Beating Swords Into Sitcoms? : Defense Giant Hughes Takes on Cable With Satellite TV
For a long time now, the Information Revolution has seemed like so much pie in the sky--a stream of announcements about fancy technologies like high-definition TV and new wireless communicators that remain perennially a year or more away from reality.
But next month, the DirecTv unit of Hughes Aircraft Co. plans to launch a 6,000-pound satellite that will transmit as many as 150 television channels to home antennas no larger than bicycle wheels.
Most Americans aren’t familiar with the technology, known as direct-broadcast satellite TV--or DBS for short. But the prospect of such a huge expansion of video programming is sending shivers through the cable television and video rental industries. At a time when the typical cable system still offers only about 35 channels, DBS represents a quantum leap toward the 500-channel video universe that some cable systems have promised but not yet delivered.
Hughes and its partners are betting that there are enough non-wired households and disgruntled cable customers--many of whom have long complained about high prices and poor service--to make their investment of nearly $1 billion pay off.
“We like our odds; we believe we are delivering a revolution in the way entertainment and information is distributed,” said Eddy Hartstein, president of El Segundo-based DirecTv. “No one has delivered this much programming to consumers at anything near this price point.”
DBS has attracted keen interest overseas, where it has been available for about two years. But Hughes estimates that for the gamble to succeed in the United States, it must persuade more than 3 million households by 1997 to pay about $700 each for DBS receiving antennas and set-top decoder boxes, plus $25 to $30 a month to receive up to 150 channels of programming.
Hughes’ quest to launch DBS represents an ambitious but financially risky effort by one of America’s leading defense contractors to transform itself into a key player in the burgeoning telecommunications and entertainment industries.
As part of the unfolding “wireless revolution” that is melding the telephone, fax machine and computer into a single portable device, DBS faces competition from other emerging video services. Cable programming by microwave transmission is now available in about 140 communities at prices as much as 20% less than regular cable, according to Robert L. Schmidt, president of the Wireless Cable Assn. And an experimental cellular-style video delivery system was approved by the Federal Communications Commission last year.
Hughes, a unit of General Motors, is investing some $600 million in its DBS venture. United States Satellite Broadcasting, a unit of Hubbard Broadcasting of St. Paul, Minn., is kicking in another $150 million. The National Rural Telecommunications Cooperative, a suburban Washington group that raises money to provide telephone service in rural areas, will invest roughly $150 million in exchange for some of the DBS programming revenue.
The existing system of commercial communications satellites, which orbit the Earth 23,000 miles above the Equator, was established, in part, to transmit video from broadcast networks and cable programming services to local TV stations and cable system operators.
The signals those satellites transmit are relatively weak, making it necessary to purchase expensive large-dish antennas to receive them. And many of the channels they carry are scrambled so home users cannot tune in without first obtaining a signal decoder and paying a fee to subscribe to the program.
Like regular satellite programs, DBS signals will be scrambled to protect them from piracy. But because DBS signals are more powerful, they can be picked up by dishes as small as 18 inches in diameter.
DBS technology got off the ground in 1982, when the FCC authorized orbital slots for eight additional satellites that would deliver low-cost DBS video programming to unobtrusive home receiving dishes.
A host of entrepreneurs--including an earlier Hughes-backed joint venture, Sky Cable, and Seattle-based SkyPix Corp.--announced DBS ventures with great fanfare, only to later stumble over financial or technological obstacles.
Officials of some of the upstarts bitterly complained about video programmers balking at selling them popular cable fare such as Home Box Office and MTV.
Last year, though, Congress came to the rescue, passing a tough new law re-regulating the cable industry. In addition to setting ceilings on monthly cable rates, the law requires video programmers to offer their shows to DBS operators on a non-discriminatory basis.
“That legislation put DBS in the position to get all of the brand-name programming that cable now has,” said Michael Wirth, a cable industry consultant who is chairman of the mass communications department at the University of Denver. As a result, Wirth said, “this time around, there’s a business out there for DBS” to exploit.
At first blush, developing a DBS system doesn’t seem all that daunting, since the typical cable subscriber already pays roughly $25 a month to receive an average of only 30 channels. What’s more, although the cable industry has signed up 52 million subscribers over the past decade, some 40% of U.S. homes--mostly in rural areas--still aren’t wired.
But the competition is stiff.
Cable companies are forming alliances and partnerships with deep-pocketed regional telephone companies. Together, they are modernizing the nation’s “information highways” with fiber-optic cable and digital-compression technologies that by the next decade will enable households to receive hundreds of video channels, as well as interactive services such as video games or home shopping.
Earlier this year, U.S. West announced it will invest $2.5 billion in Time Warner as part of an effort to build an advanced fiber-optic delivery system for video, data and voice communications. Last month, Philadelphia-based Bell Atlantic proposed a merger with cable giant Tele-Communications Inc., saying the two companies would spend $15 billion over the next five years to modernize their cable and telephone networks.
By contrast, DBS transmission initially won’t be interactive.
Moreover, even before the rewiring of the nation is complete, the cable industry can exploit some advantages it possesses over DBS.
Because cable gathers over-the-air broadcasts as well as distant satellite signals to distribute to homes, operators can offer national program services like the Discovery Channel as well as newscasts and shows from local TV stations. Indeed, the ability to deliver clear, interference-free local channels to households with poor TV reception was a driving force behind cable’s early success in attracting subscribers, noted Christopher P. Dixon, a media analyst at Paine Webber.
DBS, on the other hand, won’t be able to retransmit local TV stations into individual cable markets when it debuts sometime next spring.
“I don’t think Hughes will have all that much impact,” said Jim Shelton, a vice president at General Instruments, the leading maker of big-dish satellite decoder boxes. “What drives viewing is good programming and choices. . . . I don’t think they have enough to offer.” Shelton noted, for example, that about half of Hughes’ 120 channels will be devoted to movies.
“I think it’s got a hard road” because cable television is so entrenched, added Barry Diller, chairman of the QVC Network Inc. cable shopping channel.
Despite cable’s commanding lead, however, some cable operators have become concerned enough about DBS technology to hedge their bets.
Denver-based TCI, the world’s largest cable operator, announced this summer that it had ordered two satellites to deliver DBS to its cable systems around the country as well as to viewers at home. And at a recent Washington conference on the future of media, some cable executives said they are monitoring DBS warily.
“DBS is going to have a major impact on the cable industry,” said Buzz Priestly, director of marketing and sales for Satellite Sports Network, a Dallas firm that furnishes sports programming to big-dish satellite owners.
“An awful lot of cable operators have alienated their viewers,” said Priestly, who estimates that his company’s business is up 300% over last year due, in part, to viewer disenchantment with high cable prices and poor service.
Overseas, satellite TV is already revolutionizing television viewing even though the current service offers only a limited variety of programming.
Millions of satellite receiving dishes have sprouted on rooftops in India, China and other Asian countries in the two years since Hong Kong-based Hutchison Whampoa Ltd. began beaming the British Broadcasting Corp. network, MTV and other fare over what was then its Star TV network. Officials of the network say they now reach more than 10 million households.
And since 1986, media tycoon Rupert Murdoch has operated his British Sky Broadcasting telecasts. But Murdoch, who just bought control of Star TV, competes in European and Asian markets where relatively few TV channels are available to viewers.
Live, from Outer Space
Starting next month, DirecTv, an El Segundo-based unit of Hughes Aircraft Co., will begin beaming a 150-channel satellite programming service to U.S. subscribers. The idea is to offer many more channels than cable for about the same price to who lay out $700 for the dish.
1. DirecTv transmits signals to its satellite from its broadcast center in Castle Rock, Colo.
2. The satellite beams programming down to subscribers who’ve installed an 18-inch dish, about the size of a pizza. DirecTv will use digital compression technology, permitting it to send several times as many signals as existing telecommunications spacecraft.
3. The signal is sent into a set-top decoder box, which unscrambles it and translates it into sound and pictures. It also sends monthly billing reports to DirecTv by phone.
