Cable Operators

Can-Do Attitude Extends to New Technology

4/21/2006 8:00 PM Eastern

Dish Network has built its reputation as a low-cost television provider, promoting low-priced programming packages and giving away free satellite systems.

So it may seem counter-intuitive that Dish also devotes time to pursuing the high-end technophile segment, with advances in high-definition television, digital video recorders and interactive television.

“They’re using the old hour-glass model” of targeting consumers, said Leichtman Research Group Inc. president Bruce Leichtman. “They focus on value with the DishFamily and [America’s Top 60 programming packages] on the lower level, and on the flip side, focus on high-definition television. They’re speaking to two different audiences.”

Dish Network’s ability to move quickly to market with new technology is an advantage, according to Adi Kishore, director of Yankee Group’s media and entertainment team. “It has a lean organization in terms of decision making,” he said.

It helps that Dish parent EchoStar Communications Corp. has a 25-year history in product development, dating back to the days when television viewers who wanted to pull satellite signals down from the sky had to go to considerable lengths to do so. The company’s roots were in developing satellite receivers and distributing all the equipment needed for home signal reception.

“It’s underrated, their experience in the C-band world, how much knowledge and experience they have in what satellite customers want,” said Phil Swann, president of TVPredictions.com and former editor of a magazine for satellite television consumers. “They see things maybe earlier than DirecTV [Inc.] does. Charlie and his team pick things up early.”

EchoStar’s C-band roots left the company with an engineering team eager to transfer its skills to direct-broadcast satellite. Perhaps as important, watching the relatively quick conversion in the home satellite market from C-band to DBS, EchoStar executives learned how crucial it is to stay one step ahead of new technology lest the company get left behind.

“Technology moves faster and faster today than it did 25 years ago,” EchoStar chairman Charlie Ergen said, “so decisions are more complex than they ever were.”

Like its DBS competitor DirecTV, Dish Network was early to market with HDTV. Dish hasn’t eased up on its efforts, introducing an HD-ready digital video recorder and offering subscribers all-inclusive hardware upgrade packages that include an HD-ready video monitor.

But analysts warn that when it comes to HD, the sore spot for DBS is local broadcast channels and regional sports networks, which require huge amounts of bandwidth for national distributors.

One of EchoStar’s reasons for acquiring the Rainbow 1 satellite from Rainbow Media Holdings LLC’s former standalone HD satellite service Voom HD Networks was to gain additional bandwidth to launch more local HD channels, said Forrester Research Group Inc. principal analyst Josh Bernoff.

“EchoStar has to keep itself competitive,” Bernoff said.

Not only is it easier for cable operators to find bandwidth for local HD broadcast feeds on a market-by-market basis, it’s often cheaper for a cable operator to lease an HD-ready set-top box than it is for a DBS company to switch out satellite dishes and upgrade receivers as they move to newer MPEG-4 (Moving Picture Experts Group) video compression technology.

“It’s very costly” to devote the necessary space to local HD services, Swann said, “but the fact that they’re doing it shows they know it’s important. Between now and 2009, you’ll see a ramp-up of HD sales as we move towards the digital television transition.”

In the meantime, it’s the high-end videophile who’s most likely to own an HDTV set, and that’s exactly the kind of customer Dish — or any video service provider — doesn’t want to lose.

Dish was the first multichannel video provider to offer a digital video recorder, said Bernoff, and the first to offer a DVR free with a programming commitment.

According to Leichtman, although DVRs hold appeal for consumers, “the challenge of the DVR is you can’t just give it away. Many people don’t even know they have it.”

Some see DVRs as satellite’s response to video on demand. Dish plans to launch a service that will allow subscribers to call up movies that Dish downloads to customer DVRs for access on a pay-per-view basis. Today, subscribers can use the DVR to timeshift their viewing or pause and rewind live television.

With the introduction of the PocketDish portable video recorder last fall, subscribers can also bring their time-shifted Dish programming with them as they travel or commute to the office.

“There’s a huge benefit for programmers,” said Larry Smith, chief operating officer for Archos Inc., which helped design the customized video players that allow speedier transfers of Dish programming from a DVR to the PocketDish. “It extends their brands.”

Smith, who had worked previously for programmers in addition to a stint as Dish vice president of programming, said he learned along the way that access to content “drives all hardware sales.”

As the television industry moves further away from a finite broadcast universe and closer to on demand all the time, it will be harder to predict consumer demand and harder to determine which content to forward to a video recorder, said Steve Blum, president of Tellus Venture Associates.

“Charlie is trying to get ahead of the game with storage devices,” Blum said, “but it’s a poor substitute for on demand and true interactivity.”

Satellite companies readily admit they would like a broadband strategy to help offer more advanced technologies and compete more aggressively with wired operators. And though there have been hints that Dish and DirecTV may partner on WiMax or other broadband technologies, neither company has committed to such a plan.

Kishore said that although it would be costly for DirecTV and Dish to create separate WiMax wireless communications networks, especially given the limited spectrum available, there would be logistical problems in having the two corporate cultures work together on such a venture.

“There is some value in a third player getting involved to do [voice-over-Internet protocol telephony] and high-speed Internet and partnering with DBS,” Kishore said.

Despite the limitations of satellite, Dish hasn’t waited to roll out interactive television applications.

“They’ve been the most aggressive and the most innovative in bringing interactive television to the American public, bar none,” said Ron Chaimowitz, CEO of PixelPlay Inc., which has developed several interactive applications for Dish. “It’s the nature of their culture there.”

For the Olympics coverage earlier this year, PixelPlay developed an enhanced TV application where Dish interactive-TV subscribers could get Winter Games highlights such as up-to-the-minute U.S. medal counts.

Cable News Network has also launched a service called CNN Enhanced, said Coleman Breland, executive vice president of sales and marketing for Turner Network Sales. The text-based stories from CNN.com are already available on Dish Network’s interactive channel 100 and will soon be available on the linear CNN channel with the touch of a button on the remote control, Breland said.

Last year, Dish offered a college football mosaic of channels on its channel 100 in partnership with Turner. “That’s part of their mindset: 'Why don’t we try this?’” Breland said.

Dish has also run mosaic channels focusing on the past two Olympics and the 2004 presidential election.

Just as Dish targets the low and high end of the market with separate messages of budget programming and high-tech bells and whistles, the company reaches out directly to its technophile base every few months with a live “Tech Chat” hosted by EchoStar Technologies Corp. president Mark Jackson. The on-air forum fields nuts and bolts questions and introduces the latest products in a way that only a consumer electronics geek could truly appreciate. It keeps its fan base engaged by giving away prizes like HD receivers and PocketDish players to the first caller who can answer esoteric questions on current Dish technology.

On the trade side of the business, Dish keeps its dealer base and technology partners close through regular on-air chats and face-to-face gatherings, including the annual ITV Summit held last month in Colorado.

According to PixelPlay vice president of programming and services management Jonathan Boltax, there’s been a 10-fold increase in attendance at the ITV summit in the past three years. “This year was standing room only,” Boltax said.

September