Satellite/26″/mike1st/mark2nd
By SARA FISHER
Staff Reporter
Satellite TV is riding high this holiday season.
It’s attracted a whopping two-thirds of all new multi-channel subscribers over the last year, eroding cable’s market share in the process, according to a recent Federal Communications Commission report. Moreover, satellite TV companies are seeing their strongest subscriber surge of the year during the holiday gift-giving period.
So are cable executives in L.A. worried? Not at all. They say the satellite folks should enjoy their day in the sun, because it won’t last long. And many industry experts agree.
As cable goes digital and eventually provides digital television, local phone services, and Internet access all via the same broadband network satellite companies could lose their momentum.
“This is a tortoise and hare race,” said Tom Rhinelander, an analyst with Cambridge, Mass.-based Forrester Research Inc. “For now, the home satellite television companies offer a better product that has more channels. They shot out of the starting gate quickly. But as the race progresses and cable continues to upgrade their services, satellite companies will have a tougher and tougher time to erode market share.”
Cable vendors have seen their market share dip to 85 percent as of June 1998, down from 87 percent for the like period a year ago, according to the FCC report released Dec. 17. The direct broadcast satellite companies picked up that 2 percent, seeing the number of their subscribers grow from 5 million to 7.2 million over the same period.
While the market-share shuffle is relatively minor, the satellite industry’s growing clout is enormous. The FCC study showed that two-thirds of all new multi-channel subscribers chose satellite service over cable during the 12-month period.
Correspondingly, El Segundo-based DirecTV, the direct-to-home satellite television industry leader, has seen its business thrive in recent months. The company had 4.3 million subscribers as of early December, giving it a 17 percent year-to-date growth over the year-ago period. Moreover, DirecTV executives expect a substantial number of new subscribers after the holidays.
“The primary reasons for our phenomenal growth is that we are reaching critical mass and have had very favorable word-of-mouth,” said Bob Marsocci, a spokesman for DirecTV. “We provide more content choices than anyone else, and we’re 100 percent digital, unlike cable companies.”
DirecTV projects even greater growth in the coming year, given its recent acquisition. On Dec. 14, DirecTV’s parent, Hughes Electronics Corp., agreed to purchase St. Paul, Minn.-based competitor U.S. Satellite Broadcasting Co. for $1.3 billion. The pending acquisition, likely to close in the second quarter of 1999, is expected to bring in an additional $900 million in revenue for the first full year. For 1998, DirecTV executives are projecting $1.5 billion in revenues. So the acquisition alone, not counting any new subscribers, will boost DirecTV’s annual revenues by 60 percent in the first full year.
The merger will also bring DirecTV at least 200,000 additional subscribers, and services, including a group of Spanish-language channels. And analysts say it will leave DirecTV’s closest competitor, Littleton, Colo.-based competitor EchoStar Communications Corp. even further in the dust.
But the rate of satellite subscriber growth is likely to slow in the coming years.
“The direct-to-home satellite television companies have made very good use of their window of opportunity, and they do offer a very good product,” said Salvatore Muoio, managing member of securities firm S. Muoio & Co. “But it is going to be much harder for them to get the next 10 million subscribers.”
L.A.’s cable companies say they are planning to roll out digital systems in 1999, leading to a bit of sniping with the satellite side. In a recent press release, for example, MediaOne called the direct-broadcast satellite system the “holiday present you’d rather give back.”
“We’re not too concerned since we expected to see competition in the market by now,” said MediaOne spokeswoman Gisselle Acevedo-Franco. “We know that the cable subscriber rate is evening out. It’s simply going to make us focus on providing value to our customers and on our strategy as we gear up to introduce digital services by mid-’99.”
Acevedo-Franco said MediaOne the second largest cable provider locally actually saw its customer base grow by 1 percent over the last year.
Century Communications Corp., the largest local cable provider, also plans to roll out digital services starting next year. Bill Rosendahl, senior vice president of operations, refused to disclose the subscriber growth rate, but said it has been significant in the fourth quarter of 1998.
“Cable is on the edge of becoming a major force in the coming years, bringing broadband services to the homes,” Rosendahl said. “Satellite television is also a part of the future, but they cannot bring cable modems, phone services or interactive television, which is where the industry is heading.”
In a testament to cable’s bullish outlook, the Dec. 16 announcement that New Canaan, Conn.-based Century Communications is being put up for sale immediately sparked interest. Likely bidders include Paul Allen, Englewood, Colo.-based MediaOne and AT & T.;
“The multiples being paid on cable companies right now are significant, and the demand is there,” said Muoio. “Century’s position in L.A. is also key, since the large marketplace can be the crown jewel in a national network. But I don’t think this is necessarily (Century CEO) Leonard Tow making a call on the state of the industry. This is one man making a decision on what to do with his own company.”
Analysts estimate that Century could fetch more than $3 billion, plus the added cost of assuming the company’s debt. Allen, who already serves about 300,000 cable subscribers in Los Angeles from his previous acquisitions, tried to buy Century this summer for an undisclosed bid that Tow rejected as too low.
