Local Nets Fuel Hot Summer For DBS Sales

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Summertime, and the selling is easy. That's not a typical refrain from consumer-electronics retailers. But direct-broadcast satellite systems continue to break sales records this summer, which many attributed to the growing availability of local-into-local broadcast-channel packages.

A DBS buyer at one top national retailer said local-into-local's impact on DBS sales has been "outstanding" all year.

DirecTV Inc. last week reported its strongest June subscriber acquisitions since it launched its service six years earlier. The company added 142,000 net customers last month, along with converting an additional 140,000 Prime-Star by DirecTV customers to high-power DBS.

In the first half of 2000, DirecTV added 875,000 net new subscribers, a 28 percent increase over last year's first half. At the end of June, DirecTV served about 8.7 million customers.

The DBS industry has likely passed the 13 million-subscriber mark. EchoStar Communications Corp.'s Dish Network signed its 4 millionth customer in early April. And while it has not yet released second-quarter subscriber numbers, Dish has been signing more than 100,000 new subscribers each month for more than one year, and there's no indication that the trend has slowed.

Analysts are already predicting the possible shareholder upside once EchoStar reports its earnings and subscriber numbers in early August.

DirecTV Merchandising president Bill Casamo said he wasn't taken by surprise by this year's subscriber growth for his company. "We predicted that we would grow at about this pace for the year 2000," he said. "An awful lot of that was based on our ability to deliver local channels."

Dish executive vice president Soraya Hesabi-Cartwright said the DBS provider is "definitely adding more subscribers" in the 30 markets where it currently offers local-into-local packages.

By nature, the initial cities where Dish and DirecTV launched local-into-local are also markets with high cable penetration.

Casamo said, "There's no question" that cable poses a greater competitive threat to DBS than it has in years past. It's not just that cable is introducing new products, such as digital cable and high-speed cable modems. It's also that cable is starting to take DBS more seriously and fighting back with stronger anti-DBS campaigns, including dish-buyback programs.

"There's been a wake-up call, and cable is answering that call," he added.

EchoStar is responding to cable's anti-DBS ads with a new marketing campaign of its own, dubbed "Digital Dynamite." In an offer that runs through Oct. 31, Dish is expanding a hardware-lease option it introduced earlier this month.

For a monthly fee that ranges from $34.99 to $49.99 and a one-time setup fee of $99, new subscribers can lease Dish systems with one or two receivers and access to 100 to 150 channels of programming.

The company plans to move away from its "free hardware/ free installation" promotions, but some retailers, including Sears, Roebuck & Co., are sticking with the so-called Dish One-Rate plan, at least for now.

Dish is highlighting its lease option, Hesabi-Cartwright said, to overcome objections from would-be subscribers.

By addressing multiple-room setups, the Digital Dynamite program overcomes a perceived weakness in DBS that many cable operators play up in their anti-DBS campaigns.

"It's very marketing-savvy that Dish is coming out with a two-receiver solution and building it into its marketing proposition," B.G. Marketing Inc. president Barbara Sullivan-Roehrig said.

DirecTV has no immediate plans to respond to Dish's Digital Dynamite promotion with a lease model of its own, although consumers in many cities can lease DirecTV hardware from their regional telephone companies.

Casamo noted that the retail sales model is a good platform for launching new products, such as interactive television from Wink Communications Inc. or America Online Inc.'s AOLTV. "It's a kick-the-tires kind of business," he added.

DirecTV has been successful in keeping much of the consumer-electronics retail channel to itself and away from Dish. And while Casamo has noted some initial retail trials for digital cable and cable modems, he doesn't see the cable industry moving full force into retail anytime soon.

"Cable companies will have to make the decision on whether to match DirecTV's economics at retail," he added.

Best Buy Co. Inc. senior DBS buyer Dave Ryan said that while the retailer "always keeps its options open," it has no plans to add Dish products in the near future.

Local-to-local channels have improved Best Buy's DBS sales this year, Ryan said, but not as dramatically as the retailer had anticipated, even though Best Buy lists the broadcasters' logos every week in its Sunday-newspaper circulars.

"DBS loses some of its low-cost edge over cable because it has to charge for the locals," Ryan said. Adding a $6-per-month local-channel package fee to DirecTV's most popular package at $32 takes the monthly subscriber cost close to what cable charges, he added.

In any event, both DirecTV and EchoStar plan to continue adding new local-channel markets this year.

During an on-air "Charlie Chat" with subscribers last week, EchoStar chairman Charlie Ergen listed a number of proposed local-channel markets for Dish, including Albuquerque, N.M.; Buffalo, N.Y.; Las Vegas; and Milwaukee.

The two companies have also added a handful of local independent stations in select markets recently, although in many markets, local-into-local customers receive only the top four broadcast affiliates.

Casamo said that since DirecTV has no more channel capacity at its core platform at the 101 degrees west orbital spectrum, he does not expect to add more independent channels in current local-channel markets until after the company launches spot-beam satellites next year.

EchoStar launched its sixth satellite in six years early last Friday morning from Cape Canaveral, Fla. Once it undergoes testing, the high-power satellite is expected to provide improved Dish coverage to Alaska and Hawaii, and backup coverage should any of EchoStar's other satellites fail.

"It's heart-stopping," Ergen said in describing a satellite launch during an on-air "Charlie Chat" last Monday. "I call it the most exciting 20 minutes in sports."

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