Cable TV Cos. Try to Bring Satellite Customers Back

In the past five years, cable television providers in Arkansas watched between 15 percent and 20 percent of their subscribers defect to satellite TV companies.

Now the cable TV industry is making a stronger push to win them back by offering three services in one package: cable TV, high-speed Internet and phone service.

In May, Comcast Cable was the first provider to unveil its “triple play” and offered all services for $99 for the customers’ first 12 months. Other providers across the nation, such as Cablevision, which offers service in the northeast part of the country, are offering new customers the same service for $90 a month for the first 12 months.

Cox Communications, which is now called SuddenLink Communications of St. Louis, and Time Warner have applied to the Arkansas Public Service Commission to start offering phone service. Cox’s application has been approved and Time Warner’s is pending, the commission said.

A SuddenLink spokesman said he didn’t know when the phone service would be offered in Arkansas along with the cable TV.

The battle for customers won’t be easy for the cable industry. It will soon have to fight phone companies as well as satellite TV providers.

AT&T plans to offer its version of cable TV, called Internet Protocol Television, or IPTV, in some central Arkansas markets by early 2007.

The satellite TV industry, though, isn’t ready to throw in the remote control.

The growth rate has cooled, but satellite TV companies still are adding hundreds of thousands of new subscribers every quarter, said Michael Hopkins, senior editor of Media Business Corp., a media research, reporting and consulting firm in Golden, Colo.

“[Satellite TV companies] still are signing up customers, but it’s not at a fast clip as it used to be,” Hopkins said. “What satellite TV needs to do is get out there and really, really aggressively compete — not that they haven’t aggressively competed before, but now it’s gone from a pretty competitive environment to a hyper-competitive market.”

At the end of September, satellite TV subscribers in Arkansas numbered 356,683. But by the end of the year, the number grew by almost 7,200 to 363,874. During the same period, the number of cable TV subscribers in Arkansas also increased — but only by 333, from 519,785 to 520,118, Hopkins said.

“Cable seems to be bouncing back after years of basic customer losses and still adding digital customers and broadband customers,” Hopkins said.

In 2003, satellite TV providers added about 2.3 million customers nationwide. In 2004, the industry added 3.2 million customers. But the number of new subscribers fell back to 2003 levels in 2005, said Michelle Abraham, principal analyst covering converging markets and technologies at In-Stat of Scottsdale, Ariz.

“They’re certainly making good strides and account for a large percentage of the pay-TV households,” she said.

The cable industry will have to overcome two hurdles to win back customers who went to satellite TV, Hopkins said.

First, satellite TV has strong base of customers in the South. In Arkansas, its penetration in the market is 29 percent while the national average is 27 percent. Cable TV has about 42 percent penetration in the state while nationally it’s between 65 percent and 70 percent, Hopkins said. (Hopkins said Media Business Corp. uses the number of all households in the state, which it receives from the U.S. Postal Service, and divides that by the number of subscribers to determine the actual penetration of the market. In Arkansas there are about 1.2 million households, Hopkins said.)

Hopkins attributes cable TV’s low penetration to the lack of service in the remote areas of the state. In addition, sports programming is a main attraction to Southerners, and satellite TV offers a wide variety of sporting events.

But Comcast Cable spokesman Mike Wilson said it has a good variety of sports programming.

Cable TV

Len Pitcock, the executive director of the Arkansas Cable Telecommunications Association, said one advantage cable TV has over satellite is the actual cable line.

“Your cable signal is a two-way interactive connection between the cable company and its customer,” he said. “Services such as high-speed Internet access, video-on-demand, digital voice or telephone are products that satellite companies are not offering right now.”

And by packaging all the services under one company, a customer only has to deal with one bill, Pitcock said. The provider usually can knock a few dollars off the price of the bundled services, too.

To make all the new services available, Comcast spent about $50 million upgrading its lines about five years ago. Comcast wouldn’t say how many subscribers it has to show for the upgrades.

Another service Comcast touts that the satellite providers don’t offer is on-demand programming. Comcast has about 7,000 titles, most of which are available free to subscribers of digital cable.

Petcock said the biggest competition the cable TV industry is going to see is from the phone companies.

AT&T and other phone companies have been replacing their copper wires with high-speed fiber-optic lines.

AT&T has said it will place fiber-optic lines in neighborhoods and serve 18 million customers by 2008. Verizon also said it will upgrade its lines for 6 million customers by the end of 2006 and have 18 million homes wired by the end of 2008.

Pitcock said the investments the phone companies are making are the same ones the cable industry made five years ago.

Satellite TV

Telecom, Media & Finance Associates Inc. of Menlo Park, Calif., President Tim Farrar said satellite TV could also see some fuzziness in the future.

“They are facing more competition because the cable companies have gotten a lot more digital,” Farrar said. “Things are going to get increasingly difficult for the satellite TV companies, but we haven’t seen a substantial slowdown yet.”

Perfect 10 Distributing Co. of North Little Rock, which distributes DirecTV satellite equipment, saw its revenue increase slightly last year, from $416.2 million in 2004 to $422.7 million in 2005. That’s a dramatic slowdown from the 80 percent growth rate it reported between 2002 and 2003.

What should help lure subscribers to satellite TV is technology that is coming available that will allow satellite TV providers to offer broadband Internet service, Abraham said.

DirecTV, the satellite TV provider leader with 15.1 million subscribers, said in its 2005 annual report that its key to gaining and keeping market share rests with its quality, price and the availability of a broadband Internet service.

It also listed its No. 1 competition coming from cable TV providers.

As of mid-2005, of the 110 million U.S. television households, approximately 73 million, or 67 percent, had cable.

“As long as satellite TV is willing to innovate and do new things, they are going to reach the new customers,” Hopkins said.