[opendtv] Analysis: The Real Winner in the TV Wars
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 6 Dec 2004 08:00:57 -0500
Why are the media conglomerates vertically integrating around
content? Perhaps this line from the following story provides a clue...
>Why are rates rising in an era when inflation is so low? The cable
>and satellite industries are paying dearly for programming, which
>accounts for about 50% of their operating budgets.
And I question the author's conclusion that consumers are the big
winner here. How can this be true when rates increase more than the
inflation rate year after year...
Consumers are the big losers, as they are forced to pay more and more
for advertiser supported content.
Regards
Craig
DECEMBER 1, 2004
NEWS ANALYSIS
By Steve Rosenbush
The Real Winner in the TV Wars
As satellite outfits and cable operators duke it out, consumers
stand to benefit most from the increasingly cutthroat competition
Satellite TV is turning out to be a more formidable rival for cable
than some analysts anticipated. The satellite business is expected to
add more than 3 million subscribers this year, bringing the total to
nearly 25 million. For cable, however, the number of subscribers is
projected to decline slightly, to just over 73 million.
And satellite's ability to sign up subscribers is showing no signs
that it will slacken anytime soon. While the number of cable
customers is expected to remain more or less flat, satellite
operators are expected to add a further 2.9 million viewers in 2005
and 2.7 million in 2006, according to analyst Rob Sanderson of
American Technology Research.
"The satellite market is on a tear -- it's not even close,"
Sanderson says. He also expects the growth period to last until the
end of the decade, a few years longer than many investors have been
anticipating.
BROADENING GAP. Satellite's growth has been fueled in large part by
its value-priced services. Echostar (DISH ) offers 60 channels of
digital programming for $29.99 a month, and consumers can double the
number of channels for just $10 more. While cable prices vary widely
from market to market, a comparable cable package with 120 channels
will often cost $45 or more.
Also, cable rates are rising faster than satellite's. The price of
cable-TV service, excluding features such as high-speed Internet
access, phone service, and digital video recorders, is expected to
rise 2.5% to 5.9% in 2004, according to major cable operators.
Comcast (CMCSA ) is expected to raise rates 5.9%, although the
average bill will rise at half that pace because many customers take
advantage of discounts on higher-end offerings. Time Warner Cable
(TWX ) is expected to boost the rates of its expanded basic services
by about 4%, according to spokesman Mark Harrad.
Satellite companies haven't yet announced prices for 2005. They
usually wait for cable companies to go first, then raise their rates
by a smaller margin. Unlike satellite companies, cable operators are
required by law to announce their price increases. The net effect is
that the price difference between satellite and cable gets a little
wider every year.
THE ANALOG HANDICAP. Why are rates rising in an era when inflation
is so low? The cable and satellite industries are paying dearly for
programming, which accounts for about 50% of their operating budgets.
The cost of programming is increasing almost 10% a year, according to
Bobby Amirshahi, a spokesman for cable operator Cox Communications
(COX ).
And cable companies are at an added disadvantage because they need
to recoup their investment in new networks, especially as they make
the transition to the digital era. Comcast, for example, has spent
$39 billion to upgrade its systems since 1996.
More than half the cable customers in the U.S. still receive an
analog signal. Since these systems don't have as much capacity, they
can't transmit as many channels as satellite systems. Also, analog
can't support a variety of pricing plans because the pipes go only
one-way, broadcasting the same service to everyone. If cable
companies want to maintain the edge in the mass market, "they're
going to have to make a faster transition to digital," Sanderson says.
Satellite operators, whose networks are all digital, have made huge
gains at the lower end of the market, where customers are most
price-sensitive. Also, satellite offers a bigger selection of
channels for less money, and it has more pricing flexibility.
WIN SOME, LOSE A FEW. Cable companies, on the other hand, have been
content to focus on the sale of higher-end services. And that's not a
bad strategy. The profit margin for add-ons such as broadband and
phone service is around 45%. That compares quite favorably to the
margin for cable-TV service, which is about 35%.
Video-on-demand is also proving to be popular. During the third
quarter, Time Warner added 100,000 subscribers for this service,
bringing the total to 1.4 million. The gain far outstripped the loss
of 11,000 basic cable subscribers.
Cable operators can't afford to be sanguine, though. Satellite
companies are figuring out ways to offer pricier services such as
broadband and video-on-demand, according to Sanderson, so cable won't
have the higher end of the market to itself forever. It's clear that
the battle between the cable and satellite companies is really just
getting under way -- and the real winner will be consumers.
Rosenbush is a senior writer for BusinessWeek Online in New York
Edited by Patricia O'Connell
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