Pay-TV Scrambling Hurting Dish Makers : Uncertainty on Costs Keeps Customers Away
Cincinnati Microwave, a company that makes home satellite systems and radar warning devices, found itself in spacious digs at the Consumer Electronics Show in Chicago this week. Other home satellite companies that were supposed to have shared its exhibit room canceled--unwilling or unable to spend the money to come.
Business has been bad lately for satellite dish makers--some say it is off as much as 70% from last year. Several companies have gone under, others are cutting back production and sales staffs and a pricing battle is adding to the survivors’ troubles.
The primary culprit is the beginning of signal scrambling by pay-television companies. Home Box Office and its Cinemax affiliate began encoding their signals in January, preventing home satellite users from receiving the pay-TV programs for free. Other national pay-TV companies have said that they, too, will begin scrambling their satellite broadcasts by the end of the year.
May Only Be Short-Term Problem
The consumer is waiting to find out how much descramblers and monthly fees will cost, and “it is hurting sales,” said Mark Dawes, marketing vice president for Cincinnati Microwave. “But we believe the scrambling situation will become clear in the next several months. This is only a short-term dysfunction in the market.”
Industry analysts agree that by the end of the year, current efforts may succeed in standardizing descramblers and settling on equitable subscription fees. Meanwhile, however, inventories are piling up and cash-poor companies are being driven out of business.
The Electronic Industries Assn., the Washington-based trade group that sponsors the semiannual Consumer Electronics Shows, believes that sales will drop by one-third to about 400,000 home satellite units this year. By 1987, according to Allan Schlosser of the trade group, sales should begin to recover--to about 550,000 units.
“Once consumers realize there is life after scrambling, sales will improve,” Schlosser said.
Pay television constitutes only a small portion of the 120 or so channels available to satellite dish owners. Manufacturers, distributors and retailers have formed a trade association and lobbying groups to clean up the image of their customers, contending that viewers watch more sports broadcasts than movie channels. Nonetheless, the move to scramble has dampened the entire industry.
Only 30 Companies at Show
At last year’s summer electronics show in Chicago, home satellite dishes were among the product stars, with 40 companies exhibiting. This year, only 30 companies showed.
Among the dropouts was M/A Com Satellite Communications, a Hickory, N.C.-based company that makes descramblers. Chuck Ehl, national sales manager for the company’s satellite operations, said M/A Com forfeited a fee of about $15,000 because it canceled so late.
The company’s main complaint was that the room it was to have shared with Cincinnati Microwave was too far off the beaten path; M/A Com feared that it would not draw the kind of foot traffic from the distributors and retailers attending to make the estimated $100,000 cost to exhibit worthwhile in such tough industry conditions.
Even the satellite companies who had booths on the main floor of the McCormick Place exhibit hall found the convention slow, especially Tuesday and Wednesday.
Among them was Jim Riffel, sales manager of Winegard, a Burlington, Iowa, company, who said that home satellite system sales have been off about 50% this year and that the company has had to lay off about 25% of its work force.
Henry S. Wurst, an analyst at McDonald & Co. Securities in Cleveland, said: “To say the least, there has been a lot of shakeout in the industry. So much confusion (about descramblers and monthly fees) causes consumers to put buying on hold.”
Reduce Cost of Boxes
Current industry efforts are aimed at reducing the cost of the descrambler boxes, which M/A Com sells for $395, and the monthly fees that programming services charge.
After years of frustration that satellite owners have been receiving pay-TV programs for free, companies such as HBO now seem to have the upper hand. Industry experts believe that the sophisticated encryption codes will not easily be cracked by hobbyists--if at all. And pay-TV companies are insisting that satellite owners subscribe through local cable-TV providers, often at higher rates than regular cable subscribers.
Satellite owners and manufacturers want such programming to be available through separate companies in order to provide competition that they say will drive prices down and benefit all pay-channel customers.
Still, companies such as Cincinnati Microwave are confident of a rebound. Analyst Wurst said that although losses at the company’s satellite division shaved 10 cents to 15 cents from its 1985 per-share earnings of $1.46, Cincinnati Microwave has enough cash to see it through the rough period and will benefit from the shakeout.
Said Dawes: “We’ve had losses in the satellite business, but we’re looking toward the end of the year for the situation to turn around. . . . We’re very optimistic.”
