Marketing

Taking On No. 1

7/22/2005 8:00 PM Eastern

Satellite-TV giants DirecTV Inc. and EchoStar Communications Corp. are turning the screws on top U.S. MSO Comcast Corp., with EchoStar offering huge discounts in six Comcast markets and DirecTV running a promotion in Washington, D.C. DirecTV is capitalizing on the MSO's legal battle with new regional outlet, Mid-Atlantic Sports Network. Comcast has sued MASN and doesn't carry the network.

EchoStar kicked off a promotion last week to woo Comcast customers with an offer of $19.99 per month for a 60-channel digital video package for 12 months, plus three free months of several Home Box Office and Showtime channels.

In the nation's capital, DirecTV launched a newspaper and radio ad campaign touting its distribution of MASN, which carries games from Major League Baseball's new Washington Nationals team. DirecTV is offering Comcast customers a discount rate of $29.99 monthly for its 140-channel Total Choice Plus programming package.

With football season quickly approaching, DirecTV is also preparing to ramp up a national marketing effort for its exclusive “NFL Sunday Ticket” National Football League subscription package.

DirecTV spokesman Bob Marsocci said the company will unveil its new Sunday Ticket promotions and pricing in early August. As it has in previous years, DirecTV will offer several months of its Total Choice programming packages for free to subscribers that order Sunday Ticket, Marsocci added.

Last year, DirecTV ran a promotion that offered subscribers four months free of the Total Choice package if they bought the NFL Sunday Ticket package, which was priced last year at $249.

While the steep discounts may help EchoStar and DirecTV boost their subscriber counts, some positive news broke last week for Comcast and other MSOs, as SBC Communications Corp., which has been reselling Dish Network, said it was reworking the deal with EchoStar as the telco prepares to deploy its new fiber-delivered cable programming service.

SBC told analysts that it added just 10,000 video subscribers in the second quarter as a result of the EchoStar relationship, far below the subscriber gains of 65,000 that some analysts had expected, and significantly less than the gain of 73,000 subscribers it posted in the fourth quarter of 2004.

DISH TARGETS SIX CITIES

For its $19.99 monthly promotion, Dish is targeting six cities where Comcast is the incumbent cable operator: Atlanta; Dallas; Kansas City, Mo.; Indianapolis, Pittsburgh; and Sacramento, Calif.

Spokesman Mark Cicero wouldn't comment on why EchoStar selected those markets, but noted that the campaign may eventually expand to other cities.

Some industry observers said they believe EchoStar is experimenting with big price cuts in order to compete more effectively against cable operators.

“I've been waiting for a while to see how EchoStar is going to respond to the new competition that's coming from the cable bundle, and whether or not it was going to be a blanket nationwide approach, or whether it would be more of an experimental, region-by-region approach,” said Jimmy Schaeffler, an analyst at The Carmel Group.

“This seems to have set the trend toward the latter — they [EchoStar] are going to try some things out and see what resonates with the consumer,” he added.

'DISGRUNTLED' SUBS

EchoStar noted that the offer, which expires on Aug. 15, shows “disgruntled cable customers there is a better alternative.”

The DBS firm said new customers in the six cities that sign up for its Digital Home Advantage package, which includes 60 digital channels and local broadcast networks, will be charged $19.99 per month for the first 12 months of service. Customers that make a one-year commitment will also get a free digital video recorder equipment upgrade.

Digital Home Advantage includes EchoStar's America's Top 60 package, which normally costs $31.99 monthly. The subscription cost for the programming package will go from $19.99 to $31.99 monthly after the first year of service, Cicero said.

Cicero said it's possible that EchoStar may expand the promotion to other cities. “We're always looking for ways to offer the best offer to new subscribers, and offer them the best value in the pay TV industry. At this time, I can't divulge any of those plans,” Cicero added.

Asked if Comcast would respond to the EchoStar offer, spokeswoman Jenni Moyer said that the MSO would “evaluate it on a case by case basis.”

“We don't compete on price alone,” Moyer added, noting Comcast's strategy of marketing other services in addition to video, such as video-on-demand and high-speed Internet service.

Schaeffler said Comcast and other cable operators should respond to EchoStar's steep discounts on digital video not by matching the price cuts on video, but by marketing and dropping the price of bundles of video, high-speed Internet and phone service.

“Market the bundle, but also lower the price. Make it a no-brainer,” Schaeffler said, pointing to Cablevision Systems Corp.'s tactic of charging just $90 for the triple-play bundle for customers that agree to take all three products.

Consumers shopping for a good deal on digital video channels in the targetted Comcast markets may be easily drawn to the Dish Network offer. Comcast's entry-level digital cable package in Dallas and Pittsburgh, for example, costs about $54, which is more than double the price EchoStar is charging for similar channels.

In addition to the six cities that EchoStar is blanketing with its promotion, Comcast faces stiffer competition in Washington, D.C., where DirecTV is running radio spots this month and print ads in The Washington Post and The Washington Times. The ads blare, “See the Nationals make history with DirecTV … the only major service provider to bring you all the Nats' games.”

One of the print ads features a picture of former president Calvin Coolidge throwing the ceremonial first pitch at a baseball game, with the headline, “Last time D.C. had this much baseball excitement, we were cool with Coolidge.”

New DirecTV subscribers that respond to the offer also get a free Nationals baseball cap.

A little more than a year after its much-touted and somewhat feared co-branding agreement with EchoStar took effect, SBC told analysts last Thursday the two were discussing making some modifications to the arrangement.

EchoStar and SBC first announced the co-branding deal in July 2003, whereby SBC would aggressively market Dish Network services to its customers. The deal was different than past telco-DBS resale agreements in that SBC would take direct control of the marketing of the service, in conjunction with its local and long distance phone service and high-speed data product, and would brand the offering SBC Dish Network.

SBC also made an investment in EchoStar, purchasing $500 million of the DBS giant's convertible debt.

The agreement didn't officially take effect until March 2004 and had some initially strong results, causing some analysts to predict similar deals with other telcos.

FEW SBC DISH ADDS

But despite an initial lift — SBC said it added 111,000 video subscribers as part of the agreement in the second quarter of 2004 — the growth of SBC Dish Network customers has been slowing down. That is mainly since SBC announced its Project Lightspeed initiative last year, a move to build out its fiber network and offer its own voice, video and data services.

SBC told analysts last week it added just 10,000 video subscribers in the second quarter as a result of the EchoStar relationship.

That was well below the 65,000 additions some analysts expected and down from 73,000 additions in the first quarter, 97,000 in the fourth quarter of 2004 and 105,000 in the third quarter of 2004.

Analysts had expected that SBC would de-emphasize its Dish Network relationship. In a May conference call, EchoStar chairman Charlie Ergen called the relationship a “temporary strategy” for the telco as it built out its own video network. But the magnitude and speed of the decline surprised some analysts and sent some EchoStar shareholders for the exits.

EchoStar's share price fell $1.06 (3.5%) on July 21, to a $28.94 close.

Mike Farrell contributed to this report.

March