DBS Pitches: MSOs Swine, Telcos Divine


With the holiday season fast approaching, DirecTV Inc. and EchoStar Communications Corp. have taken two distinctly different tacks in attracting new subscribers to their direct-broadcast satellite platforms.

DirecTV opted for the more traditional approach, announcing a marketing agreement with telco Verizon Communications Inc. that is slated to take effect next year. EchoStar, on the other hand, launched an anti-cable marketing push that compares cable companies to a voracious pig bent on eating its customers out of house and home.

That tongue-in-cheek EchoStar promotion — "Stop Feeding the Pig" — depicts a swine decked out in a sweater reading "Cable Co." tearing through a cable customer's house eating everything in sight — a wallet, jewelry, a doll and even the dog's food — before the beleaguered homeowner calls EchoStar's Dish Network to switch service.

EchoStar also launched a Web site (stopfeedingthepig.com) for potential customers to access additional information.

"Basically cable is greedy, cable's been raising their rates five times faster than the rate of inflation — and so they're a pig," EchoStar spokesman Marc Lumpkin said.

The ads broke on national radio and television — including major cable networks and local broadcast — on Nov. 17, and are slated to run through the year. A print campaign, "Stop Feeding the Pig," launched simultaneously with full-page ads in USA Today.

In conjunction with the campaign, EchoStar is offering a free two- or three-room satellite dish and receiver with a digital video recorder in return for a $49.99 refundable activation fee and a 12-month pledge of service.

The ads point out that cable has raised its rates 40% in the past five years, while EchoStar's 50-channel video package starts at $24.99 per month, the lowest rate for DTV in the country.

'Cable Can' Too

The EchoStar campaign started on the same day the Cable & Telecommunications Association for Marketing launched its "Only Cable Can" campaign, designed to tout high-speed data, HDTV and video on demand services.

"As each of these companies launch services that have more to them — [digital video recorders] and HDTV — that demands a bigger and higher-end box, it's not surprising that a lot of the promotions hit during the holiday season," Oppenheimer & Co. cable and satellite analyst Tom Eagan said.

He said that, even tongue in cheek, likening cable to a pig is a bit harsh.

"Every cable operator is different; some cable operators are more egregious than others and some are not egregious in terms of their rate increases," Eagan said. "I do believe it's the content companies that have gotten away with rate increases without irritating customers or Washington. I think that's kind of been unfair."

DirecTV took the porcine-free route, confirming a marketing agreement with Verizon that will allow the No. 1 DBS service provider to deliver a bundled video, voice and data package to customers across the telco's 29-state territory.

Neither side would reveal details of the agreement. Verizon and DirecTV both confirmed that they had signed a marketing pact.

Like Dish-SBC

The Verizon deal smacks of a similar arrangement EchoStar announced in July with SBC Communications Inc., a co-branding deal that will basically be controlled by SBC.

As part of that arrangement, SBC also invested about $500 million in EchoStar.

The service, to be branded SBC Dish Network, is expected to launch at the beginning of the year.

While neither Verizon nor DirecTV was willing to offer details of their marketing agreement, sources familiar with both companies said it would be different from the SBC-EchoStar deal in that there will be no equity investment and no co-branding agreement.

"DirecTV will maintain its brand, as is," said the source familiar with both companies. "DirecTV will maintain customer ownership and interaction."

According to the source, the agreement calls for bundling DirecTV service at a discount with Verizon voice and high-speed data service. Just how big a discount that will be remains to be seen.

Verizon spokesman Eric Rabe would offer no details on the agreement, but confirmed there is one.

"What we have here is a strategic marketing agreement that we've announced with DirecTV," Rabe said. "Our plan is to market DirecTV service through our sales organization."

Ties Renewed

This would be the second marketing pact Verizon and DirecTV have entered into in about five years.

In 1998, DirecTV signed a deal with Verizon predecessor Bell Atlantic Inc. to bundle its video with Bell Atlantic's phone products. According to that deal, Bell Atlantic installed, maintained and billed DirecTV service for customers.

The agreement was launched in two Bell Atlantic markets amid much fanfare, but was abandoned about a year later.

Rabe said that there are some similarities between the new and old DirecTV agreements, "but there are some important differences as well."

He declined to elaborate.

Eagan said he is generally not a fan of telco-satellite marketing deals, adding that as number portability comes into vogue — allowing customers to keep the same telephone number regardless of their service provider — the satellite companies could see a big bump in churn.

"I think number portability is going to be a real negative for these packages," Eagan said. "If you're DirecTV or EchoStar and you're packaged with a cell phone service, people are going to go from cell phone vendor to cell phone vendor."

MSOs: Focus On Packages

Eagan said that he doubted that deals like these would have a big effect on cable operators. But he did say they will likely cause MSOs to pay closer attention to the packages they offer.

"I think it will make them [MSOs] more competitive, it will make them look at their markets that much more rigorously to make sure they are offering the best bundle in each market," Eagan said.

Cablevision Systems Corp. would be the most affected by the Verizon agreement, as 79% of Cablevision's customers are located within Verizon territory. The Bethpage, N.Y.-based MSO launched voice-over-Internet protocol telephony service in its territories in September and already has about 5,000 customers.

But Eagan said that service is not expected to be a threat to Verizon because it doesn't have 411 or 911 service, is not powered and customers have to pick a new phone number.

"The Cablevision VoIP service really isn't ready," Eagan said. "I think that service will be a more commercial marketable service in about six months."

Rabe said that increased VoIP rollouts did not force Verizon into a DBS agreement.

"I don't know how many VoIP lines they [cable operators] might have sold, but we probably have in every market that we operate a dozen active competitors," Rabe said. "Cable VoIP is the latest and the smallest, probably, of all of those."

Compared to Verizon's 56 million access lines, cable VoIP is a small competitor for the time being. But with aggressive pricing — Cablevision's VoIP service is priced about $10 per month less than Verizon — and the lure of the video and high-speed data bundle, it could make a dent in Verizon's customer base.

Losing Lines

Verizon's local customer base is already dwindling. According to Verizon's third-quarter financial statement, it had 56.1 million access lines as of Sept. 30, 2.3 million lines less than in the same period last year. Since the first quarter of 2001, Verizon has lost about 5.5 million access lines.

But Verizon has shown strong growth recently in DSL, adding 185,000 subscribers in the third quarter.

DirecTV has had robust subscriber growth as well, adding 326,000 subscribers in the third quarter. It's on track to finish the year with more than 1 million new-subscriber additions.