Denver -- Top executives from the direct-broadcast
satellite industry, meeting here last week for the DBS Summit, vowed to hold the line on
programming prices, to push ahead toward financial breakeven and to fight digital cable on
During an executive roundtable last Tuesday, the presidents
of the country's top four DBS companies pledged not to increase programming prices in
the next 12 months.
"We haven't raised prices from the time that we
started" our service, four years ago, said Stanley E. Hubbard, president and CEO of
U.S. Satellite Broadcasting, "and we don't intend to introduce price
Hubbard added that USSB has signed long-term contracts with
premium-movie suppliers Home Box Office and Showtime, and the deals have built-in volume
PrimeStar Inc. president Dan O'Brien said that his
company is still trying to eliminate the DBS surcharges imposed by some of its
"We can't see any reason why there should be a
surcharge against any DBS operator," he said.
John Reardon, president of EchoStar Communication
Corp.'s Dish Network, said that although DBS is at the top of the networks' rate
cards, "we've built those costs into our rates." He added that as
subscriber volume goes up, DBS has more leverage.
"In many cases, I'm finding that rates decrease
as the cable fees increase," Reardon said.
As DirecTv Inc. nears the 4 million-subscriber mark, its
president, Eddy Hartenstein, said, "We're ahead of most cable MSOs, and
we're able to take advantage of volume discounts."
While Hartenstein has no intention of raising rates this
year, he may have to look at it in the future, he said, "if programmers continue with
double-digit rate increases year after year."
Even if cable and DBS share higher programming costs, DBS
still maintains an edge, Hubbard said.
"Our infrastructure is so much more efficient than
cable," he added. "That's a tremendous advantage to all of us."
That more-efficient infrastructure should help DBS to hold
onto its position as the leader in digital-multichannel video, at least for a little
while. But the DBS executives meeting here were well aware of the pending competition from
"It's a challenge that we take very
seriously," Hartenstein said, adding that to answer that challenge, DirecTv will
continue to offer superior products, service and value as digital cable continues to roll
O'Brien called digital cable a "fundamentally
flawed system," because it attempts to combine basic-analog channels with a digital
tier. He questioned whether consumers would be satisfied with the picture quality of the
analog channels once they viewed them side-by-side with digital.
"It's a digital teaser," O'Brien said,
"and that helps us."
Once the cable industry starts educating its customers
about the value of multichannel premium services and pay-per-view movies, Hubbard said,
"they put their customers in a shopping mode." He predicted that once consumers
start looking around, "we're going to see more average American families look at
DBS as the best value for their homes."
The DBS leaders did not indicate any concerns that
digital-cable rollouts would prevent them from hitting their financial breakeven targets.
Hartenstein predicted that DirecTv would reach positive
cash flow once its subscriber level passed 4 million, and that it would report earnings
when it began to approach 5 million. The company is on track to hit 4 million subscribers
within a matter of months if it keeps to its year-earlier sales pace.
USSB will reach positive cash flow next year and earnings
in the year 2000, Hubbard reported.
Reardon said he expects EchoStar to see positive cash flow
next year and earnings by the end of 1999.
Only O'Brien was hesitant to venture a guess on when
PrimeStar would reach breakeven. And given the uncertainty surrounding the company's
plans to move to high-power DBS, nobody was about to push him for a definitive answer.