Word-of-Mouth Helps to Spark Jump to DBS

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Recently, severe thunderstorms ripped through
Elizabethtown, Ky., knocking out cable service in the area. That was good news for Rik
Hawkins, owner of Starpath of Hardin County, which sells satellite dishes.

"The cable didn't get fixed for over 24
hours," Hawkins said, adding that the timing was especially inopportune, since the
National Basketball Association's Chicago Bulls were playing the Indiana Pacers in a
playoff game that night on Turner Network Television..

Not only did Hawkins lure a bonanza of business, but
word-of-mouth helped other direct-broadcast satellite retailers, as well.

Despite cable's claims that DBS has had minimal impact
on its business, DBS services and retailers said the opposite is true.

"It never ceases to amaze me that cable folks are
saying that DBS is a nonissue," said

Barbara Sullivan, president of Denver-based B.G. Marketing
Inc.

"Word-of-mouth has taken control," said Mary Pat
Ryan, executive vice president of U.S. Satellite Broadcasting, which shares the Digital
Satellite System platform with DirecTv Inc. She added that recommendations by friends have
become a key selling point.

But what's driving people to abandon cable for DBS?
And since cable subscribers are notorious for complaining about their operators, why
haven't more fled for the digital world of DBS? If every cable customer who muttered
a complaint against their local cable operator acted out their fantasies and canceled
their service, cable's subscriber ranks would thin out pretty quickly.

PROGRAMMING

DRIVES BUSINESS

While picture and sound performance rate high as DBS draws,
it's still programming that drives the majority of new-system purchases. According to
a new study by The Yankee Group, more than 70 percent of DBS-system owners cited
"more channels" as one of the factors that initially got them interested in DBS.
And more than 30 percent cited it as the single most important factor, topping all other
reasons. Other drivers included greater selection of movies, clearer picture,
dissatisfaction with cable and more sports.

Although cable pricing was also cited as a factor, it was
further down the list.

"The bottom line driving DBS will always be,
'What can I get over DBS that I can't get anywhere else?'" said Jimmy
Schaeffler, chairman and CEO of The Carmel Group.

INERTIA

SAVES CABLE

But what's saving cable, DBS marketers said, is
consumer inertia, which keeps cable subscribers coming back for more month after month.

"People don't rip out their cable because
they're mad at the cable company," said Steve Blum, president of
California-based Tellus Venture Associates. "What people say in the heat of the
moment" often doesn't match their actions.

Sullivan agreed, pointing to focus groups of Canadian cable
subscribers.

"People would vehemently complain about their cable
companies," Sullivan said, "but when asked what would get them to switch from
cable, they'd say, 'Oh, it's not so bad.'"

With the universe of DBS viewers growing daily, there are
more contented customers that are willing to lure their cabled counterparts over to the
other side.

To overcome that inertia and to make it easier for
time-starved consumers, savvy DBS providers try to put their systems where people
can't help but run into them -- in as many neighborhood stores and shopping malls as
possible.

DBS executives also realized that it may take repeated
visits before a consumer will open their wallet, and the timing of the purchase is
anything but predictable. That's why DBS companies and retailers have started to
spread their ad campaigns throughout the year, rather than concentrating them during the
fourth quarter.

Ferguson said DBS sales are often triggered by birthdays,
anniversaries or other holidays, adding that certain annual events, such as the start of
the National Football League season, also spur sales.

While DBS companies can't target ad campaigns around
each special event in the life of every potential subscriber, they can monitor trends.
Earlier this year -- just when many cable operators were announcing rate increases --
DirecTv ran a series of prominent television and print ads targeted specifically toward
disgruntled cable customers.

PASSING THE WORD

But more often, word-of-mouth is DBS' best friend.
Satisfied dish owners often pass the good word to friends, families, coworkers and even
complete strangers on the various Web sites and chat rooms that are devoted to DBS.

A quick glance at the various online DBS user groups showed
that when cable operators don't resolve service issues, they're in danger of
losing longtime customers. A new EchoStar Communications Corp. Dish Network subscriber
told one forum that he left Tele-Communications Inc. because its customer-service
department couldn't fix an interference problem on several of his favorite cable
channels.

Another said he had switched from Comcast Corp.'s
Comcast Cable Communications because he was tired of rate hikes and bad reception.

Other commonly cited reasons for switching to DBS included
more programming, better picture and sound and exclusive sports packages. Individual
channels such as superstations were often mentioned as reasons for choosing one DBS system
over another, but just as frequently, users said there was still a channel or two that
they wished their DBS operator would add.

On the surface, people without access to cable seem to be
the easiest targets, and that's where much of the initial DBS growth came from. But
former cable subscribers make better DBS customers in many ways.

"They're the folks who have had a lot of
television options available," said Terry Ferguson, vice president of business
development and strategic planning for DirecTv. "They're more sophisticated
viewers, and wanting more choices is the logical next step."

In the early days, DirecTv was getting people who were not
served by cable, Ferguson said. "Now, the majority of our new subscribers come from
cable-passed areas."

Cable operators sometimes unwittingly push their
subscribers out the door through indifference, retailers said. If subscribers look to DBS
for more programming, taking channels away can be all the push that a cable customer needs
to make their exit.

Hawkins said his customers usually tell him why
they're leaving cable.

"The No. 1 reason is for improved performance --
especially when people pay more for their TV sets," he said.

NO SUBSTITUTE

FOR EXPERIENCE

Home-theater buffs who frequently read videophile magazines
and pay thousands of dollars for the latest audio/video systems were the first to
appreciate the distinction between analog cable and digital satellite. But as DBS systems
are more widely distributed at retail and in homes, more people can see the difference for
themselves.

"What gets them over that hump is experiencing,"
Ferguson said. "Suddenly, it's everywhere, and they say to themselves,
'I've got to have that, too.'"

EchoStar has been encouraging its Dish Network subscribers
to spread the good news about its system by offering them up to $100 for two successful
customer referrals in its "Tell-A-Friend" promotion, which ran through June.

Even before she was told about the referral program, one
earnest Dish Network subscriber volunteered to distribute literature about the service to
hundreds of homes around her neighborhood. "Send me those flyers!" she asked
amused EchoStar chairman Charlie Ergen, when she called in to a recently televised
"Charlie Chat."

But as cable companies continue to upgrade their plant and
roll out digital-cable offerings, the programming gap will narrow. Sullivan recommended
that cable operators let their customers know that digital cable is coming, even if
it's a few years down the road. Such news could play right to the inertia that many
consumers feel when faced with the call to leave an incumbent service provider. Working in
cable's favor is the overall lack of time that many consumers have to research
alternatives today.

"If it was the '70s, and people were really
working 40 hours a week, they would have time to switch," Sullivan said.

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