Cable puts emotion into its satellite fight

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Direct broadcast satellite TV, with those nifty pizza pan-size dishes offering viewers 100-plus digital channels of crystal-clear pictures and CD-quality sound, have been steadily grabbing market share from the cable industry since they arrived six years ago.

DBS soared in 2000. Kingpin DirecTV and EchoStar Communi-cations Corp., better known as the Dish Network, together added 3.1 million new subscribers-more net new customers than any previous 12 months, bringing the satellite industry's combined subscriber total to 14.8 million. A reason to crow?


Well, yes, satellite industry spin doctors tout it, but there's more to the story. It seems the cable industry's answer to the satellite challenge-digital cable-grew faster. U.S. cable multiple system operators signed up 5.2 million digital cable customers during the same period, more than doubling from 3.5 million to 8.7 million subscribers. With 68% of the total 102 million American TV households receiving cable, the incumbent has an advantage.

"If you're DirecTV, you constantly have to displace somebody, which means you always have the tougher sell than cable television," says Mike Goodman, senior analyst at the Yankee Group.

Welcome to satellite vs. cable marketing wars, 2001-style.

As DirecTV pokes good-natured fun at cable in national commercials and the Dish Network urges us to "Just say no to cable," and points out local cable rate hikes, in print ads and radio commercials in local markets, the U.S. cable industry is on the offensive. In scrappy ads, cable operators are offering to buy back dishes as they stake their futures on an expanding array of telecommunications bells and whistles, including the long-awaited video-on-demand. The satellite services are answering in kind, with their own advanced services, satellite broadband and digital video recorders built into set-top boxes.

"This is turning into a battle of one-upmanship," observes Mr. Goodman.

A few years make a difference. When DBS arrived, its then-novel dishes became one of the fastest-selling consumer electronics item ever. Technical superiority and attentive customer service helped DBS nail upscale, tech-savvy customers-most of them former cable subscribers-despite the then-whopping $699 price tag for the hardware. Cable had its problems: abysmal customer relations and lack of digital channels. Complicating matters, many cable executives failed to appreciate the threat. One high-profile leader publicly dismissed DBS at an industry confab as an abbreviation for "Don't Be Stupid."

Today, cable operators don't utter such statements. "Satellite is a major competitor and has taken a good chunk of the market," acknowledges Seth Morrison, senior VP, Cable & Telecommunications Association for Marketing.

A mobilized cable industry has poured millions into rebuilding its infrastructures. Cable's efforts seem to be paying off. According to J.D. Power & Associates' most recent customer satisfaction index survey for satellite and cable TV, released in fall 2000, the gap between consumer ratings for satellite and cable service narrowed, though satellite consistently ranks higher than cable in the survey. The average reported score on a five-point scale rose 6.3% for cable service from 1997 to 2000, a big jump considering the ratings of many other consumer services, such as local and long-distance phone service, fell during that period. "Cable operators are in a better position than they used to be," says Grady A. Gibbs, senior market analyst-communications services at J.D. Power.

While cable companies continue to receive criticism for rate hikes at a time of low inflation, the industry's improving image comes as many operators undertake dish buyback programs, offering $50 to $300 for those willing to turn in dishes in return for a commitment to cable for a fixed period. AT&T Broadband is urging the public to "Dump the dish" in key markets from Denver to Boston.

Local cable operators are trying to re-sign these prodigal sons and daughters, one customer at a time. For example, Charter Communi-cations in the Wausau, Wis., area, with 92,000 subscribers, built a database of local dish customers by dispatching employees to log addresses of homes sporting satellite receivers. A year later, after launching $100 and $150 buyback offers supported by TV, radio, newspaper, direct mailings and door tag created by several local companies, Charter has reclaimed 600 ex-dish customers there.

"As an industry, we felt that we've taken a back seat to dish and let them pick off our customers," says Tim Schieffer, the Wausau Group marketing manager. "We've wanted to change that."

DirecTV and Dish Network are well aware of the competition.


At present, DirecTV spends $60 million to $80 million annually on advertising to reinforce its consumer brand. Next week, DirecTV will reprise a campaign that first aired briefly last year as it starts a free installation offer. "Feel the joy" features an installer character encountering customers so enraptured by DirecTV they spontaneously hug the installer and weep. Interpublic Group of Cos.' Deutsch, Marina del Rey, Calif., handles.

"We don't want [our image] to be just high-tech," says Susan Collins, DirecTV's senior VP-marketing. "We want it to be approachable, about the emotion that people feel when they get DirecTV."

Dish Network, longtime leader in bold price-cutting, continues to spend millions on spirited newspaper and radio ads that point out how it stacks up favorably against cable. Dish Network handles creative in-house; Carat North America, New York, buys the media.

Despite concerns about a softening economy, it's unlikely satellite services will scale back marketing expenditures. They can't afford to.

Now that cable can match DBS with digital channels, the satellite services are answering cable in high-speed Internet access, with services such as Dish Network's two-way StarBand service, available since Dec. 1. DirecTV recently purchased Telocity, an Internet service provider through a digital subscriber line, to complement its other high-speed offering, DirectPC.

Both companies offer advanced digital video recorders built into their set-top boxes, something cable doesn't offer. (Cable boosters like to one-up DBS by pointing to video-on-demand, which finally is being commercially deployed in some cities.)

But as cable and DBS strive to outdo each other, satellite leader DirecTV faces some particular challenges going forward.

One of DirecTV's key competitive advantages is "NFL Sunday Ticket," a package of 13 out-of-market games on Sunday at $169 a season. Although DirecTV won't say how many customers "NFL Sunday Ticket" has, it's the satellite service's most popular sports package by far. At the end of the 2002 season, DirecTV's contract with the NFL will be up for renewal. Some say the company could find itself competing with cable for the rights.

"One of the big reasons the NFL has never looked at cable is because it didn't have the channel capacity to show 13 games every Sunday," says the Yankee Group's Mr. Goodman. "That exclusive contract to DirecTV may not be so exclusive in the future." DirecTV declines to comment on that.

Actually, there's a more immediate question for DirecTV: Who will end up owning it? Rupert Murdoch's News Corp. was in talks with DirecTV earlier, but that seems to have cooled. Now, reports have DirecTV parent Hughes Electronics Corp. spinning it off.

No matter who ends up in charge there, the marketing wars with the cable industry will rage on.

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