Television – Cable – Satellite

Industry Overview

Cable television’s come a long way since its birth in 1948, when powerful antennas began sending broadcast TV signals by cable to homes in mountainous or isolated areas of three states. Today, 65.5 million U.S. households subscribe to basic cable; that’s 59% of all households with TV. (Kagan Research LLC, reported in National Cable & Telecommunications Association, “Statistics”, March 2006). Last year, the FCC counted 531 national cable programming networks (up 143 since 2004) and 96 additional regional networks.

Digital cable programming comes to 28.5 million customers and is available through new products and services like interactive TV and programming guides, digital video recorders (DVR), high-definition TV (HDTV) and video-on-demand (VOD) (NCTV “2006 Industry Overview”).

Top 10 Cable Systems

Source: NCTV “Statistics”, March 2006.

Earlier this year, Comcast Cable Communications was the largest cable operator in the U.S., with 21.45 million subscribers or 32.7% of the cable market. That’s about twice as many subscribers as the number two operator, Time Warner. On July 13, however, the FCC okayed plans by Comcast and Time Warner to buy out Adelphia Communications. That paved the way for the sale to close by the end of July. The deal gives Comcast 1.8 million and Time Warner 3.5 million of Adelphia’s former subscribers. It also improves both companies’ marketing positions and boosts their network presence in key areas. Comcast gets a bigger position in places like Pittsburgh and Washington, D.C., while Time Warner grows bigger in cities like Cleveland and Los Angeles (CNETNews.com, July 13, 2006). As shown below, the top seven cable operators serve almost 86% of cable TV subscribers.

Cable TV Multi-System Operators
Share of Market by No. of Subscribers

(updated pie chart from 2005 goes here)

Direct-to-Home (DTH) satellite TV is cable TV’s close relative and major competitor for subscribers. With DTH, customer antennas receive and transmit signals from fixed-orbit communications satellites; cable networks also get their TV signals from satellites and then re-transmit them through cable company trunk lines.

As the chart below indicates, satellite TV is slowly but steadily catching up to cable TV among U.S. households. At the end of 2005, 27.17 million households subscribed to Direct Broadcast System (DBS) TV, which uses the industry standard pizza-sized satellite dish to relay signals. DBS is actually two commercially-available systems – DirecTV, with 15.1 million subscribers, and Dish Network, with 12 million viewers. There’s also one other DTH system: C-Band, employing the industry’s original 7-ft. dishes, has 144,587 subscribers. Voom, a DBS provider launched by Cablevision in 2003 with great fanfare to compete with Dish and DirecTV, got fewer than 50,000 subscribers, even though it boasted having the most HDTV channels. It was discontinued last year.

Market Share Among Pay-TV Services

(new bar graph goes here)

Source: Federal Communications Commission Information, February 2006; The Bridge, April 2006.

Issues and Trends

Cable TV is in more than twice as many households as satellite TV (66% vs. 27%, Wall Street Journal, May 6-7, 2006). Fewer than 15% of households only receive over-the-air broadcasts, and the FCC sees that percentage continuing to shrink to 7% by 2009 (CNet News.com, December 21, 2005).* The FCC’s pay-TV market study found that about 94.2 million of the total 109.6 million U.S. TV households subscribed to a pay-TV service in 2005, vs. 92.2 million in 2004 (The BRIDGE, April 2006).

* Totals exceed 1005 because some households subscribe to both cable and satellite systems.

While cable TV is feeling the heat from satellite and carefully eyeing the slow penetration of telecommunications companies into video and IPTV, it’s still keeping the competition at bay by aggressively pushing digital video and VOD. The biggest cable operators in the U.S. had over 25.5 million digital cable subscribers at the end of 2005, up from 23.1 million a year earlier. That strength is letting cable separate itself from its rivals by thriving on VOD. Forrester Research estimates that 23.9 million households were VOD-capable as 2006 began. That’s up 27% from the previous year. The company projects that almost all the estimated 46.9 million digital cable homes will be equipped for VOD by 2010 (The BRIDGE, April 2006).

Nevertheless, the fight for viewers is growing hotter for cable. Satellite is making a lot of HDTV options available, as well as bigger DVRs. Meanwhile, telcos are rolling out fiber-based videos and seeking relaxed regulations for gaining access to local video markets. Even broadcasters are getting into the pay-TV space. U.S. Digital Television has an off-air, 30-channel digital pay-TV service whose programmers include Fox News Channel, Disney Channel and ESPN.

Here are some ways the skirmishing is unfolding:

• Cable is expanding its “triple-play” product platform of video, broadband Internet and VoIP ( voice-over Internet protocol) to include wireless access. Last November, Comcast, Time Warner Cable, Cox Communications and Advance Newhouse Communications (Brighthouse) formed a joint venture with Sprint Nextel to accelerate the combined offering of video entertainment, wireline services and wireless data and communication products to some 41 million customers of the four cable giants as well as Sprint’s almost 46 million wireless subscribers.

• Even while they seek local video franchises, telcos are trying to get exemptions from local franchising authorities that okay the build-out and operation of video-delivery services. The telcos have also gotten statewide franchising laws in Texas, Virginia and Indiana that put them outside the jurisdiction of the local regulators. Now, the companies are aggressively lobbying for statewide licenses in at least seven other states.

• DBS providers are pushing hard for dominance in the HDTV market. DirecTV’s new array of services include MPEG-4 set-top boxes that link customers to more high-def programming outlets, including local HDTV channels. By 2007, DirecTV plans to have more than 150 national and 1,500 local HDTV channels in place. Dish Network is launching high-def local channels via satellite to as many as 50 markets this year. Parent company EchoStar has predicted that Dish will reach over 50% of U.S. TV households with local HDTV channels in 2006.

• The cable industry is complaining that phone companies are allegedly limiting their new TV packages to upscale areas. AT&T is fighting back by announcing plans to provide Web-based TV to 5.5 million low-income households in 41 markets within three years. Overall, AT&T intends to make TV service available to almost 19 million homes in its 13-state region by 2008, plus homes in the Southern states that had been served by Bellsouth before AT&T’s buyout of Bellsouth. Shareholders of both companies approved the takeover on July 21.

• Major cable operators also are making a big splash in the broadband video market. Comcast is accumulating rights to a large body of movies, videos and TV programs it will make available on its Website. It’s also going to let subscribers route all this Web-based video content to regular TV sets. Time Warner has already started sending online video material to its subscribers, but Comcast wants to trump that by making its broadband content available to all Internet users, not just its own customers.
  

Sources: The BRIDGE, from April, February and January 2006; Wall Street Journal, June 29, May 9 and March 7, 2006.

The face-off between cable and satellite TV extends to the marketing attention they’re paying to parents concerned about violent and lewd content on television. Last December, Comcast unveiled a family tier with some 40 channels that featured programming from Disney, Discovery, PBS, National Geographic and public interest channels such as C-Span. They were soon joined by other cable and satellite TV providers, such as DirecTV and Dish Network, that offered family tiers of their own (The BRIDGE, April 2006).

To sell its TV services, AT&T has a new twist on an old idea. Their local marketing teams are finding neighborhood leaders to host Tupperware-style house parties where people view AT&T’s TV product over the company’s broadband Internet connection. At the same time, the viewers are watching Time Warner cable programming and making side-by-side comparisons. Not to be outdone, Time Warner is enhancing the traditional TV experience by pilot testing a single-market service called Quick Clips (Wall Street Journal, June 29, 2006), where viewers can pre-select from a video content menu offered by CNN, CNBC and the Weather Channel. It’s also introducing “My On Demand”, letting customers take photos they’ve stored online and watch them on their TVs.

Confidence Factors

Source: 2006 Comparative Ad Analysis Survey, Norbert J. Kuk & Associates.

Convenience Factors

Source: 2005 Comparative Ad Analysis Survey, Norbert J. Kuk & Associates.

Value of Products and Services in the Industry

Cable TV companies received $69.5 billion in revenue in 2005 from 65.5 million subscribers. This was derived from monthly fees, box rentals, cable modem and other service charges. Last March, DirecTV, the largest satellite TV provider, raised its rates about 4%, or $3 per month, on its three Total Choice packages, to $44.99, $48.99 and $96.99 (Reading Eagle, Pennsylvania, February 8, 2006). EchoStar, the owner of number two provider Dish Network, hiked its rates an average of 4% for 2006. Subscribers had paid an average of $57.80 per month (Denver Post, December 30, 2005).

Average household spending of $620 is calculated by dividing $69.5 billion by 112 million households. Average spending is helpful in determining market potential and market share. For example, in an area of 50,000 households, it is safe to say $31 million is spent on cable TV subscriptions. If a cable system generates $4 million annually, its market share would be 12.9% (a baseline for comparison with future performance).

Industry Resources

The BRIDGE
www.mbc-thebridge.com

NCTA
www.ncta.com

CableWorld
www.cableworld.com