Digital Satellite TV: A Space Age Success

We sent men to the moon and built a shuttle that can rocket into orbit and return to Earth. But the real success of the space age, as far as the average consumer is concerned, may be digital satellite television.

Satellite TV has been around for years. But until recently, you needed a 7-foot dish that made your back yard look like a NASA tracking station. That was OK for people in rural areas who could not get cable, but not for the average consumer. All that changed last year, when two competing systems began marketing Direct Broadcast Satellite, or DBS for short. Suddenly, satellites could deliver crystal-clear pictures and CD-quality sound to dishes as small as a pizza pan. Satellite TV suddenly became the hottest thing in entertainment. By year-end, more than 600,000 people were using the new services to receive network programs, movie channels, sports and pay-per-view. In six months, the new small-dish systems eclipsed annual sales of older, large-dishes, which can cost up more than $2,500.

"Satellite TV now has a whole new perception in the minds of consumers," says Mike O'Hara, general manager of DBS product management for Thomson Consumer Electronics, which makes the hardware for one of the competing systems. "For years, people knew it existed, but they weren't familiar with the technology or thought it was too technical. Now when they see the little pizza-size dish and a retailer standing behind it, it has given the business a whole new look."

Thomson, parent company of RCA, makes an 18-inch dish for a Digital Satellite System (DSS) that can receive programming from two sources: DirecTV, a subsidiary of GM Hughes Electronics, and USSB, from Hubbard Broadcasting. Competing with them is Primestar, a joint venture including six top cable companies and General Electric. Its dish is bigger - about 36 inches across - because it takes its feed from a lower-power satellite.

Each system has advantages and drawbacks. With DSS, you get a smaller dish, but you have to buy it, along with a decoder box, for about $700 (installation adds another $200 or so). Primestar, on the other hand, charges a $225 installation fee but leases you the dish, so your up-front costs are less.

Both systems are completely digital, so reception is about the same. Primestar claims that the smaller DSS dishes are vulnerable to signal interruption in heavy rain. A spokesman for DSS said "If I had a dish that much bigger I'd say something like that too."

Basic prices for satellite programming are comparable to cable. DirecTV offers 30 channels for $30 a month. USSB, which focuses on premium programming such as HBO and Showtime, offers its complete lineup for $34 a month. With Primestar, you also can get a $30 basic package, which includes rental and maintenance of the equipment. When you start adding premium channels, the cost can zoom to over $70, making it more expensive than cable.

In addition, if you want to receive local stations, you will need an old-fashioned antenna, since they are not carried on satellite.

Despite that, satellite TV has begun to catch on not only in remote areas, but also in places that have cable, taking away some customers who have become fed up with poor service by cable companies over the years. In fact, more than half of the viewers who signed up with DSS and Primestar last year were in areas already served by cable.

"If that continues, you're talking about taking away millions and millions of cable subscribers," says Jim Schaeffler, an analyst for Paul Kagan Associates. That would not necessarily be a disaster for major cable companies, since they are the ones making money off of Primestar. Tele-Communications Inc., Time Warner, Comcast, Newhouse Broadcasting, Contintental Cablevision and Cox Cable are all backing the venture.

"Basically they're diversifying their business, just as some phone companies get into cable," says Primestar spokesman Matthew Mickelson. "Cable companies see themselves as deliverers of entertainment, and whatever the best way to get to customers is going to be, that's what they're going to try to do."

The digital satellite business has grown so fast that Thomson can't meet demand for its RCA dishes. It had expected to sell 395,000 units to dealers in 1994 and wound up selling out its entire production of 590,000 (350,000 were purchased by consumers). The company has knocked out the walls in its factory in Juarez, Mexico, and says all back orders should be filled within a few months. It hopes to sell as many as 1.5 million dishes in 1995.

Primestar, which leased 250,000 of its systems in 1994, could increase that number to nearly 840,000 this year, industry experts say.