Albuquerque, N.M. -- Direct-broadcast satellite is now the dominant provider of video services in rural America, a buying cooperative for small independent cable operators was told Monday.
DBS subscribers outpaced cable subscribers in rural America in 2005, analyst Bruce Leichtman said during the opening session here at the winter educational conference of the National Cable Television Cooperative, the membership of which includes many small cable companies that compete head-to-head against DBS in America’s heartland.
“What we see is that in rural America, the No. 1 provider of multichannel video is now DBS,” Leichtman said. “And that was for the first time ever in 2005.”
Leichtman and Robert Thalman, president of consulting firm One Touch Intelligence, did a panel called “Do You Want to Beat the Competition?” They outlined the strides that DirecTV Inc. and EchoStar Communications Corp. -- which are only surpassed in size by Comcast Corp. -- have made in gaining distribution, their marketing tactics and their weaknesses: namely, churn and shockingly high per-subscriber acquisition costs.
Clearly, DBS has made some of its biggest inroads in areas outside of the cities and suburbs, according to Leichtman’s remarks. Of those who subscribe to cable or DBS in rural areas, 42% of those customers now take satellite, versus 37% buying cable, according to data from Leichtman’s company, Leichtman Research Group Inc. Rounding out the numbers, 2% have both cable and DBS.
Some of those rural DBS subscribers have no choice, as Leichtman pointed out, since 28% of satellite customers live in areas where cable service isn’t available.
Both he and Thalman agreed that EchoStar chairman Charlie Ergen’s most threatening rival is DirecTV, which News Corp. owns a 34% stake in. “Clearly, Charlie’s biggest competitor is Rupert,” Thalman said.
Both he and Leichtman presented data that illustrated that EchoStar’s Dish Network has greater penetration in rural markets than DirecTV, which has been targeting urban and suburban customers.
For example, about 55% of EchoStar subscribers say they live in rural areas, compared with about 45% of DirecTV subscribers, according to Leichtman.
Dish uses more local advertising to promote its video product, while DirecTV focuses on national media, Thalman told the NCTC members.
Churn is up for both DirecTV and EchoStar, Leichtman said. In the third quarter of last year DirecTV’s churn was 5.7%, while EchoStar’s was 5.6% -- both up from the 5.3% they each had in the same quarter the prior year, according to Leichtman.
Overall, consumers said the biggest drivers for them signing up for satellite are “more channels” and “a better price” than cable, Leichtman told the NCTC group.
During the past two years, DBS has gained 2.67 million subscribers, while the top 10 cable operators lost 489,500, he added. “They grew too fast,” Leichtman said.
With 15 million subscribers, DirecTV has 56% of DBS’ market share, with 12 million-subscriber EchoStar at 44%, according to Leichtman.
He also said EchoStar’s cost to acquire customers averages $647 per subscriber, a gross figure, which nets out to $1,495 per subscriber for those customers Dish keeps without them quickly churning out.
“The breakeven is very difficult for them,” Leichtman said. “That’s why they have to be more disciplined in their growth.”
Broadband is the service that is luring DBS subscribers back to cable, according to Thalman.
