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Ad Wars in Pay TV Land: Differentiation vs Commoditization

In the tiny northern California hamlet of Carmel-by-the-Sea, CA, where I blissfully (and gratefully) live and work, I see weekly a tiny snap-shot of a rather huge telecom battle, which totally fascinates me. Both combatants are remarkable in their own right, and together they say a lot about the struggle for viewer share in today’s pay TV industry.

Both actors on this stage make up the collective core of approximately 35 million consumers of the U.S. Direct Broadcast Satellite industry (DBS) today. That is about one-third of the pay TV total.

On one hand, I see the near-epitome of big corporate America in DirecTV, an image it has maintained through GM, News Corp, Liberty, and similar ownerships. Conversely, we experience the more entrepreneurial, scrappy, and sometimes odd Dish Network, on another side of the satellite-delivered video distribution business.

Yet that said, the DirecTV and Dish presentations are relatively the same. Indeed, one wonders if these services are turning into mere commodities. If so, unless the would-be customer can figure out the arcane language of the prices, and packages, and channels per package, then it really doesn’t matter which pay TV service he or she chooses.

It doesn’t matter except for what each pay TV provider hopes is its own marked differentiator.

This actual mini-battle is focused in a weekly advertising supplement to the Monterey Peninsula’s most popular newspaper, the Monterey County Herald. Dish Network, and DirecTV, two of the four biggest pay TV providers in the U.S. today, have, for years, contributed full-page advertisements weekly in print to what is usually an insertion in my post office box of about 10 to 15 cheap newsprint pages, measured 8.5-inches  by 11-inches.

Interestingly, as long back as I can remember, no other local pay TV provider has ever chosen this newspaper supplement-type of medium to bring it new subscribers. Thus, neither Comcast, the competitive local cable-Internet-phone bundle provider, nor AT&T, the local telco-video-Internet-cellular provider, has ever dropped its print into this bunch of newsprint. Thus, it always comes down to Dish vs. DirecTV in this Pay TV Adland. That said, there’s still a lot that every cable, telco, and satellite pay TV operator, and their ilk, can learn from this example.

The two different one-page fliers are actually fairly similar in design. Looking carefully, one can see on each advertisement there are five, rather similar, stacked horizontal layers of similar basic information. The first (or top) layer is the headline and core message. Below that, on the second horizontal level, is the all-important pricing information. On the third level is the all-important message of why each is supposedly different. The fourth horizontal layer, so to speak, involves action (if any) on the part of the consumer, because it is where the contact action information is located. Finally, the fifth layer is the “small print,” also known as the “legal disclaimers.”

For DirecTV, its one-pager starts at the top with a headline inside a blue box that reads, “DIRECTV, The Big Deal, Only DIRECTV gives you 2 years (”1 year” is crossed out in the title) of savings, FREE equipment upgrades and NFL SUNDAY TICKET included.” Also, in the upper hand right corner is a red-colored triangle that reads, “NO Equipment to Buy! NO Start-up Costs!”

Dish, on the other hand, has a red-colored background for its entire page, with a top-of-the-page first-layer headline that reads, “TV simply Costs Less with dish (sic).” Also on the right side of the Dish page, in black and white print, is another headline, this one running vertically, “TV plus high speed Internet for Less than $40 per month! WOW!” Thus, at this first impact level, both advertisements seem intent on highlighting price, and yet Dish probably does a slightly better job here, because it includes the prices and channels offered for six different packages, whereas DirecTV only lists the price and channels for one package. That said, without more information, it is tough for the average consumer to differentiate the best relative package pricewise without doing his or her own personal algorithm of price per channel. Thus, price becomes less and less a differentiator.

Which brings us to the real differentiator, or level 3. On this third layer, DirecTV uses the precious space to highlight four items: 1) four total set-tops, including one “HD DVR + up to 3 HD Receivers,” 2) all four premium channels free for 3 months, a “$135 value,” which “includes access to On Demand,” 3) “Free Pro Install of DirecTV System in Up To 4 Rooms,” and 4) “Exclusive - Every Game. Every Sunday. NFL Sunday Ticket 2012.” In this DirecTV mix, undoubtedly, the NFL Sunday Ticket is the key differentiator, because neither Dish nor any other pay TV service offers the NFL Sunday Ticket.

As for Dish, its same ultra-important third level offers 1) the same 3 months free of the same 4 premiums as DirecTV, 2) high-speed Internet for $19.99/month, and 3) the Hopper. Here, although the Internet offering is important, and a differentiator, the real stand-out is the newly-introduced Hopper (the wording for which reads, “Do You Like To Watch TV With or Without Commercials? Auto-Hop Through the Commercials! Auto-Record 8 Days of Shows With Primetime Anytime! IT’s the Best Whole-Home DVR and Best of All, It’s FREE!”).

Thus, what keeps these fairly similar offerings different are NFL Sunday Ticket on the DirecTV side, and The Hopper on the Dish side. These core differentiators are so interesting because one is a programming/content play to the tune of several billion dollars, and the other is a set-top box (STB)/hardware play, also to the tune of very large sums of money.

The sports play here is something that I plan to write more about in the next issue of Mixed Signals. The money we are talking about is crazy money, and the amazing thing is that DirecTV can still rationalize paying that much to the NFL, in large measure to keep Dish, and the cable and telco industries away from it themselves. There is also the added Average Revenue Per Unit (ARPU) that comes from the added, typically upscale, customers that tend to buy the annual multi-hundred dollar NFL Sunday Ticket package. Put another way, even at a loss (based on the price/customer of the NFL Sunday Ticket rights fees), once these wealthier consumers buy NFL Sunday Ticket, DirecTV has them for another year or more buying movies and more of the more expensive packages.

As for the hardware play, what I find most interesting about the Hopper is that it really pushes the STB envelope, while arguably the pay TV industry as a whole moves more toward leaving STBs behind forever (as in the Remote Storage or RS/DVR developed by Cablevision).

Which ad therefore is most effective? Well, the real answer lies in some data I don’t (and will never) have, and some that I do. The data that tells the most focused story relative to Monterey County is the respective local sales data of DirecTV vs. Dish, which is very private and confidential. But the data I can publicly access is the quarterly subscriber revenue and other financial data that the federal government requires these two public corporations to issue.

All that said, my prediction longer-term is that DirecTV will be working hard and fast with its STB vendors to play on the same field as Dish’s Hopper (as will most if not all of the other pay TV cable and telco video operators). When all is said and done, the NFL Sunday Ticket has limited reach and limited interest, and it will later this year reach price levels that even DirecTV will think thrice about before paying the NFL for another three-year extension. And DirecTV building a STB even better than the Hopper will put “The House That Eddy (Hartenstein) Built” on a field where that box reaches more people who are more interested in a Super STB than a Super NFL Sunday Ticket.

Indeed, what a couple of small ads won’t tell you…

Jimmy Schaeffler is chairman and CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (