News

DBS Eyes Another Strong Year

5/16/1999 8:00 PM Eastern

Denver -- The year is not even half over yet, but
direct-broadcast satellite analysts are already predicting another banner year.

Based on unusually strong first-quarter sales, they
predicted that the industry will push past 11 million subscribers by year's end. And
some analysts think DBS could hit the 25 million-subscriber mark within five years.

The strong first-quarter sales momentum, carried over from
last year's holiday selling season, has spilled over into April.

DirecTV Inc. reported 142,000 net new subscribers last
month, up 84 percent over April 1998. DirecTV's high-power DBS service has more than
4.9 million subscribers.

With more than 2 million medium-power subscribers bought
last month from PrimeStar Inc., DirecTV now delivers digital-video programming to more
than 7 million customers.

DBS rival EchoStar Communications Corp.'s Dish Network
serves roughly 2.3 million customers, but it has been giving DirecTV a run for its money
in recent months as far as signing new subscribers. The company is expected to announce
its April acquisitions by today (May 17), when it is slated to release its quarterly
earnings report.

DirecTV is reportedly trying to strengthen its
dealer-exclusivity clauses, and it has threatened to drop retailers such as Sears, Roebuck
and Co. if they continue to market Dish Network.

While he would not confirm the reports, DirecTV executive
vice president Larry Chapman did say, "We're in discussions with Sears regarding
our overall relationship."

Estimates of 11 million DBS subscribers by year's end
may be conservative if the fourth quarter --when one-half of all consumer electronics are
sold each year -- measures up to the first three months of 1999, Tellus Venture Associates
president Steve Blum said last week.

"We could see an extremely hot fourth quarter,"
Blum told an opening-day session at the 6th Annual Denver DBS Summit.

EchoStar and DirecTV each added roughly 100,000 new
subscribers per month during the first quarter, thanks to advertising and promotional
campaigns that have increased the awareness of DBS, Blum said.

Those marketing efforts have been helped along by industry
consolidation that has seen the number of U.S. satellite operators shrink to just two,
making it easier for consumers to make a choice, he added.

EchoStar and DirecTV must still find a way to convert the 2
million DBS customers that are now up for grabs with the demise of PrimeStar, Blum said,
adding, "You may not see all of those households remain on DBS' books."

"There are both pros and cons" for consumers when
an industry consolidates, said Jimmy Schaeffler, CEO of The Carmel Group, which estimated
that the number of DBS subscribers could exceed 12 million by year's end.
"It's true that it's a lot easier for consumers to make a decision now, but
it's also taking away pressure to cut prices."

Nevertheless, each new rate hike announced by cable
operators is proving to be a boon for DBS, Schaeffler said, "especially when
you've got [EchoStar CEO] Charlie Ergen promising no rate hikes until the year 2000
and beyond. People are aware of cable as an entrenched monopoly that over the years has
done whatever it wanted and taken advantage of them in the worst way."

Wall Street remains bullish on the DBS category. Stock
prices for both DirecTV parent Hughes Electronics Corp. and EchoStar hit record highs last
week. The stocks are riding the wave of strong subscriber growth, in addition to
anticipated breakeven milestones for the companies.

New DBS services -- such as local-into-local,
high-definition television and interactive TV -- are also promising. But those new
services pose the challenge of switching out the existing equipment of current DBS
customers who wish to take advantage of them.

Chapman conceded that DirecTV would be challenged to bring
new features to market today knowing that there will be other upgrades down the road that
aren't economically feasible to incorporate today.

But unlike the earliest days of DBS, Chapman said, "We
have a substantial amount of modifiable memory in the new boxes," adding that some
future upgrades can be made via satellite downloads.

DBS is poised to become the early leader over cable in
delivering HDTV programming to consumers, participants in a DBS Summit panel on the
subject said.

Carmel Group vice president Antonette Goroch characterized
HDTV as "a match made in heaven" for DBS, partly because major retailers may see
better opportunities and economics in selling over a national DBS footprint than in
offering HDTV-capable gear for a patchwork of cable systems with HDTV programming.

Goroch added that the demographics of consumers interested
in HDTV mirrored those of DBS: early adopters familiar and comfortable with buying digital
set-tops at consumer-electronics stores.

Carmel estimates that by 2003, DBS will account for some 9
million households capable of viewing HDTV programming, driven by increasingly less
expensive HDTV-compatible set-tops.

"We think cable will play a bit of catch-up later on,
as they have in many other areas in the DBS-versus-cable wars," Goroch said.

Cable-equipment manufacturers such as Scientific-Atlanta
Inc. and General Instrument Corp. have developed HDTV-compatible versions of their
advanced set-tops, but they do not expect much initial demand for the expensive gear,
which, in the case of S-A's "Explorer 2000HD," is priced in the $1,000
ballpark.

Consumer-electronics manufacturers seemed to agree that DBS
is a riper market for HDTV equipment for now.

Mitsubishi Digital Electronics America Inc. unveiled its
first DBS products last week, including the "SR-HD500"
high-definition-compatible and DirecTV-compatible receiver, as well as a $399
"SR-SD500" stand-alone receiver for DirecTV. Both are set to ship by the end of
this year.

Mitsubishi also committed last week to help move HDTV
manufacturers and broadcast programmers past the chicken-and-egg stance, saying it would
bankroll CBS Corp.'s efforts to produce most of its primetime entertainment series in
HDTV.

In an arrangement reminiscent of manufacturers'
support for programming in the earliest days of television -- and then color-television --
broadcasting, Mitsubishi would pay to convert popular CBS shows such as Chicago Hope from
film to high-definition video.

In August, Thomson Consumer Electronics will roll out its
entry-level "DTC-100" HDTV set-top for DirecTV, which will retail for $649. The
box requires a special 18-inch-by-24-inch elliptical dish to receive both standard DBS and
high-definition DBS signals from separate satellites.

Bill Menezes contributed to this report.

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