By Peter Brown

The good news for the satellite industry is that consumers remain eager and satisfied with old and new satellite products alike. Their appetite for satellite-delivered broadcast services worldwide shows no signs of abating. Digital Audio Radio Services (DARS) and Direct Broadcasting Services (DBS) are forces to be reckoned with as subscriber numbers swell, and for DBS in particular, as new high definition TV (HDTV) offerings and new hybrid receivers with built-in digital video recorders (DVRs) for storing HDTV content become more popular.

That said, Bruce Leichtman of New Hampshire-based Leichtman Research Group sees warning lights flashing when it comes to growth strategies; churn and subscriber acquisition costs (SAC) in particular.

"When the two DBS companies in the U.S. are adding more than two million subs in a quarter, and yet achieving only 800,000 net new subscribers, that constitutes considerable churn. Who did they lose? That is an important question in a saturated market," says Leichtman. "You cannot grow too fast without creating churn and increasing SAC in the process."

"The key development in the U.S. DBS sector this year is the transition to MPEG-4 compression and, for DirecTV, to the DVB standard," says Steve Blum, president of California- based Tellus Venture Associates. "Upgrading both their transmission standards and, eventually, their customer base will allow DirecTV and Echostar to add a deep lineup of HDTV services, but that’s just a start."

Blum expects the DBS industry to move into the territory of other digital services providers–DirecTV into mobile video, Echostar into home audio and portable video, and more.

"Expect also a renewed emphasis on interactive services. Echostar is stealing a page out of the News Corp playbook, for example, with the introduction of gambling, in form of horse racing, at least in those states where allowed," says Blum.

"As far as HDTV is concerned, it is a matter of a shifting advantage. And right now, that advantage has gone back over to cable," says Leichtman.

On the DARS side in the United States, XM Satellite Radio and Sirius Satellite Radio exceeded projections by about 600,000 subscribers total in 2004, and appear poised to come within shouting distance of eight million by the end of 2005, according to Blum. XM intends to reach 5.5 million subscribers in 2005, and Tellus Venture Associates projections show that this goal is easily within reach.

"DARS is finally doing what it is really capable of. The challenge involves maintaining their focus. But are all the new products and initiatives going to distract them and take them away from the business of selling their core product, which has a huge opportunity?" asks Leichtman.

"The key challenge for XM is to turn the profitability corner. If they pass five million subscribers and cannot go cash-flow positive, they will have some explaining to do," says Blum. "Sirius is still playing catch up and remains four to five quarters behind XM. In the long run, that is just fine so long as both keep growing. Sirius’ near-term challenge is to make sure it does not run out of financial steam during what promises to be a long chase."

MPEG-4, Mixes, Mobility And More

The so-called mix channels on DirecTV known as SportsMix, KidsMix and NewsMix show that the process of innovation in satellite TV is not over by a long shot. DirecTV announced a number of new services recently at the Consumer Electronics Show (CES) including a new non-TiVo DVR service. And because consumers want to take their content wherever they go or access it wherever they are–in the house or on the road–DirecTV is rolling out its Home Media Center so its customers can access all kinds of content on any TV in the house as well as offering a new programming package for automobiles.

"DirecTV Active will offer a wide range of interactive services that can be both personalized and localized including weather, financial market summaries, daily horoscopes and lottery information," says DirecTV spokesman Robert Mercer. "Our Home Media Center is an advanced new receiver and networked system designed to be a whole-house entertainment solution that, for example, allows DVR service on every TV in the household. We will also continue to roll out new international services in addition to the Vietnamese and South Asian channels we rolled out late last year."

Mercer says DirecTV continues to beat cable with its value proposition, all-digital quality and choice in most consumer side-by-side comparisons.

"We are also seeing excellent results from virtually all segments of our diverse distribution network, including strong numbers from our independent dealer organization," says Mercer. "Combined with our overall value proposition, we saw great success with promotions like our three-boxes-for-free and a $29.99 programming fee for the first six months for new customers."

"Our challenge is to continue to set ourselves apart from the competition and build on our leadership position. Cable services are growing increasingly aggressive with promotional offers and new DVR, HD and VoD services and bundled products that provide consumer’s voice, video and data services," adds Mercer.

After a slow start, digital video recording technology is becoming increasingly popular. Cable has finally caught up with this trend and is aggressively pushing its DVR boxes in many markets, according to Mercer. DirecTV will introduce its own DVR service later this year that will offer many new enhanced features.

"The new DirecTV DVR, designed by NDS Americas, supports secure encryption and storage. DirecTV can now offer state-of-the-art pay-per-view movies. DirecTV subscribers using the new recorder will also be able to record several pay-per-view movies at a time and then pay for a movie only if it is viewed," says Dr. Dov Rubin, vice president and general manager of NDS Americas. "To encourage subscribers to switch, DirecTV will offer advanced features on its device, including longer recording capacity and the ability to use interactive services."

DirecTV has clearly demonstrated that it is well along in its preparations for MPEG-4 AVC/DVB-S2 (moving picture expert group-4 advanced video compression/digital video broadcast–satellite 2) HDTV transmissions via satellite. By 2007, DirecTV plans to implement MPEG-4 AVC via Ka-band satellites in three orbital slots so as to offer more than 1,500 local high definition (HD) and more than 150 national HD channels and other advanced programming services. The first 15 markets to receive these services have already been announced as well. This local HDTV programming blitz by DirecTV will get underway after the successful launches of Spaceway 1 and Spaceway 2 in mid-2005, and by DirecTV 10 and DirecTV 11 in early 2007.

Echostar Communications’ Dish Network recently announced Dish On Demand, which will be available this month to new customers who order the new Dish Player-DVR 625. Another multi-room HD DVR receiver called the Dish Player-DVR 942 records HD in one room and standard definition in another. When customers subscribe to Dish Network’s Digital Home Advantage package, they will soon have the option to purchase 30-inch or 40-inch HD LCD TVs for an MSRP of $1,599 or $3,999.

"Dish Network strives to bring the most diverse and advanced services to our customers, ahead of the competition," said Mark Jackson, senior vice president of Echostar Technologies. "Our latest product announced will provide customers with a one-stop solution for home entertainment, particularly for high definition and digital video recording."

Echostar has launched nine satellites and has plans to use the full capacity of two satellites launched by SES Americom in October and December.

According to Steve Serafin, president of Silicon Valley Satellite in San Jose, CA, the ranks of DBS dealers nationwide will see a surge of activity in the coming months as a result.

"DirecTV’s announcement with HD locals off satellite will be a big boost. It will require a bigger satellite dish, so professional installation will be required," says Serafin. "An interesting twist is that they already launched national feeds for ABC, FOX, NBC and the existing CBS in HD over the holidays for both coasts. The customer qualifies, or does not qualify by zip code. If they don’t, you can request a waiver on the spot and hope!"

Standard DBS channels are still what most customers request, not HD, Serafin says. "As for DVRs, people are still not convinced that this will make their life easier. The price of a standard HD box from DirecTV is under $300 and the HD DVR is $999. That is $600 for a 250 GHz drive, which is a little rich for the technology, but people seem enthusiastic about it," he adds.

These DBS initiatives are bolstered by the strong support from vendors who see this as a wide-open opportunity requiring the right mix of devices and technologies. DirecTV, for example, credits Tandberg, Radyne/Comstream, Conexant, Broadcom and STMicroelectronics (ST) for making the above-mentioned expansion of HDTV services possible.

Following the right set-top box (STB) upgrade path is essential here. Geneva-based ST has rolled out its DVB-S2 demodulator chip, the STB0899, for example, so that it now has a complete family of DVB-S2 chips available for all the main STB functions, including tuner and demodulator, along with a range of backend decoders for satellite STB manufacturers.

"ST’s STB0899 enables manufacturers to deliver 8PSK, DVB-2 systems capable of much more bandwidth for additional data and channel services. This bandwidth can be used to increase the number of channels, to increase the data rate, or, in some cases, even to decrease the size of the dish that users use to receive the signals," says Armando Caltobiano, Retail Multimedia and Satellite Division general manager at ST. "The STB0899 is in production today in ST fabrics and will be shipping in volume this quarter. STB’s with this powerful chip will be in the field, available to consumers, this quarter as well."

While MPEG-4 AVC/DVB-S2 and Ka-band seem to provide the added efficiencies and capacity to make next generation HDTV DBS a reality, Sony has its Passage solution, which was initially created for the cable industry, as a possible option.

"Passage has the ability to work with any digital stream (cable, satellite, telco, etc.) to enable multiple conditional access offerings and hence multiple business models to be deployed from within a single content stream," says Gregory Gudorf, vice president, TV Marketing Home Products Division, Sony Electronics Inc. "Thus, Passage could support a conditional access system addition or transition for a satellite operator or even potential spectrum sharing where the same content is being delivered via the same modulation scheme amongst multiple satellite operators."

1500 Channels Today

While another company might talk about 1500 channels in the future, Eutelsat’s satellites currently broadcast a total of 1500 TV channels to an audience of 137 million cable and satellite homes in Europe, North Africa and the near Middle East.

"There is an increasing interest in free-to-air reception, and we see the emergence over the last year of new digital channels in eastern European countries such as Bulgaria and Albania and in North African countries like Morocco and Algeria," says Vanessa O’Connor, Eutelsat’s director of corporate communications. "There is also a growing interest by Asian broadcasters in addressing ethnic groups in Europe. For example, ABS-CBN from the Philippines began broadcasting on Eutelsat in 2004."

Of the 150 million cable/satellite homes in Europe, North Africa and the near Middle East, 76 million are direct-to-home (DTH) that experienced an 11 percent compound annual growth rate (CAGR) between 2002 and 2004 period in comparison to four percent for cable in the same period, according to O’Connor. In western and eastern Europe, DTH satellite has kept increasing at the relatively high rate of five percent CAGR from 2002 to 2004.

A total of five high-power satellites now occupy the Hot Bird slot at 13 degreesE that serves 45 million homes with pay-TV clients including

TPS, Sky Italia, Cyfra + and free-to-air channels for broadcasting in Europe, North Africa and the near Middle East.

As far as HDTV is concerned, Eutelsat is a founding member of the HD Forum, established in July, 2004 in France where broadcaster TPS plans to launch its first HD channels on Eutelsat before the end of 2005, according to O’Connor.

Get Ready For Global Satellite Radio Coverage

By the end of 2006, Worldspace Corp. intends to launch its third satellite in order to address the European market, according to Frehiwot Haileleoul, media relations manager at Worldspace, who was not prepared to divulge any details about the launch at this time.

"Worldspace provides over 40 plus audio channels to customers in Africa, Asia, the Middle East and parts of Europe using two satellites, AfriStar and AsiaStar. AfriStar covers Africa, the Middle East and Western Europe, while AsiaStar reaches India, China and Southeast Asia," says Haileleoul.

While there is growing demand for Worldspace services in many emerging and underserved markets of the world, there is still the challenge of identifying and delivering the right mix of services via satellite to multiple cultures and language groups over a broad footprint.

"Worldspace covers an area with over five billion people. Our coverage area includes China and India, two of the fastest growing economies in the world. This diversity makes it a challenge to understand the right content and language mix that would appeal to our customer base," says Haileleoul. "In addition, our marketing needs to be sensitive to our different cultures. While we are aware that needs change over time, at the same time, Worldspace is the only company to provide satellite radio in our markets."

Haileleoul says the early adopter phase of the service has ended and that Worldspace is now approaching mass market in some of its target areas.

"Wide awareness of our service is seen in India as well as a growing acceptance in other markets. Satellite radio has come from being an unknown concept to gaining immense credibility in the American markets," says Haileleoul. "The success of satellite radio in the United States has had a very positive effect in our getting awareness in our target markets as well."

Worldspace has big plans to hit the highway in the same way as Sirius and XM It is already established in two of the fastest growing automobile markets in the world, India and China. To this end, Worldspace intends to leverage its existing AfriStar satellite to provide a DARS offering to one or more western European markets, according to Haileleoul.

"While we currently provide service to Europe via AfriStar, this service is limited to fixed and portable receivers. Convergence in the marketplace is a key driver for us to design our next generation of receivers," Haileleoul says. "Our receivers will be available in cars, as handheld devices and will have optional features such as personal stock ticker, sports ticker, clock and will be upgradeable to include future enhancements such as integrated audio, video and multimedia and GPS."

S-band Video In Motion

Satellite digital multimedia broadcasting (DMB) services are just now emerging. Late last year, Tokyo-based Mobile Broadcasting Corp. (MBCO) launched its new mobile S-band service known as MOBAHO! "MOBA" means mobile and "HO!" expresses surprise in Japanese. SK Telecom and Toshiba Corp. formed a joint venture named TU Media in order to launch a similar DMB service in Korea, but with its commercial launch now delayed until May 2005, it has been proceeding at a much slower pace than MBCO.

With a monthly fee of approximately $24, MBCO is offering eight video channels as of mid-January, according to President Tetsuya Mizoguchi, using MPEG-4 Visual as its video coding method and MPEG-2 AAC for audio coding.

"Some terrestrial digital broadcasters intend to start their service for mobile around 2006 in Japan and H.264 will be adopted for this service as the video coding method. H.264 offers a well-engineered compression efficiency advantage over MPEG-4 Visual. For this reason, we are contemplating an update from MPEG-4 to H.264. However, when this update will occur is not yet determined," says Mizoguchi.

MBCO would not divulge the number of terrestrial repeaters it has deployed to increase coverage in dense urban zones, in particular where tunnels and tall buildings pose a real problem.

Toshiba and Sharp provide palm-top type receivers and MBCO and Toshiba are developing a new generation decoder IC, which will make it possible to implement the MBCO DMB tuner in a cellular telephone. Samsung Electronics has already developed a DMB mobile phone featuring a screen slight bigger than two inches.

With customers already showing a keen interest in its satellite radio, mobile video is apparently very much on the minds of Sirius Satellite Radio, which issued a joint announcement with Microsoft Corp. at CES.

"We have announced that we will be providing video programming geared towards kids and teens to the back seats of cars and SUVs. We also will be providing real-time traffic navigation," says Sirius spokesman Ron Rodrigues.

"Sirius’ use of Windows Media Video 9 for its upcoming video service is another example of how the compression efficiencies of Windows Media 9 Series enable content providers to deliver more content at higher quality over existing network infrastructures whether over the air, satellite or the Internet," says Jonathan Usher, director, Windows Digital Media Division.

Video plans and ambitions aside, the growing demand for new DARS services is strong and getting stronger each month.

"Consumers have been seeking alternatives to broadcast radio due to limited format choices and a high number of commercials. The big challenge is getting people to sample the product. Once they do sample it, they get hooked and subscribe," says Rodrigues. "Our customer mix (is) changing. It is primarily male, 25-44. Those demographics are becoming more mainstream as we are getting sold in more retail outlets and getting installed in more cars. As more consumers are becoming more accustomed to the subscription model, they will feel more comfortable paying for satellite radio."

The View Ahead

VOOM, the U.S. HD provider offering 35 channels to its subscribers, has remained on our radar screen for months. While it should have been the consumer satellite HDTV headline of 2004, any signs of noteworthy progress in terms of executing a viable HDTV over satellite business plan have been mixed at best. Despite many conversations over the holidays with numerous consumers who were openly discussing pending plans to expand their home entertainment systems to include satellite HDTV, for example, VOOM was absent. In fact, blank expressions were the rule rather than the exception whenever the subject of VOOM was put before to this random pool of consumers.

But sluggish service launches are not the only industry concern. The constant threat of piracy and digital content mismanagement cannot go unmentioned.

"The biggest conditional access challenge facing DBS is the one of content protection. How does satellite offer full home networking of the highest quality digital content to a plethora of handheld devices?" asks Rubin at NDS. Among other things, NDS is a prominent player in the new Secure Video Processor Alliance, which is striving to address this problem.

During the latest round of interoperability testing by the MPEG Industry Forum (MPEGIF), MPEG-4 AVC was included so that the streams from several companies can be tested with emerging set top boxes and home media gateways. Because both SD and HD capable STB’s are now coming through the development cycle, this interoperability testing represents an absolutely critical step in their progress to market. MPEGIF has set up a logo qualification program that provides a "mark" that testifies that the product underneath has been subject to a defined and rigorous level of interoperability testing.

"This year we are going to see a lot of completely new services providing video to the home mostly driven by the use of DSL bandwidth. However, some DBS operators will also start MPEG-4 deployments for their high-definition services," says David Price, vice president of the MPEG Industry Forum.

"Although it has only just been announced, 10 companies already are racing through the qualification program in order to be one of the first products sporting the MP4 Logo," adds Price.

What consumers will expect out of cable, DBS and terrestrial broadcast TV throughout the next decade is anyone’s guess. It is clear that the momentum behind on-demand IPTV will not stop building. This is a distribution model, which is in its infancy involving the transfer of video over multiple platforms. Satellite certainly fits into this model and can thrive on it in the future.

Peter J. Brown is Via Satellite’s Senior Multimedia & Homeland Security Editor. He also volunteers as a satellite technology and communications advisor to the Maine Emergency Management Agency.