The DBS Brat Pack

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Longtime satellite industry observers know that DirecTV Inc. wasn’t the first attempt that its former owner Hughes Electronics Corp. made to launch a direct-broadcast satellite television service. A 1990 venture called SkyCable proposed joining the resources of Hughes, News Corp., General Electric’s NBC and Cablevision Systems Corp. to launch a DBS service from the 101 degrees west orbital location, but the partnership quickly dissolved.

The ultimate DBS launch team bore little resemblance to SkyCable’s lineup. They certainly fell into the “politics make strange bedfellows” category. But all four — Hughes (later DirecTV), U.S. Satellite Broadcasting, Thomson Consumer Electronics Corp. and the National Rural Telecommunications Cooperative — helped get the DBS signals in the air and back down to consumer’s living rooms.

The company that created USSB, St. Paul, Minn.-based Hubbard Broadcasting, applied for its first DBS license, at 110 degrees west, in 1981. The company asked the Federal Communications Commission to switch five of its transponders from 110 to 101 degrees as soon as the SkyCable deal was announced.

“Our view was, we’re broadcasters, and we wanted to be where the antennas were aimed,” says Hubbard Media Group CEO Stanley E. Hubbard, who was president of USSB at the June 1994, launch.

USSB began intensive discussions with Hughes when the SkyCable venture fell apart, Hubbard recalls. In their deal, signed in 1991, USSB owned five transponders on a DBS spacecraft, and agreed to pay its share of costs to develop a Digital Satellite System that would support both DirecTV and USSB.

“We didn’t want another Beta/VHS situation,” Hubbard says.

While USSB and DirecTV were working together to help launch DSS, they were busy fighting for exclusive programming contracts. USSB ended up with premium multiplex feeds from Home Box Office and Showtime Networks Inc., as well as a few basics from MTV Networks. “We were partners, and we were competitors at the same time,” says Hubbard. “What was important was we were building an industry together.”

The NRTC, which had been in various discussions with Hughes since the mid-1980s, signed its DirecTV deal in April 1992. DirecTV executives went on the road to convince NRTC members to invest in the deal by buying territories in which they would hold the exclusive rights to sell DirecTV programming, says NRTC president and CEO Bob Phillips.

The NRTC’s rural constituents “were starved for programming,” he says. Responding to rural consumers’ income levels and more modest appetite for programming, it talked DirecTV into introducing entry-level packages, Phillips adds.

RCA WONDER DOGS

Perhaps the most vital hand in the DSS partnership was Thomson, which under the RCA brand name promoted DSS in thousands of retail locations across the country.

“The two guys most responsible for launching DBS in the U.S. were Nipper and Chipper,” the RCA mascot dogs, says Tellus Venture Associates president Steve Blum, who was USSB manager of consumer marketing in 1994.

Thomson helped create the video-compression technology that allowed DSS to deliver so many channels from a stationary satellite dish. The CE giant received a “one-year or one-million-set-top-boxes-sold” exclusive to manufacture and market the DSS hardware, giving it incentive to heavily brand the service. And it did.

“RCA spent so much money; those little dogs were everywhere,” says Leichtman Research Group president Bruce Leichtman.

“We knew we had a winner, and with first-year sales exceeding 1 million units, it became the fastest growing category in the history of consumer electronics,” Thomson Consumer Solutions Business executive vice president Mike O’Hara said in a press release commemorating the 10th anniversary of the DSS launch.

Indeed, Thomson is so bullish on the business that last month the company bought the DirecTV set-top manufacturing business from Hughes Network Systems in a deal that grants Thomson lead supplier status for DirecTV.

While Thomson enriched the product with its technology and marketing, one of USSB’s greatest contributions was its experience as a programmer by way of Hubbard Broadcasting’s TV station holdings. As he surveys DirecTV’s prospects moving forward, Hubbard says he believes that News Corp.’s heritage as a programmer and a subscription-based newspaper publisher will help DirecTV more than having GM as a corporate parent ever could.

“You’ve got to run that subscription business,” Hubbard says. “It’s all about relationship marketing.”

Of course, the NRTC endowed DirecTV with tremendous relationship assets in the early days. Its close relationships with its constituents helped the NRTC drive penetration in rural territories faster than in DirecTV’s more urban areas in the early years.

“Having the NRTC there and having that kind of guaranteed access to a key market was absolutely vital,” Blum says. “You can say that that has run its course, but having them in the mix was absolutely vital to the speed at which they grew.”

NRTC’S EXPERIENCE

In addition, the NRTC brought its experience in packaging and selling C-band programming. Phillips says he helped lobby for the Cable Act of 1992, which granted DBS companies fair access to cable programming. The cooperative also had a billing system to recommend to DirecTV.

Earlier this year, the NRTC agreed to sell its subscriber base back to DirecTV, but NRTC members retained the rights to distribute DirecTV products on the company’s behalf in the way other retailers do.

In May 1999, USSB was merged into DirecTV, allowing consumers to buy programming from a single provider.

“There were tremendous efficiencies in having one operation instead of two,” Hubbard says.

“If USSB had remained a private company, we would have thought about the merger differently,” Hubbard says. “We would have been far more comfortable taking on risk for ourselves than for our shareholders.”

But Hubbard says he was pleased to do the deal with DirecTV. “At the time we had tremendous confidence in [DirecTV Group Inc. vice chairman Eddy Hartenstein] and his team, and it’s been well placed.”

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