EchoStar Will Give Away Dishes

Author:
Updated:
Original:

EchoStar Communications Corp. will offer a free satellite
dish to new subscribers who commit to one year's worth of high-ticket programming.

Starting Oct. 1, EchoStar will launch its most aggressive
consumer advertising campaign to date, according to Mary Peterson, vice president of
marketing for the direct-broadcast satellite service.

Ads in more than 400 newspapers across the country -- as
well as in top consumer magazines such as Better Homes and Gardens, Time and
Popular Mechanics --are designed to entice consumers with a free Dish Network
system if they sign up for the company's new "One-Rate" plan.For $48.98 per
month, One-Rate subscribers receive EchoStar's "America's Top 100"
programming package, plus their choice of two premium-movie multiplexes.


The offer is not without its upfront costs: Before receiving a rebate check for $249, new
customers must pay for the cost of a dual-LNB satellite system at $249 or above. (The dual
LNB allows subscribers to add second receivers.)

EchoStar is extending its $49 professional-installation
offer through the end of the year, and it is giving away the self-installation kit
free-of-charge.

But there's an additional $50 installation fee for new
subscribers looking to put in second dishes for local-into-local signals. For multiroom
viewing, second receivers start at $99. And new subscribers must pay their first bill,
which incorporates two months of programming, before the rebate check hits the
mailbox."They're calling it free, but the consumer is still writing a check for
$249," said Chris Sophinos, senior vice president of sales and distribution at
PrimeStar Inc.Chuck Cebuhar, vice president of merchandising for Sears, Roebuck and Co.,
called the new campaign "very aggressive," adding that the national retailer
will promote the offer. But he also raised concerns about depreciating the value of DBS
hardware in the same way that the cellular-phone industry has conditioned consumers to
think in terms of "free" phones.Barbara Sullivan, president of Denver-based B.G.
Marketing Inc. and a former EchoStar executive, called the use of the word
"free" a "category cancer." She was heartened that EchoStar plans to
use a rebate, rather than discounting the cost of the hardware altogether.If the new
promotion has some industry observers shaking their heads, it wouldn't be the first
time. EchoStar chairman and CEO Charlie Ergen caught the industry by surprise a little
over two years ago, when he dropped the price of a DBS system to $199.When EchoStar
discounted its hardware in the past, DBS-leader DirecTv Inc. typically followed suit with
price cuts of its own on entry-level Digital Satellite System models. But analysts
questioned whether that is necessary this time, given the pace of DirecTv's recent
subscriber acquisitions."DirecTv now has the advantage of being able to rely on its
[National Football League] package," said Lehman Bros. Inc. analyst Bob Berzins,
"but they're going to have to be responsive to EchoStar."DirecTv spokesman
Jeff Torkelson said the company does not plan to make any changes to its fourth-quarter
marketing plans.

"We are not alarmed by it," he said of
EchoStar's offer, adding that DirecTv plans to stay focused on its business and to
stay away from the pendulum of responding to each EchoStar offer.

"You never want to get in price wars," said Bruce
Leichtman, analyst with The Yankee Group.

Leichtman added that it would be more complicated for
DirecTv to launch a similar offer because it does not manufacture its own hardware, and
because it would need to involve U.S. Satellite Broadcasting in order to run a similar
premium-movie offer.Since PrimeStar customers already have such a low cost of entry, it
would be hard for the company to do much in direct response to EchoStar's new
promotion.

PrimeStar is also burdened by higher per-subscriber
acquisition costs than its DBS competitors. PrimeStar's high acquisition costs are
coupled with such a high churn rate that some analysts wondered if the company makes back
its initial investment on each subscriber."We've always had the lowest
acquisition costs in the industry," Peterson said in explaining why the company is
not afraid that the campaign will impact its breakeven targets. "This is worth it to
us to sign up folks. We're big believers that if they try it, they'll like it.
We have the lowest churn in the industry."Sophinos said PrimeStar's new
"Value Lease" offer, which allows new subscribers to buy down the monthly
hardware-lease rate from $10 to $3, is a real churn deterrent. He added that 80 percent of
customers who signed up for the service in September chose the option.

Sophinos estimated that PrimeStar's $49 installation
promotion would help the company to sign up 100,000 gross subscribers for the month,
although the net number is likely to be lower after churn.Peterson said she believes that
EchoStar will continue to skim cable's best customers. She added that while cable
bills vary tremendously, a typical monthly cable bill can easily hit $38, plus another $10
for a premium service with just one or two feeds.Seth Morrison, vice president of
marketing for cable-marketing trade group CTAM, said that while cable operators need to be
concerned about any DBS promotions, cable installation still tends to be cheaper for
consumers, who don't have to pay as much upfront.EchoStar recently renamed its
"America's Top 60" package as America's Top 100, following the
addition of a handful of new video channels and taking into account its 31 audio
channels.Peterson was reluctant to place a dollar figure on the upcoming ad campaign, as
she didn't want to risk tipping off EchoStar's more well-heeled competitors at
DirecTv and in the cable industry. She said the company plans to beat last year's
fourth-quarter subscriber numbers.

Related