Yu-Cheng Su (Editor: Nancy Stubbs)

From the off-air broadcasting to the wired cable networks, U.S. TV programming services are now looking forward to a new era. With the advances of satellite technology, the introduction of Direct Broadcast Satellite (DBS) as the alternative TV programming service is trying to challenge the current monopoly – Cable industry. However, the suspicions over the emerging DBS services remain, while the powerful Cable industry firmly stands on the ground. Today, the DBS companies face intense competition not only from the Cable industry but also within the DBS industry itself.

The satellites equipped with high-powered transponders on them play the central role in delivering Direct To Homes programming services.

LOW POWER V.S. HIGH POWER

The traditional low-powered satellites transmit signals on the C-band spectrum of uplink frequency (from earth to satellite) 6,000 MHz and downlink frequency (from satellite to earth) 4,000 MHz. They are adopted to transmit signals to cable systems and TV stations with large (8-10 feet in diameter) antennas. In rural areas where cable systems can not reach, some people install these big antennas to receive TV signals. Compared to lower-powered satellites, the high-powered satellites need only 18 inches wide antennas (dishes) to capture signals because signals are transmitted on the Ku-band spectrum of 14 GHz uplink frequency and 12 GHz downlink frequency. Furthermore, digital compression technology enlarges each satellite’s capacity to supply about 80 channels, depending on how many transponders it has (see Table 1).

LOW END OPERATION SYSTEM

For DBS customers, basic hardware includes a dish, a decoder, and a remote control. A dish is used to receive signals from satellites. It must be fixedly installed and aims a certain position in a direct line of sight. A decoder is used to decompress signals since signals are digitally compressed. A single decoder can decode only a single channel one time, while another decoder is needed for subscribers to view other channels simultaneously in another TV set. Some dishes only allow one decoder to be connected to them, but others allow more then one. As for the software, a smart card that is electronically programmed by service providers gives users access to authorized services. In other word, a smart card contains the programming packages that consumers purchase from providers.

There are five companies involving in the DBS services in U.S., among which only three possible combinations appear because some of them share a common reception system.

PRIMESTAR

Primestar Partner, Ltd, formed by a group of major Cable Multi System Operators (see Table 2) claimed the first digital DBS services in 1994. Primestar has a 160-channel capacity through a conventional medium power satellite. Their dishes are about 27" in diameter and they must be professionally installed. Therefore, Primestar is the only DBS provider that doesn’t require purchase of dishes and decoders by consumers. This enabled them to gain subscribers successfully in the early years of DBS service. Currently, Primestar is the second DBS provider with about 2 million subscribers.

DIRECTV/USSB

DIRECTV, Inc. started DBS service in 1994 and is now the market leader with about 3.3 million subscribers - over half of the market share. The United States Satellite Broadcasting Company (USSB) has bought 25 channels from DIRECTV to deliver premium movie service. Although DIRECTV and USSB share the same satellite frequency, their services are unique and do not appear in each other’s services.

DISH NETWORK (ECHOSTAR/SKY ANGEL)

DISH Network is provided by Echostar Communications, Inc. and started operation in March 1996. After entering in the market, they rapidly gained over 1 million subscribers. Echostar is the first DBS provider to commit to the provision of local channels, data services, and some niche programming. Echostar leases a single transponder to Dominion Satellite which uses it to broadcast about eight channels of Christian religious programming called Sky Angel. Unlike DIRECTV/USSB, Echostar/Sky Angel services appear in one package.

SERVICE DIFFERENTIATION

Each of the providers has its own competitive advantages that differentiate on programming packages, dish sizes, and service quality. DIRECTV/USSB have the widest variety of channels and they provide over 200 channels in different packages. DirecTV has especially huge sports programming options and over 40 channels for pay-per-view, while USSB has exclusive premium movie channels in DBS. Primestar has the lowest cost of entry by leasing the equipment instead of selling them to customers. They have ranked on the top of overall customer satisfaction, above all DBS and Cable services (PRIMESTAR 1998). Echostar has the most channel capacity and is the only one with local affiliates in some major cities. They are also the low-price leader with the most inexpensive hardware and programming costs.

STRUGGLING

The three DBS services are struggling with the heavy debts and operating losses. DIRECTV, the market leader, lost $137 million on revenues of $1.1 billion in 1997, even though they gained 1 million subscribers in the whole year. Primestar have suffered flat subscription since January 1997 (Colman 1997). Moreover, the former DBS provider, Alphastar has already gone bankrupt, leaving consumers with unusable hardware.

The development of DBS service basically reveals the essence of technology determinism. The appealing features to customers are described as high digital pictures and sound quality, direct service from satellite to set, and over 100 multi channels. Those characteristics are originally used to identify DBS service as an advanced technology that is supposed to replace the current Cable services in the future. On the other hand, the 65 million U.S. household of Cable subscription is an incentive to invite entrants. DBS companies, from the economic perspective, are enthusiastically enrolling into the big market. The other driving force may target on the data service through DBS systems. Because each transponder can send an enormous amount of information in at least 23 Mbits of data per second (Peterson 1998), all DBS companies are reserving some bandwidth for the provision of data services.

The major argument that policy is involved in the DBS service is lying on the local programming issue. Without local programming, the DBS service can hardly compete with Cable industry. Regarding the vulnerability, DBS companies have been working on it. First, DBS companies claim that they will not be able to carry nationwide local programming signals with the currently limited channel capacity. However, the number of channels that DBS can acquire depends on the transponders the company is authorized by FCC. Secondly, according to FCC rules, DBS can only offer local programming services to household that can not receive off-air signals and don’t have Cable, which is only a small portion of U.S. households. Therefore, the DBS companies are pushing for ruling changes that will allow them to reach broader local markets. Nevertheless, their efforts face resistance from broadcast and Cable industries which ask DBS companies to follow the same obligations such as program-access, and must-carry rules for public programming, if DBS companies ask for the regulatory changes.

OPPORTUNITIES, PROBLEMS, AND PROSPECTS

DRAWBACKS

Except for the local programming issue which ties in both the technology and policy constraints, the development of DBS industry is still trapped. For example, the outages can occur due to rain attenuation in all DBS systems. People can not record TV programming while watching another channel at the same time with DBS systems. The start-up cost, about $200 for a receiver and $100 to $200 for installation, prevents many people from subscribing. Besides, the incompatibility of reception systems stands for the high switching costs for consumers to change their services.

CHANCES

Even though those drawbacks may put bakes on its development, the total subscription of DBS services is growing. In order to gain more subscription, the DBS companies certainly have to fight with the giant competitor- cable industry in many aspects and it’s never an easy job. However, the opportunity remains open when consumer groups started to express their resentment of cable’s continuously rising rates. Pressures from consumers will possibly help DBS in two ways. First, cable’s rising rates would force consumers to transfer their subscription if DBS can provide reasonable rates. Secondly, consumer groups’ petition may force policy-makers to loose restrictions of DBS in order to encourage competition. However, the effects haven’t happened, since the cable subscription is still growing.

LOOKING OVERSEAS

In the places where the Cable services are not common, including international markets, it leaves open spaces for DBS services. The successful launch of News Corporation’s Sky Television in British is a good example of less competition from cable industry (only 2 per cent TV households in 1990). Some of DBS companies, like Echostar, have targeted on the foreign markets which, again, might require more channel capacity or other satellites. Moreover, different national environment will have different regulations that are uncertain factors for U.S. DBS companies.

Baldwin, T.F., Mcvoy, D.S., Steinfield, C. (1996) Convergence: Integrating Media, Information & Communication, SAGE Publications.

Colman, P. (1997) ‘Primestar numbers don’t add up’, Broadcasting & Cable.

‘Company Profile’ (1998): online. Available HTTP: http://www.dishnetwork.com/.

Peterson, R.R. (1998) ‘Direct Broadcast Satellite: a new generation of television in America,’ v33, 14 January, online. Available HTTP: http://www.dbsdish.com/dbs/a0.html.

‘PRIMESTAR announces revised plan to roll up company’, PRIMESTAR Partners, L.P., 12 February 1998 press release: online. Available HTTP: http://biz.yahoo.com/prnews/980212/pa_primest_2.html.

Source: Peterson 1998.

Source: Colman 1997.

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