News

DBS Posts Strong Holiday Sales

1/03/1999 7:00 PM Eastern

Following strong holiday sales and a tumultuous string of
year-end strategic alliances, the direct-broadcast industry is poised to grab a larger
share of the multichannel video market in 1999.

At Sears, Roebuck & Co., holiday sales of DBS and most
other products came late, but finally came, said Chuck Cebuhar, vice president and general
manager.

Consumers shopped for the holidays late this year for a
number of reasons, including unseasonably warm weather, Christmas falling later in the
week and because shoppers have been trained to expect better discounts and promotions as
the holiday approaches.

Cebuhar said the sales rush started just a couple of days
before Christmas, but carried on through the following weekend.

Sears had an "outstanding year," with sales of
both DirecTV Inc. and EchoStar Communications Corp. systems, Cebuhar said, and he believes
the momentum will carry on into 1999.

DirecTV reseller Pegasus Communications saw increased sales
in 1998, even though DBS is more competitive now, said John DiDio, senior vice president
of the Pegasus Satellite Division. He added that post-holiday sales were strong, too.

At Best Buy Co. Inc., DBS was one of the hot products this
holiday season, according to spokeswoman Laurie Bauer. Several other retailers credited
DBS sales with helping to boost their overall revenues.

In Kentucky, DBS specialty dealer Starpath of Hardin County
saw subscriber gains about 10 percent higher over the holidays than it did a year earlier,
said owner Rik Hawkins.

DBS providers have not yet released December or year-end
subscriber counts, but are expected to do so within the next week. Through November,
DirecTV and EchoStar saw significant year-to-date gains over previous years.

While overall DBS sales presented nothing but good news,
1998 was fraught with upheaval behind the scenes. PrimeStar Inc. lost its bid to offer a
robust high-power DBS service when it backed out of a deal to merge with American Sky
Broadcasting, the DBS arm of News Corp. and MCI Communications Inc.

Late in the year, News Corp. and MCI announced they would
sell their DBS assets to EchoStar, which will boost EchoStar's channel capacity and
allow EchoStar's Dish Network to offer local-to-local service in additional markets.

DirecTV, too, strengthened its competitive stance when it
signed a deal to acquire U.S. Satellite Broadcasting. While the deal doesn't
significantly increase DirecTV's channel capacity, it does allow the company to
bundle basic and premium channels for a more seamless marketing message.

"It will be interesting to see how a stronger EchoStar
competes against a unified DirecTV," said Glenn Friedman, president of
California-based Ideas & Solutions! Inc.

DirecTV continued to dominate the DBS market in 1998, and
by all accounts is expected to continue to do so in 1999.

But EchoStar could start gaining more subscribers than
DirecTV on a month-to-month basis as early as 2000, according to Lehman Brothers analyst
Bob Berzins.

"When you have more channels, more retailers will have
to carry you," Berzins said. "When your distribution goes up, your sales go
up."

"I would think there would be more demand from
retailers for EchoStar," Cebuhar said, adding that Sears is in "an excellent
position" because it carries both DirecTV and EchoStar.

PrimeStar, too, saw strong sales during the holidays,
according to vice president of sales development Kim Gordon, who attributed the success to
a $49 installation offer. The promotion runs through February.

Gordon said PrimeStar had enough installers on hand to meet
holiday demand, but installations were still slow in areas like Virginia and Tennessee
that were hit by harsh winter storms.

But inclement weather seems to be the least of
PrimeStar's problems these days. The company faces an uncertain future. Its move into
a limited high-power business and a future push for medium-power subscribers is dependent
on receiving new financing.

According to PrimeStar spokesman John Beattie, the company
will be able to draw on its existing bank credit facility until sometime in the first
quarter.

Without new financing, it's possible that PrimeStar
could fund its operations with cash flow from existing subscribers, Beattie said, but that
would curtail subscriber growth.

In addition, a group of PrimeStar bondholders, unhappy with
the developments surrounding the company, have threatened to file suit against the
company, its management and its cable owners.

At year-end, Wall Street seemed to favor DBS. Stock prices
for EchoStar and USSB both saw highs for the year last week. Even stock for TCI Satellite,
PrimeStar's holding company, crawled past $1 last week after taking a series of hits
since last spring.

DBS sales should be aided by new services expected to be
launched this year from DirecTV and EchoStar, including data broadcasting and
high-definition television.

And strategic alliances with phone companies should help
answer cable's plans to offer bundled services.

Bell Atlantic Video, for example, said it saw its best
month yet in December now that its marketing efforts have started to pay off. And Dick
Beville, president, said Bell Atlantic plans to offer DirecTV service in several new
markets this year.

Not everyone agreed about the importance of bundling video
and communications services.

"We shouldn't lose sight of the importance of the
entertainment value," said Cebuhar. "That's what it's all about."

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