Selling into Strength

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Battling the economic downturn, direct-broadcast satellite operators DirecTV Inc. and EchoStar Communications Corp. have crafted new consumer promotions designed to sustain the momentum they've built in driving subscriber growth.

Last Tuesday, EchoStar began offering new Dish Network subscribers a 50 percent discount off the price of its new DishPVR 501 DBS receiver with built-in personal video recorder.

And DirecTV plans this Thursday to launch promotions that would give new subscribers free professional DBS installation and a complimentary year of Internet access from America Online Inc., as well as other incentives in select markets.

The announcements come on the heels of a Hughes Electronics Corp. earnings call last Tuesday, in which executives warned that the economy could have at least a minor impact on earlier subscriber-growth projections for the DBS sector.

"We're watching the economy very closely," Hughes chief financial officer Roxanne Austin told financial analysts last week. The company has adopted a more conservative approach to its guidance for DirecTV and DirecPC subscriber growth for 2001, she added.

DirecTV global chairman Eddy Hartenstein said he was confident the company would add 1.5 million to 1.7 million new U.S. DirecTV subscribers this year. Earlier, the company had predicted that the number could rise as high as 2 million net new additions for 2001.

DirecTV added 340,000 net new subscribers and 840,000 gross new subscribers in the first quarter. The company has yet to hit the 10 million subscriber mark. It counted more than 9.8 million subscribers at the end of the first quarter.

UBS Warburg analyst Tom Eagan last week said he thought DirecTV's estimates were conservative. He stuck with his 2001 projection of about 1.7 million added subscribers.

In a report, Eagan also said that sales of second DirecTV boxes are on the rise, up to about 30 percent from 25 percent 18 months ago. That could help reduce the DBS provider's 1.6 percent per month churn rate, he said.

The new distribution channels DirecTV added in recent months — such as Blockbuster Video stores and its internal Home Services group — should help it reach its sales goals despite weakness in certain retail sectors, Hartenstein said.

Later this year, DirecTV plans to add a hardware lease option for new subscribers through the Home Services division. That group already leases hardware to former PrimeStar Inc. subscribers who converted to the DirecTV platform.

On Thursday, DirecTV plans to bring back its popular free installation offer, good through July 25. The company will also revive its "Feel the Joy" television ad campaign, in which a DBS installer makes fast friends of new DirecTV customers.

Sources said that new installer ads scheduled for the season launch of its "NFL Sunday Ticket" out-of-market sports package next fall would feature such National Football League stars as Indianapolis Colts quarterback Peyton Manning.

Spring and summer don't typically bring in the same level of sales activity as the fall and holiday selling seasons, according to DirecTV senior vice president of marketing Susan Collins.

"If we can keep a good offer out there and bring back advertising that worked well for us, then we can keep the momentum going and keep all the wheels turning," Collins said.

In three markets — Charlotte, N.C., Denver and Los Angeles — DirecTV will also test a $100 discount for second receivers with new subscribers.

"To the extent you can sell in multiple receivers, you clearly have a customer who's more vested in the service," Collins said.

In addition to its offers of free installation and discounts on a second receiver, DirecTV will work with AOL Time Warner Inc. to provide free AOL online service to new DBS customers.

Because some DirecTV retailers promote rival dial-up Internet-service providers, they may not actively advertise the AOL offer, Collins noted. Free access will be available through June 17 to any new DirecTV or DirecTV Para Todos customer who takes a one-year subscription to a premium-level package worth $41.99 or more per month.

DirecTV will promote the AOL offer through call centers to consumers who didn't receive a pitch from retailers.

AOL Time Warner's Time Warner Cable unit competes with DirecTV for the pay TV audience, but that hasn't stopped AOL and DirecTV from past cross-promotional efforts. DirecTV also works with AOL rival Microsoft Inc. to promote UltimateTV, which combines a DirecTV receiver, PVR and MSN Internet access into one set-top.

Unlike its previous DishPlayer PVR product, EchoStar's new DishPVR 501 does not include Internet access.

Through May 31, new Dish Network subscribers can buy the DishPVR 501 for $200 if they commit to a year of programming at $39.98 per month. Current customers pay $349 for the new PVR without an accompanying antenna. A complete system sells for $399.

Unlike earlier PVR services, EchoStar does not plan to charge a monthly subscription fee for PVR functionality on the DishPVR 501. The PVR boasts 35 hours of storage on its hard drive.

EchoStar will also make the new PVR hardware available through its lease program.

A spokesman for EchoStar would not comment on speculation that the company would introduce a new two-tuner PVR in the fall. EchoStar plans to exhibit new hardware later this week at a dealer summit in Phoenix.

UltimateTV presently offers two-tuner capability, while the combination TiVo Inc./DirecTV box is expected to offer two-tuner functionality later this year after a software download to existing set-top boxes.

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