By Peter J. Brown

In a world where iPods and Slingboxes are part of a new generation of consumer products, satellite TV and satellite radio service providers continue to deliver value to consumers. Satellite broadband services also remain a favorite for households seeking higher speed access in otherwise underserved or unserved areas. And yet, the satellite industry will have to work hard to stay one step ahead of the competition.

Consumers have lots of choices as new portable entertainment and high-bandwidth wireless networking options abound. Internet protocol (IP) TV looms large as well, opening up new opportunities for some satellite players while posing a competitive threat to others. Verizon, in particular, might trigger a price war with its new fiber optic service IPTV service, especially with cable giant Comcast. This could have an obvious spillover effect in the direct broadcast satellite (DBS) realm as well, given the bundled triple threat that the service embodies. "Although the MPEG-4 high definition (HD) upgrades will create excitement, we are reaching the saturation point — 50 percent to 80 percent — for satellite in some cities and towns in our immediate area of business. Where cable is bad, satellite rules," says Steve Serafin, president of Silicon Valley Satellite in San Jose, Calif. "My town, Morgan Hill, Calif., now is 50 percent to 60 percent satellite after 10 years, so the majority of households have had a dish experience at some point in time.

Having the two satellite options — DirecTV and Dish Network — has helped, says Serafin. "Our limited business plan is to lead the masses to the other side from the service from whence they came. If we can get them before the cable or telco boys bundle too many voice, video, HD, broadband and other services, we can still do OK. The real challenge is the broadband," he says.

In the United States, satellite continues to outrank cable in every category including overall satisfaction, channel selection, picture and sound quality, according to a survey of more than 2,500 TV viewing U.S. consumers published in the November issue of Consumer Reports magazine. Satellite’s biggest lead in this survey — 14 percent — surfaced when consumers were asked about value for the money.

U.S. DBS Duo Prefers To Be Telco-Friendly

The DBS giants in the United States like HDTV, digital video recorders (DVR) and their ties to telcos. Global DBS sector leader DirecTV Inc’s national HD offering will grow via local HD broadcast network channels in 12 markets — four HD channels in each market — by the end of 2005. "With the two new DirecTV Ka-band satellites, HD locals will abound later this year," says Serafin. "With HD locals, we will do a big job with the early adopters and the high-tech crowd that do not want to put up an over-the-air aerial costing $300 to $500. Cost is important, but most people simply do not want a big, mast-mounted antenna on the roof of their homes or multimillion dollar retreats."

The deployment of MPEG-4 set-top-boxes was scheduled to begin in mid-November, in stride with the launch of the HD local markets, says DirecTV Inc. spokesman Robert Mercer.

Bruce Leichtman, president of Leichtman Research Group Inc., reports that the number of households with DVRs doubled in 2004 and doubled again in 2005 so that approximately 8 percent of all U.S. households now own a DVR. He is closely monitoring the points of emphasis that lie at the heart of DirecTV’s new $30 million DVR promotional campaign. For years, DirecTV offered its subscribers a DVR from Tivo, and more than 2 million DirecTV subscribers, about 14 percent, use Tivo boxes today. However, that chapter is apparently over now that a new DirecTV Plus DVR has become the focus of DirecTV’s marketing efforts, starting in October.

"Attempting to put a DVR in every home makes no sense. The key is to get it in the right homes, the ones that really want it. That provides glue," says Leichtman. "The DVR is not the competitive weapon for DBS against cable today that it was two years ago, and the right message needs to be sent. The DVR is not about managing your life or pausing live TV. People who like TV like DVRs."

DirecTV has been exploring several new interactive services. Its Superfan enables viewers to watch up to eight NFL games on a single screen. Viewers can highlight one that they want to watch and then bring it up full screen.

"Our new interactive receivers enable viewers to use the Active button on their remote to access local weather information, financial market summaries, daily horoscopes, lottery information and what’s hot in the week’s movies, series and special programming from DirecTV," says Mercer. "The same interactive functionality will be available on the new DirecTV Plus DVR."

While DirecTV is exploring a variety of options for broadband, including WiMax, the ties to its telco partners remain strong. "We are working hand-in-glove with several telco partners who are offering DirecTV as part of a voice, video, data bundle, that is competitive with the cable offering," says Mercer.

Colorado-based Echostar Communications Corp.’s Dish Network would not comment about any WiMax-related broadband activity. Echostar remains well positioned in the telco camp especially after Echostar and SBC Communications Inc. revised their partnership.

"We have launched several different partnerships with telcos around the country, allowing customers to gain access to Dish Network video service plus basic telco services. This bundle, including wireless services in some cases, is actually often more robust than what the competition offers," says Marc Lumpkin, Echostar’s interim director of corporate communications.

"SBC and Echostar have found a relationship that is going to be better. It is a win-win," says Leichtman who emphasizes that while both DBS companies in the United States once held a firm HDTV lead over cable, they have been sitting on the fence, and in the process, lost their innovative edge to cable when it comes to HDTV lately. "As for DirecTV, 15 percent of its gross new subscribers or 150,000 households last year came from telcos."

Dish Network is determined to be a leader in interactive television with offerings such as the TBS Sports Mosaic, which enables viewers to control how they watch football games, according to Lumpkin. Besides multi-angle sports viewing, Dish Network has also added a Sharper Image Shopping Channel, where viewers use their remotes to browse and order products. "Most of our customers come to us from the cable industry where they were dissatisfied with the prices and the absence of some features that we offer, including interactive channels, international channels and advanced DVRs," says Lumpkin.

Like DirecTV, Dish Network is planning to roll out new MPEG-4 set-top boxes this fall with local HD channels available in some markets by late 2005 or early 2006. The remaining 11 Voom HD channels will be added to the Dish Network programming lineup in early 2006 as well. As for the DVR, the multi-room Dish Player 942 represents Echostar’s latest attempt to add functionality and features to this category. It is also in a Texas courtroom, accused by Tivo of violating a critical DVR patent.

Echostar also has unveiled its widely anticipated line of Pocketdishes, consisting of two portable media recorders and a media player which download, record and play content from a variety of sources, including DVRs, digital cameras and other devices.

HDTV Emerges in Europe

At SES Astra, European consumers are making it known that more HDTV services are welcome. According to Luxembourg-based SES Astra spokesman Markus Payer, several more German commercial channels, Prosieben, Sat1 and the HDTV bouquet of the German Pay-TV operator Premiere, will soon join HD1 by Euro1080, which in 2004 became the first HDTV channel in Europe via Astra.

"In 2006, the U.K. operator BSKyB will launch its HDTV channels via Astra as well. Furthermore, we are conducting tests and demos at points of sale and for the industry in order to explain and promote the possibilities that HDTV offers," says Payer. "SES Astra has been instrumental in developing the HD-ready logo and standard that the industry is using today for promoting HD-compatible displays and projectors. All our customers will use the DVB-S2 and MPEG-4 AVC technology. As a satellite operator, we are in a position to upgrade technology standards, like DVB-S2 and MPEG-4 AVC, and to develop the path towards HDTV transmissions," he adds.

Satellite Radio Adding Momentum By Adding Services

Satellite radio service providers are maintaining their high-performance edge. According to XM Satellite Radio spokesman David Butler, XM’s offering of 153 channels of digital radio is on track to have more than 6 million subscribers by the end of 2005. Beyond digital radio, XM services now include XM Navtraffic for real-time traffic information for vehicle navigation systems. Launched in fall 2004 and currently available in 23 metro areas, Navtraffic offers a real-time update of travel speeds, accident and traffic jam locations — integrated in graphic form on the navigation system. XM WX Satellite Weather provides information for marine, aviation and emergency responder use. While XM has demonstrated its video capability at trade shows, there is no announced timetable for providing this service.

XM expects its acquisition of WCS Wireless before the end of 2005. The additional wireless spectrum licenses that XM will gain as part of the deal will provide XM an opportunity to offer a variety of multimedia subscription services, possibly including video and/or data offerings transmitted over these new frequencies, according to Butler.

"Looking ahead, Samsung will introduce MP3 players with XM capability later this year. The best-selling satellite radios in the marketplace continue to be plug-and-play models for the car and home, such as the Delphi XM Roady2 radio," says Butler. "Experience has taught us that when people get to sample XM, they want to become full-time subscribers. In addition, XM continues to have a remarkably low churn rate of about 1.3 percent."

XM’s partner, Canadian Satellite Radio Inc., won approval from the Canadian Radio-television and Telecommunications Commission in June to provide the XM service in Canada, In addition to XM programming, XM Canada’s 80-channel line-up will include four English-language and four French-language channels produced in Canada, and the company is excited by the prospect of being able to offer National Hockey League games, an exclusive for XM starting in the 2007 NHL season. XM Canada is registering subscribers at its Web site and receivers will be available in time for the 2005 Christmas season.

Sirius Satellite Radio, XM’s main rival, also received approval to launch service in Canada and expects to kick off broadcasts in the country before the end of 2005, says Sirius spokesman Jim Collins. Sirius also plans to launch a special data service for the boating community before the end of the year. This will be data, not audio, and will include marine-related information, such as water temperature, wave height etc., on a unit that will have a small screen for viewing. A subscriber to the service will also be able to receive Sirius programming through the unit. "The current timetable for deployment of video services remains in 2006, starting in the retail aftermarket with [original equipment manufacturing] to follow later," says Collins.

"There is no question that we have enjoyed tremendous popularity this past year and that the industry numbers are rapidly growing. Churn continues to remain low, averaging around 1.5 percent, which is very low for any industry that is just beginning like ours," says Collins. But Sirius and XM continue to push innovations and partnerships to keep their respective subscriber bases growing.

In October, Sirius introduced a unit called the S50 that has the capability to store up to 50 hours of programming, either Sirius broadcast or MP3/WMA files or a combination of both for replay later.

Both XM and Sirius also have ties to the U.S. satellite TV providers. DirecTV subscribers can receive 72 XM channels, featuring both music and talk. Sirius offers 65 channels to Dish Network premium package subscribers. "In terms of both brand awareness and perhaps even reduced licensing fees for audio channels, a [satellite TV/satellite radio] connection is a win-win," says Leichtman.

Satellite Broadband: More Competition in North America

Maryland-based Hughes Network Systems (HNS) intends to hold on to its lead position in the satellite broadband market via the Direcway 7000, which began shipping in early September. Of the four new Direcway broadband service plans, two are aimed specifically at residential and professional home office customers with downlink speeds from 700 kilobits per second (Kbps) to 1 megabit per second, and uplink speeds from 128 Kbps to 200 Kbps. "The Direcway 7000 falls under the major reengineering category," says Michael Cook, senior vice president of the North American division at HNS. "Satellite broadband service is our business. We are cash positive with 10,000 new subscribers per month. We will continue to drive costs down, and speeds and bandwidth up."

Among other things, HNS has reduced its subscriber acquisition costs by 50 percent throughout the last three or four years, according to Cook. The HNS Spaceway 3 satellite goes up at the end of 2006, and service will start in mid-2007. This Ka-band platform will include board packet switching in a full mesh configuration. A new standard known as RSM-A, which stands for Regenerative (satellite payload) Satellite (return channel) Mesh topology, is ready to go too. "RSM-A addresses processing or regenerative satellites with mesh connectivity and serving lots of spot beams. It includes capacity protection, a necessity for on-board, bandwidth-on-demand processing," says Anthony Noerpel, advisory engineer at HNS.

In mid-2005, HNS began to face more competition, as Wildblue Communications finally entered the consumer satellite broadband market in the United States, starting in Colorado. Wildblue is not shy when it comes to admitting that its door is open to Direcway customers. "We think in the long run that we need to offer a more consistent level of quality of service to grow our business," says Brad Greenwald, Wildblue’s vice president of sales and marketing. "We expect to improve the value we offer our customers going forward, but we have not yet determined what that will be or the timing."

"If timing was a gift, Wildblue came in at the right moment, although late, and at the right price — $49 to $79 per month. This price point is tolerable, a bit higher than the giveaways now by SBC, Verizon and Comcast, but because it is a standalone service and not bundled, it meets a definite need," says Serafin, although at press time Wildblue was not yet available in California. Serafin is watching for any potential consumer backlash stemming from the Fair Access Policy restrictions — essentially bandwidth usage caps — imposed by Wildblue, which he describes as similar to those used by Direcway.

Both Direcway and Wildblue leave the home networking component to the customer. At its Web site, http://www.mydirecway.com, HNS offers its subscribers free optimization software that sets browser settings to optimize the link. Neither Direcway nor Wildblue supports voice-over-IP at this time.

"Many of our customers are choosing to take advantage of our easy plug-and-play ethernet connection to use a wireless networking router," says Greenwald. Wildblue offers a free 30-day money back guarantee. It will soon begin offering a free year of anti-spyware to go along with the anti-virus software from F-Secure that is already provided to customer.

Conclusion: Consumers Are Demanding More

All eyes are on Japan and Korea in 2005 as supporters of satellite-based digital multimedia broadcast (DMB) technology try to open a new chapter in rich media delivery. Using 4Caster MPEG-4 AVC encoders from California-based Envivio Inc., Tokyo-based Mobile Broadcasting Corp. (MBCO) launched its new MobaHO! service throughout Japan last year after the successful launch of the MBSat satellite. MBCO was followed by SK Telecom and TU Media in Korea.

MBCO offers eight video programs, 30 audio programs and a single data broadcasting service to subscribers now via handy type terminals, in-vehicle receivers and PC-card tuners. Toshiba, Sharp and MBCO supply receivers. A cell phone receiver will be introduced in 2006.

In Korea, SK Telecom offers about a dozen TV and music channels for $13 per month. Samsung introduced one of four DMB phones. Its SCH-B200 has a screen that slides up and rotates horizontally, and it offers a variety of multimedia functions with a TV-out function as well. The new feature-rich Samsung YM-PD1 DMB portable media player was introduced in late September.

The DMB business faces considerable competition as terrestrial wireless service providers worldwide push videogaming and other features that the public seems to relish. Add it all up and the race is definitely on. Satellite service providers must keep prices low while minding their subscriber acquisition costs. DBS, with churn at almost record levels, cannot turn a blind eye to that phenomenon either especially with telco TV launching. Verizon’s fiber optic TV service will be rolling out in perhaps as many as a half dozen markets by the end of the year, and more IPTV is on the way. Innovating and aggressive product development has made a difference, and besides, consumers are still giving a big thumbs up to satellite.

Peter Brown is Via Satellite’s senior Multimedia & Homeland Security editor.