Demand Remained Strong for DBS in 1997

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Las Vegas -- Despite reports that growth indirect-broadcast satellite system sales has slowed, the industry boasted a solid fourthquarter last year, topped off by a strong December.

Industry leader DirecTv Inc. maintained its lead, adding180,000 new subscribers last month, its best month to date for subscriber acquisition.President Eddy Hartenstein said the company had its strongest December ever, following itsrecord months in October and November.

'I guess you could say we had our strongest fourthquarter ever,' he said.

DirecTv ended the year at 3.3 million subscribers,three-and-a-half years after its service launched.

Hartenstein said the sales momentum has carried into thenew year.

U.S. Satellite Broadcasting's president Stanley E.Hubbard added that the recent move of seven basic cable networks from USSB to DirecTvshould help simplify the Digital Satellite System sales offer at retail going forward.

DirecTv's strong fourth-quarter 1997 sales were likelyenhanced by a product shortage from DBS competitor EchoStar Communications Corp. InSeptember, EchoStar added 105,000 Dish Network subscribers, surpassing even DirecTv'snumbers for the month.

But in December, EchoStar added only 75,000 newsubscribers, according to SkyTrends, which tracks DBS figures.

EchoStar chairman Charlie Ergen estimated that the companycould have sold at least 50 percent more product in the fourth quarter had it had theproduct on hand to meet consumer demand. In the past year, EchoStar has begunmanufacturing digital set-top boxes for DBS services in Spain and Canada, whichcontributed to the Dish Network product shortage.

Ergen said EchoStar is ramping up its productioncapabilities to better meet demand for Dish Network hardware in the new year.

EchoStar will need the additional equipment if it provessuccessful with its plan to penetrate heavily cabled markets with its new local-to-localservice, which will deliver the top four network affiliates to as many as 20 marketsacross the country by the end of the year. The company began its local-to-local service tosix markets --New York, Boston, Washington, Chicago, Atlanta and Dallas -- earlier thismonth. The move faces opposition, especially from cable interests.

EchoStar, which entered the DBS market in mid-1996, ended1997 with 1.04 million subscribers. It met its widely publicized goal of reaching the 1million subscriber mark in mid-December.

Despite an aggressive holiday marketing campaign, PrimeStarPartners L.P. added only 40,174 net new subscribers in December. The No. 2 player endedthe year at 1.946 million. PrimeStar has marketed a digital service for more than threeyears.

PrimeStar president Dan O'Brien said there were two primaryreasons why the company's recent new-subscriber numbers were lower than the competition.

'Most of our customers do not buy the equipment,'he said, 'so our churn rate is higher than our competitors'.'

Also, the announcement of PrimeStar's deal with News Corp.in mid-1997 'added instability to our business,' O'Brien said.

EchoStar's subscriber growth hit a bump earlier in1997 before its own proposed deal with News Corp. soured, but recovered within monthsafter News Corp. left EchoStar for PrimeStar. EchoStar and PrimeStar were in court lastweek over the failed venture, in the deposition stage of a trial expected to begin inJune.

O'Brien projected PrimeStar would add 500,000 newsubscribers at its current medium-power service in 1998, adding, 'the numbers for ourhigh-power business is purely a factor of when we get license approvals' for orbitalspectrum at 119 and/or 110 degrees West.

The Federal Communications Commission has decided to ruleon both spectrum licenses at once, which will delay PrimeStar's planned entry intothe high-power DBS market at 119 degrees. The company had hoped to begin both a retail andwholesale service there by the first quarter of 1998. As it stands now, a favorabledecision from the government is not likely to come in time for such a move.

Instead, PrimeStar could lose further ground to its DBScompetitors in 1998 if it cannot come up with a compelling reason for retailers to addanother line of products. Although PrimeStar has said it will introduce its high-powerhardware at retail for $149.95 after rebate, the uncertainty over the high-power timingcould slow down a larger move to retail.

O'Brien has said that the brand-name manufacturer thatwill produce PrimeStar high-power set-top boxes in addition to NextLevel Systems Inc. isnot expected to deliver product until six months after the NextLevel box ships.

The fight for retail distribution could be critical toPrimeStar's success as it moves away from its lease-only model. Most larger retailersprefer to sell name-brand consumer electronics products. Today, PrimeStar'slease-only, medium-power service is sold by Radio Shack, as well as some smaller,independent satellite dealers.

The DSS platform, which is backed by a number of topconsumer electronics brand names, has the most widespread distribution among top nationalretail chains.

EchoStar last fall won distribution into Sears, Roebuck& Co. when it added JVC as a vendor. EchoStar announced at the Consumer ElectronicsShow two weeks ago that Philips Consumer Electronics had agreed to distribute three DishNetwork models under its own brand name this spring.

At a Satellite Broadcasting and CommunicationsAssociation-sponsored press conference at CES, top executives from the competing DBSplatforms drank a champagne toast to the continued success of the industry. DBS now claimsmore than 6 million U.S. homes.

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