DBS Expands Distribution Beyond Retail

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DBS dishes are turning up in the damnedest places.

In its attempt to build a solid subscriber base as quickly
as possible, the direct-broadcast satellite industry is expanding hardware distribution
beyond the traditional retail channel.

Today, consumers can get a free DBS dish along with a new
home or a new Honda. And someday soon, they'll find DBS receivers built into
high-definition television sets.

Market-leader DirecTv Inc. has been especially aggressive
in setting up additional distribution channels. The company created its special-markets
division in 1995.

Originally created to support Digital Satellite System
distribution through the hospitality industry, the department has since begun to look at
other nontraditional channels, said John McKee, DirecTv's director of special
markets. Developments include entry into the multiple-dwelling-unit business, wireless
cable deals and marketing arrangements with telephone companies.

DirecTv's special-markets department also works with
nationally known companies that want to give away new DSS dishes as premium-sales
incentives.

Honda Motor Co., for example, is giving away a free DSS
dish with the purchase of a new motorcycle in its "Honda Dream Days" promotion,
running through May 31.

And McKee said DirecTv is test-marketing its DBS product
with ADT, the nation's largest home-security company. ADT is giving away a free DSS
dish, along with a few months' free programming, to entice consumers to choose its
security service over the competition.

It's too early to target the percentage of
DirecTv's business that will eventually come from systems sold or given away outside
of the traditional retail channel, McKee said.

But industry analysts said retailers that sell DBS today
need not be concerned that they'll be displaced anytime soon.

"Most sales are still happening in the mainstream
consumer-electronics points of sale," said Steve Blum, president of California-based
Tellus Venture Associates. "Anybody else will have to come in and start from the
bottom."

Mickey Alpert, president of Washington, D.C.-based Alpert
and Associates, said retail plays a crucial part in DBS distribution because consumers
still feel the need to go into a store a couple of times to check out a DBS system before
they buy one.

"As DBS reaches critical mass and more and more people
become familiar with the product," Alpert said, "retail will become less
important. But that hasn't happened yet."

PRIMESTAR'S

PROBLEM

Blum said PrimeStar Inc.'s limited retail distribution
will be a challenge for the company if it gets the go-ahead to market a high-power DBS
service.

Today, RadioShack is the only national retailer that
markets PrimeStar. The more retail deals DirecTv and EchoStar Communications Corp. garner
before PrimeStar attempts to distribute its high-power service, the harder it will become
for PrimeStar to break into those same outlets, some have argued.

"PrimeStar is behind the eight ball in terms of
getting retail distribution," Blum said. "The chance of it getting anything on
the shelves this year are slim." That makes it all the more important that PrimeStar
seek marketing deals outside of retail, Blum added.

But even outside of retail, some choice deals have already
been signed.

TELCO DEALS

DirecTv, for example, has signed marketing agreements with
several regional telephone companies, which offer to lease their subscribers DSS equipment
and to sell DirecTv programming for a cut of the monthly revenue.

Late last year, DirecTv and AT&T Corp. severed a
similar arrangement after AT&T failed to sign up a significant number of DirecTv
subscribers. DirecTv has said that it believes that the local presence of a regional phone
company will help to attract more customers to its DBS offers.

McKee said such telephone partnerships don't
necessarily cannibalize the DBS-retail business. In a controlled test that DirecTv
conducted with Cincinnati Bell Telephone Co., the additional DBS-ad spending from the
phone company actually expanded the overall size of the market.

"Retail sales picked up momentum," McKee said.

EchoStar also offers its service through telephone
companies, said Jim Spreitzer, sales director for telecommunications and energy at
EchoStar. As the telephone industry faces increased competition, some telcos are choosing
to bundle video services like DBS as a way to stand apart from the competition.

UTILITIES GET

INTO THE GAME

Spreitzer said EchoStar is offering its Dish Network
programming to gas and electric companies, too, as the power industry begins its move
toward deregulation.

When utility companies have surveyed their customers,
Spreitzer said, entertainment has been rated No. 1 on the list of potential bundled
services.

"The one-bill concept also rates very high," he
added.

While it may seem unlikely that consumers would choose to
buy a television service from their utility company, Spreitzer said it's not so
far-fetched. Consumers like the fact that the local energy companies have been around for
100 years, and that they have never let them down.

Even when Dish Network service is bundled in with a utility
bill, Spreitzer said, "we're not privately labeled." The Dish Network name
is always included.

It's an important consideration for DBS companies that
are as eager to build brand-name recognition as they are to boost subscriber numbers.

"We're preoccupied with our brand," McKee
admitted. "We would only go into a strategic alliance that would allow our brand and
our partner's brand" to be strengthened.

In DirecTv's tests with regional-power companies,
DirecTv still bills the subscriber for the programming directly, although the hardware and
installation payments are thrown into the electric bill.

DirecTv is in tests with three power companies, McKee said,
and it is in discussions with "a gaggle" more of them.

McKee admitted that the jury is still out on whether
DirecTv will sign up many subscribers through such deals.

But that won't stop the company from moving ahead with
other possible ventures. DirecTv has already expanded deals with at least two wireless
cable operators -- Heartland Wireless Communications Inc. and Wireless One -- to allow the
operators to market DirecTv to single-family homes. A number of other wireless cable
operators distribute the DBS service only to the MDU trade.

McKee said DirecTv is also in discussions with cable
operators about joint marketing alliances. The deals would probably not be limited to
transport, McKee said, because "our focus is on building our brand."

As one of the first DBS companies on the market and the
leader in overall subscriber numbers, DirecTv's brand goes a long way toward helping
the company to sign new deals.

"People come to us because we have good brand
equity," McKee said. "Most people would prefer to do business with a company
that has ownership as strong as ours."

But in some cases, a consumer may wind up with a DBS dish
without ever considering the brand at all. For example, a new homeowner may find a dish on
the roof upon moving in -- whether or not it was requested.

"We believe that satellite dishes are going to be a
replacement for cable," McKee said. "Just as in previous decades, builders would
prewire for cable, we'll be doing the same thing for DSS."

DirecTv's commercial-system-operators' network
targets the home-construction community, as well as the apartment-building market.

As DBS companies continue to expand, other marketing
opportunities will arise.

"I suspect that business television will be a unique
way of distribution," Alpert said.

Companies that have salespeople across the country may find
a way to lease transponder space on DBS in order to communicate. Once the dish is in the
home for business purposes, the DBS provider has a good shot at selling entertainment
packages, as well.

EchoStar already has a program for business television in
place.

And the DBS industry continues to think up sneaky ways of
fulfilling its plot to put a dish on every home.

Once DBS receivers are built into HDTV sets, Alpert said,
that takes away the upfront purchase cost of DBS.

"As cable converters became standard features in TV
sets," he said, "you'll see DSS, Dish [Network] and PrimeStar built into
TVs."

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