DBS Success on Events May Haunt Cable

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While cable operators are thirsting for real revenue from
the barren pay-per-view event category, direct-broadcast satellite services have been able
to nourish their budgets by aggressively making do with what they have.

As a result of its marketing tactics, distributors may look
at the DBS business more favorably in terms of offering exclusive programming or better
licensing deals once the cyclical event category turns more fruitful.

Facing one of the worst event years in PPV's checkered
history, both operators and DBS services have been struggling to meet PPV-event
projections, and there isn't any relief in the near future. Showtime Sports and Event
Television's cancellation of this year's only scheduled major
heavyweight-championship fight -- a June 6 Evander Holyfield-Henry Akinwande bout --
further pushed the business into an abnormal revenue abyss.

Yet unlike most cable operators, which are waiting
patiently for the next big event, event distributors said the DBS services -- led by
DirecTv Inc. and U.S. Satellite Broadcasting -- have maximized revenues from the midsized
and small events that have been offered through aggressive marketing tactics.

"The PPV industry markets the PPV business like
it's a back-burner product," one PPV-programming executive said, "but
DirecTv markets PPV more as part of its overall business."

MARKETING AND

MORE MARKETING

Because of their broad reach, DBS companies have made a
more concerted effort to promote PPV events on a national level -- including print and
broadcast ads -- which helps to build awareness for the events. Cable operators, however,
can only promote movies and events in the local markets that they serve.

Instead of having one integrated message for an event or
movie, cable subscribers receive erratic promotional messages, depending on how
aggressively the local operator promotes the event.

The ability to advertise on a national platform actually
drives awareness for major events and provides DBS with a major marketing advantage over
cable, said Mark Greenberg, executive vice president of corporate marketing and
communications for Showtime Networks Inc.

"By definition, 100 percent of their subscriber base
is addressable, so their ability to market more efficiently allows them to achieve higher
levels of success," Greenberg said.

"[DBS] has the ability to do more national-television
promotion, which helps both their business and ours."

That national reach, along with an expanded PPV-channel
lineup, also allows DBS services to provide more marketing and scheduling flexibility.
DirecTv, for example, can easily offer five Saturday games as part of ESPN's
college-football package, whereas most cable operators can only offer two or three games
at a time, at best.

"They have things that the MSOs don't have at
their disposal, so right off, there's a certain advantage," said Skip Desjardin,
director of sales and marketing for ESPN. "They have the ability to carry the entire
package, which makes it more attractive to the consumer, and which also makes it easier to
market."

MORE REVENUE

It also leads to higher buy-rates than cable. For
Showtime's Spice Girls PPV concert in January, DirecTv was willing to repeat the show
more often and to provide more marketing support than cable was. As a result, the DBS
services ratcheted up their buy-rates by 30 percent just on the replays.

"They're able to operate with a little more
flexibility, which could make the difference between an average show and a very successful
show," Greenberg said. "Those guys are much more aggressive on the marketing
side."

DBS services' buy-rates for ESPN's
college-football and college-basketball PPV packages are "100 times" better than
those of cable operators because of their ability to effectively market the full gamut of
games for each package, Desjardin said.

The flexibility that DBS companies enjoy on marketing and
scheduling helps to boost buy-rates by 100 percent to 200 percent, said John Rubey,
president of Spring Communications, which distributes a number of niche events and PPV
concerts.

"When you deal with one DBS service, you're
dealing with one marketing machine that is far more efficient [than cable]," Rubey
added.

SPLITS DON'T MATTER

DBS' marketing aggressiveness for PPV is spurred by
its own success.

"One of the reasons why we have had success is that we
invest in the business," said Colleen Galloway, director of PPV for USSB. "We
think that the margins on PPV warrant the kind of spending that we do."

DBS services are so energetic in their approach to PPV that
they're more apt to ante up upfront guarantees, rather than taking the standard 50-50
split. Event distributors applauded these aggressive moves because they all but force DBS
companies to generate a major revenue return, which, more often than not, they are able to
achieve.

"DBS distributors are not as concerned about split
performance [as cable operators are], and they realize that maximizing revenues is the
most important aspect," said Dan York, vice president and general manager of TVKO.
"As a result, they're typically more creative and more aggressive in the
marketing of PPV events,"

He pointed to USSB's buy-rates on TVKO fights, which
is almost "unparalleled," despite USSB only offering two PPV channels.
"They are able to achieve these buy-rates because of their aggressiveness, both on
and off the DBS system," York said.

That marketing push could allow the satellite business to
seal exclusive deals for future PPV events. The services already have exclusive rights to
a number of out-of-market professional-sports packages, but some distributors hinted that
if cable does not step up to the plate, the satellite services could also land exclusive
concerts and other major PPV events.

"Their aggressiveness in the PPV category puts them on
the fast track for acquiring major acts and PPV events," one PPV-event executive
said.

OPS ARE NERVOUS

This has some operators nervous. But while operators are
making the move toward digital compression, the pace has been snail-like. Most operators
are still offering three to five channels of PPV, and they won't upgrade to
double-digit PPV services for at least another one or two years.

Meanwhile, trying to compete with DBS' PPV onslaught
is almost impossible in a limited, analog environment.

"The analog-PPV business is so difficult; we're
trying to do the best that we can until we can move to digital and a more NVOD-based
service," said Pam Euler, senior vice president of marketing for Insight
Communications, referring to near-video-on-demand.

One top 10 MSO executive, who wished to remain anonymous,
admitted that the industry will remain at a major disadvantage to the satellite services
until digital is more prevalent. "Right now, DirecTv is the model for all of us to
ascribe to; until we're able to reach that level of sophistication within our PPV
business, we'll be chasing them," the executive said.

DBS' PPV success can also be traced to its commitment
to the business on the personnel side. Desjardin said DBS services are "very
aggressive" in assigning marketing personnel to handle PPV duties.

At many MSOs, PPV is just one among many duties for
marketers, who feel too under-the-gun to give PPV enough attention.

DirecTv, on the other hand, has a dedicated person working
on sports-PPV, movie and event-PPV programming.

"They take it very seriously, and it pays off,"
Desjardin said.

Rubey added that having a dedicated PPV person also gives
event distributors more flexibility in making changes, or even in offering last-minute PPV
events.

"If you are the owner or marketer of a piece of
software in PPV, the question is: How quickly and efficiently can you get to the customer?
And DBS has a clear advantage at this time," he said.

Desjardin said operators have the ability to match DBS, but
they have yet to commit the necessary resources.

"There is the potential for cable to do just as well;
whether they choose to focus on that aspect of the business remains to be seen,"
Desjardin said. "Maybe the success of the DBS business will spur the operators to do
just as well."

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