They won't allow both sat companies to merge. Already been ruled on over 2 - 3 years ago when they turned down Dish's takeover of Directv.
Yes, but that was 2-3 years ago and times change. Fast forward 2-3 years and lets assume both E* and D* are losing money hand-over-fist because of Cable and Telco technology improvements and competition. Based on this scenario, how could the FCC deny the sale/transfer of DBS assets and frequencies if both companies are going under? That would not be serving the public interest.

At some point DBS market growth will stagnate and, as market indications are beginning to show, may begin to shrink. Without double-digit growth, DBS providers will need to get a handle on costs...that's why VOOM got out of the DBS business. Again, you cannot always look to the past in order to solve future problems. I predict that E* and D* will have a difficult time competing against the Cable and Telco. On the bright side, consumers like us will benefit tremendously. :)
 
About six months ago, I switched back to directv after moving to cable after being a Directv customer for years. I just dont get the whole Video on demand thing. The "Free stuff" is pretty crappy, when your cable box in not freezing up. I know each person has there own favorite being Cable or dish.

But whenever I see a comcast commerical for video on demand, after having it briefly. I just did not know what they big deal was, I did not think it was that great. Now I would love to be able to get high speed internet, so I can dump comcast totally.But I dont know, if that will ever or can happen
 
If the companies would merge, it would be rupert taking E*, experience in the U.K. says that, ol' pupert doesn't go in to things to finish 2nd, he bought out the rival to sky in the u.k.
 
The way I see it ...

Satellite is already superior to cable. It has always had greater programming selection, better picture quality and lower TCO (unless you look at the geek club, i.e., "US!") VOD is overrated, I have had VOD for more then 5 years with DirecTV ... it is called TiVo, UltimateTV & the DirecTV DVR. Most of us that are this hardcore over watching a show, do not mind using a DVR to do so. PPV selection is nice, Premiums are inadequate for both D* & E* but I think this will change in the very near future and as far as Internet & Phone ... I want copper-switched networks for the next 5 years (fiber once videophones are common place) and Comcast IS my Internet provider (again because I am a geek, and have that need for speed.)

Most consumers aka average joes are happy with a phone, cable & Internet provider. Heck I have 200 in our wood shop and I know 15 people personally who still use antennas for TV. 5 of us own an HDTV, 3 of those gained just in the last 3 months.

After playing with my R15 it is an OK box, I still prefer my HD TiVo, but i knows that goes bye-bye within 6 months and I will like the interactivity of the R15 when released in an HD platform. Just yesterday i was showing my wife what the new HD DVR will do for her & football once it is released. She was very happy. However the other 95+% of my family could care less about TV and delivery. My dad's TiVo is still running 3.1.1 because the modem in it was always broken.

The point is cable may do what it needs to do and satellite will do what it needs to do. Both will likely survive in a different capacity. I think satellite TV holds a special market for TV since very few communities have FTTH and cable cannot deliver the same quality. I think Comcast will eventually control most of the Internet in the US. Cable has about 30M subs (all combined) satellite has about 28M subs ... and growing.
 
VoD is only "cool" because of the current WOW factor; it is virtually useless or of no special value and once people catch on through education, like disposable DVDs and the pet rock, it wont be a selling point any more. It is something to "toot" their horn about right now while the masses are not educated.

Bundling is for lazy people that don't want more than one bill and don't want to do any leg work to find the same, and sometimes better deals/saving.
 
If "cable on demand" is such a great idea Why did Comcrap just sign a deal with TIVO to provide DVR service???? HMMMMMM
 
Twc in my area offers free video on demand ( if you already sub to the premiums) from Hbo, Cinemax , Showtime and the Movie channel as well as Hgtv, Food network, Comedy Central all with dvr features to be able to fast forward , reverse -pause etc. These include original cable series , sporting events, movies and more. This is pretty cool to me.

Yes if you use your dvr you can get these too but how many average people out there know how to program their dvrs to watch all that is out there? If I didn't do my mom and dad's 625 dishplayer , they wouldn't have anything recorded.

TWC also has the hd dual tuner dvr receiver. Now granted it doesn't do namebased recording but it does allow you to record up to 40 hours of programming .

Any way you stack it, it is pretty cool to be able to get these shows recorded for FREE and be able to access them when you want to, in addition to your recorded shows on your dvr hard drive. IF Dish and Directv could do this to and take up the bandwith that they reserve for the sat companies instead of the customers hard drive that would be sweet. Imagine the shows already recorded like Entourage, Curb your Enthusaism, Sex in the City etc, all ready to go on the video on demand menu. This would save you from having to set up timers for this or have it conflict with something else you want to record. It would be SWEET.

Now is this a gimmick ? That depends on your perspective. I think it is more a convience feature that is nice to have. Do I have to have it? NO , but I think that satellite companies need to be able to compete with cable and it is better to have this video on demand features vs the sad movies Dish charges for on their 625. Movies that are older than some teenagers out there.
 
MikeD-C05 said:
Yes if you use your dvr you can get these too but how many average people out there know how to program their dvrs to watch all that is out there?

The majority of users that have them do. Its as simple as point and click or pressing one button.


Any way you stack it, it is pretty cool to be able to get these shows recorded for FREE

Its not really free, you have to sub to the premiums and you are paying a higher cost for other basic items. With a DVR I can subscribe to what satellite packages I want and record anything with the press of ONE button. TOO EASY!

I can also save my recordings to my PC to burn to DVD for later use and not eat up my DVR hard drive or be removed by your cable company after X amount of time or use. I can also share with all the other DVRs.

You are exactly right about it being a convenience, but that doesn't make it the end all, must have selling point that current ads make it out to be.
 
Why isn't this article addressing the other future of pay TV: HD. In many areas, cable companies have a long way to go before they can add a bunch of new HD channels. Only viable players for many new national HD channels carriage are D*, E*, Verizon FIOS, and maybe few of the cable systems out there. And E* don't look to have capacity until E10 launches.
 
I think comcast signed a deal with Tivo because there guide is downright terrible. Its the worst thing in the world. Tivo might have also given comcast a great deal to use there software too because they lost their deal with Directv. I was back at my parents house and used on demand a lot, and is pretty much all i watched when i was back home, besides football, but I had watched all i wanted to a day before I left. The one thing I did like is how Starz offers new movies on the on demand before they air them and they offer ws with dd and had some directors cuts.
 
I know around here cable is really bad. Here are my reasons for not having it and using satellite.

1. If you have a good quality TV, the channels up to 99 (analog) have a very grainy picture to them. Digital ones are better.

2. After last years hurricanes everyone is the neighborhood was without cable to about 10 days. As soon as the winds died down and I got my generator going, I had D*. At night, our house the the neighborhood gathering place because we were the only ones that had TV. Since then several have changed to D* or E*.

3. Cable cost $48.00 a month for 70 channels, of which many are locals.

4. Our cable company is horrible when it comes to sports programing. They don't even offer many of the sports networks that satellite does. They don't even carry our local Fox Sports network.

I will say that the cable company does offer more HD programing than D*. They have 17 locals in HD or digital, and 10 Nationals in HD. But I am sure that is about to change with D* new satellites.

D* also has worked out a package with Bell South where we get discounts for Internet, phone service, and D*.

I do think that D* & E* should get together, combine their satellite bandwidth and transmit one signal of each service and share that feed. Just think, they could improve their PQ on HD a lot. It has really gone down hill. Discovery HD or the other HD's don't look half as good as they used to.

But who knows in the future they will probably find a better way of video delivery, that will put both satellite and cable in the back seat.

Just my point of view.
 
It seems as if Dish Network has ethernet ports on their MPEG-4 receivers. Do the DirecTv receivers have this as well? Do they have usb ports as well? They could use broadband internet to transmit back and to do some of the same services that cable can do. Wireless may play an important role as well in the future to allow this.
 
Bundles aren't everything. Brighthouse has a bundle which includes VoIP for like $40 a month. While you do get free long distance its not as good as having a real landline which costs $40 (although you dont get free LD) with the same features. I think what DirecTV needs to do is NOT try to be cable. They are headed this direction though, with the VoD on the PVR, etc. I think they should make that optional and open up that space for recording what you want instead of VOD crap. When I had cable they had a ton of VoD, all the premiums, several basic cable channels (techTV, cnn, food, etc). But, they were never updated. the techtv and cnn stuff was always at least 2 months out of date and stuff I had already seen before.

Don't try to be like cable. Provide a better service at a better value and you'll get customers. There's a way to beat the phone and cable companies and it doesn't necessarily involve bundles and trying to be like them when they can't. Content is the key and QUALITY. Beat them on channels and picture quality. Dump the shopping channels, up the PQ, and when you have capacity add national HD and SD channels.
 
I had cable with VOD for awhile and its not better because with cable you also get crappy picture included.I dont like that.I compared Directv side by side with Comcast and Directv is King for me anyway.It will be interesting to see what directv does with their VOD offerings with the r-15!
 
All of these new technologies are good for the city folk, but for those of us in the rural areas, Satellite will be the only available TV provider choice for many years to come.

I live in the sticks, I can't get cable tv / internet, DSL, or even ISDN. The nearest town, population 1200, has 25 channels on the analog cable system that they charge $40-50+ a month for. The phone systems here used party lines until a few years ago.

I was on dial-up internet until this past July when a wireless internet service started up thanks to a Federal Grant. but this system has many flaws for now.

Everyone I know around here has a Satellite TV system. I purchased my first DirecTV system in 1994 for $899. I know the price is high compared to todays prices, but it was either DirecTV or a big dish system for $1500+.

DirecTV & Dishnetwork can count on having rural customers for many years to come.
 
imo

D would be smart and reabsorb Hughes (so they could make recievers again) and then in turn Direcway if they really wanted to put a hurt on cable, most people I speak to want bundled services ie one bill ,direcway right now is a seperate company stupid for D to sell half the stock. They need to make a Direcway start up more affordable and sell the sh*t out of it bundle it together with dtv service can use the same dish tricky if you get Joe average installer setting up though from what I hear.
 
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