Satellite providers dish up new demos for advertisers. There's a joke in Paterson, New Jersey, an aging industrial town with a very large immigrant population, located some 20 minutes outside of New York: If you want to know who's a native and who's an immigrant here, just look at their satellite dishes. A short drive down Main Street is all it takes to get the humor. Countless pizza-size satellite dishes protrude from row houses and storefronts, many pointing to the southeast and aimed at satellites broadcasting mainstream American programming. But interspersed among these are seemingly cockeyed ones, pointing toward a satellite that hovers somewhere above Texas, broadcasting Arabic, Asian, and Latino programming popular among recent immigrants here.
Paterson might not be the ideal proving ground for direct broadcast satellite (DBS) services. But in this town of factories and storefronts, you'll find the best example of DBS's newest subscribers - urban, diverse, and hungry for entertainment targeted to their needs. And according to a study by The Yankee Group, a Boston-based research firm, these customers are willing to spend more on premium services, and willing to go without cable TV service altogether.
Ever since the first DBS system beamed its signal more than six years ago, the industry has grown at an annual rate of 25 percent. Today, it boasts some 14.5 million subscribers, and is poised for continued growth, albeit at a slower clip. New services and features such as Internet access, personal video recorders, and high-definition TV broadcasts, promise to beam subscriber numbers to a projected 25 million by 2005, as a more diverse set of customers eagerly signs up for the service. For marketers, DBS may offer a unique opportunity to reach attractive demos. Advertisers now have the chance to get in on nationwide advertising - either through individual channels, or in certain cases, the satellite broadcaster itself - at a fraction of the cost for equivalent coverage on cable. Satellite may, in fact, allow marketers access to ethnic markets on a nationwide scale.
DBS came of age in 1999, after a watershed ruling and technological improvements lowered satellite's highest barriers. In fact, nothing has proved more significant than the Satellite Home Viewer Improvement Act (SHVIA), which, in November 1999, lifted a long-standing ban on satellite broadcast of local stations. SHVIA allows satellite providers to broadcast local TV stations to all subscribers residing in that local market. As a result, the two competing satellite broadcasters in the U.S., DirecTV (which acquired competitor Primestar in January 1999) and EchoStar (which runs the DISH Network service), have been able to beam local programming to more than 50 million households in the nation's top 20 markets.
Even more impressive: In areas where local stations are available, DBS is beginning to gain popularity, particularly among the traditional cable subscribers. Some 70 percent of new DBS subscribers have cable available in their neighborhoods. Of those, only 8 percent have held on to cable service after getting DBS, according to Yankee Group researchers. In general, older subscribers are more likely to maintain cable access than newer ones. But of those who hold on to it, only a quarter maintain premium services, the cash earner of the industry.
Meanwhile, DBS hardware prices have also dropped considerably, thanks to lower equipment costs overall, as well as subsidies by providers. Most new subscribers pay a median $150 for a DBS system, almost half the cost of what it was two years ago; a growing number are getting the equipment free through EchoStar. Yet the median DBS subscription has held steady at $40 per month, driving the continued fortunes of the industry.
Together, those improvements have spawned a major growth in new subscribers. By the end of 2000, almost 2.5 million users were expected to sign up, in addition to the 2.5 million who came on board in 1999. Equally significant, DBS satisfaction remains high, according to Yankee Group senior analyst Michael Goodman. That's critical, considering word-of-mouth is the most important driver to new subscriptions.
With new subscribers, come new profiles. Whereas DBS users previously tended to be more affluent men who liked sports, new subscribers resemble a broader swath of the country's demographics, says Mary Lou Githens, vice president for strategic planning at DirecTV, the larger of the two broadcasters. "The distribution of income used to be skewed, but now we have more of a standard demographic," Githens says, noting that the average income of DirecTV subscribers has eased from $60,000 to $50,000 per year. "And rural users are a smaller percentage of the new people added because the urban sector is growing so much faster." Through the first nine months of 2000, DirecTV's urban and suburban subscriptions grew 37 percent in markets where digital cable is being rolled out. Its total additions in the third quarter climbed more than 40 percent in the nation's top 10 markets. A spokesman at EchoStar notes the company has experienced similar changes.
And there's still room to grow. By far, the biggest opportunity for DBS is in apartment buildings, which amount to 20 percent of U.S. homes but only 4 percent of DBS subscribers, Goodman says. An equally important opportunity is access to targeted ethnic markets, a fast-growing portion of satellite broadcasters' packages. EchoStar's DISH Network, for example, offers a Latino package, including some 15 Spanish language channels, an Arabic package with six channels, a South Asian package with four channels, a Russian package with two channels, a European package with nine channels and as many languages, as well as a Greek package. The satellite broadcaster also launched a Dutch language channel in late 2000. DirecTV, meanwhile, offers over 40 Spanish language channels as part of its Para Todos package and recently launched a Mandarin language channel.
EchoStar would not divulge any details about its 5 million subscribers, but a spokesman notes that ethnic channels are a significant part of the company's service. DirecTV, on the other hand, expected to have 100,000 new Hispanic subscribers in its lineup by the end of 2000.
DBS players have also worked to build a marketing platform with others. Both EchoStar and DirecTV have established marketing alliances with local phone companies, other utilities, and various retailers. And DirecTV has worked to build its own ad insertion business for advertisers, who now have access to DBS providers' higher affinity viewers and satellite's nationwide reach - for less than they would pay for equivalent coverage on cable. (Marketers can also advertise directly with channels, some of which are exclusive to satellite.) "You can do a different kind of sale than you can over cable," notes Goodman, pointing to satellite's much larger footprint compared with individual cable providers. "For the longest time, they didn't have the ability to offer ad insertion, but now they do."
Despite the opportunity, advertising revenue will continue to pale next to subscriber fees, Githens says. But for advertisers it offers a unique cross between the targeting of individual cable providers and the breadth of a nationwide broadcast.
Yet, even with the inroads that DBS has made, future gains won't come without a fight from its chief rival: cable. Long burdened by aging infrastructure, cable providers are finally closing the gap with DBS, upgrading to digital services, adding new features ranging from broadband Internet access to telephone service, and eventually, video-on-demand. Cable providers hope those services will attract a new breed of subscriber willing to pay a premium over the current monthly average of $38. Says one cable industry insider, "DBS growth isn't going to continue the way it has. We won't let it."
Cable providers have been rolling out digital services that will match DBS, and then some. Indeed, much of the technological edge DBS has enjoyed over the past five years may soon disappear. "If you subscribe to digital cable, there's really no reason to get DBS," stresses Goodman. "What you're seeing now is one-upmanship between the two [platforms]."
According to the National Cable Television Association, digital cable will be on par with DBS in 2002. What's more, broadband access, interactive TV, and telephony features will add even more to cable's arsenal. "[DBS's] growth is never going to be great," says David Beckwith, a spokesman for the NCTA. "They've got 15 million customers and I think most of the people who will take DBS have already done so. They're not going to get another 15 million."
Githens, for one, admits that the going will get tougher from here. But she also sees digital cable as an opportunity. "Now we have a value proposition cable doesn't have, but that won't always be true," she admits, "We care about digital cable but it's also educating people about the channel offerings available, which helps us in the long run."
To be sure, DBS providers intend to put up a good fight. The industry is working furiously to add its own interactive and broadband features. The most immediate offerings are personal video recorders, which store video on a hard drive and allow instant playback while recording, and other unique features. EchoStar claims it has sold more of the units than its original purveyors, TiVo and Replay Networks, combined. Both DBS providers also began offering satellite broadband access late last year through other providers. And with the help of services like Wink, which allows viewers to interact with TV programs and ads, DBS providers figure they can match at least some of cable's planned interactive offerings. "Anything that can be delivered electronically is in play right now," Githens notes. "But the best way of battling cable is to provide excellent service."
The proprietors of Nouris Syrian Bakery, a Middle Eastern variety store on Paterson's Main Street, think they have the best answer to cable. The display of satellites at the front of the store says little about Internet service, interactive TV, or sports programming. It does, however, prominently feature the most important service here: access to Arabic language programming that feels just like home.