CABLE and SATELLITE TELEVISION

1
CABLE and SATELLITE TELEVISION

• What Kind of Alternative?

2
Phases of Growth

• 1940s-1950s serving rural communities that
  broadcast signals did not reach
• 1960s cable systems used to import distant
  signals and increase channel choice
• 1970s using satellite to distribute cable
  networks nationally
• 1990s digital and fiber optic, greater capacity,
  interactivity, broadband internet and telephony
  services

3
A New Business Model

• Cable accustomed audience to paying
• Cable networks got money from subscribers (75),
  (some) channel providers, local advertising,
  revenue sharing with PAY-TV shopping channels
• More channels than on broadcast TV
• Higher quality of reception
• Various tiers some not carrying advertising
• National channels, strong programming resources.
• Premium channels with movies, sports, released
  before broadcast TV
• Most MSOs are affiliated with channels

4
2002 Cable Statistics

• 10,000 US cable systems
• 69m subs (DBS 21m), 85 TV households
• Available to 97 of TV households
• 42 billion revenues (2000)
• 47 of systems owned by 5 MSOs ATT, AOL-TW,
  Cablevision, Comcast, Cox.
• Top 25 MSOs serve 91 of subs
• 5 dominant MSOs Comcast, Time Warner, Charter,
  Cox, Adelphia, account for 74 of cable subs
• (ncta.com/industry_overview/indStats.cfm/indOvervi
  ewID2)

5
2002

• 76 of subs to MVPD (multi-channel video program
  distributor) services received programming from
  franchised cable operators (78.2001)
• Total MVPD subs 90m 2002 (88m 2001)
• Cable subs 69m 2002 (68.5 2001)
• Non-cable MPVD subs 21m 2002 (19m 2001)
• DBS accounted for 20.3 of all MVPD subs in 2002,
  representing 18m. households

6
Aspects of Expense

• Acquiring programming (36 operating exp)
• High capital infrastructure costs (antennas,
  headend, cable etc. components, customer
  reception equipment)
• Local franchise and other fees (5 of gross)
• Upgrading 14bn a year 1998-2002
• Cable installers and repair personnel (30
  operating exp)
• Debt servicing (often wipe out profit)

7
The Contribution of Satellite

• Point to multipoint delivery serves many cable
  systems at lower cost
• Provide signal transport to places where
  terrestrial systems are unavailable.
• Promote diversification in program sources
• Also compete with cable by means of DBS
• Satellite construction dominated by Hughes and
  Lockheed
• Satellite launches dominated by Lockheed and
  Boeing.
• Delivery of DBS concentrated between DirecTV
  (sold by GM to NewsCorp, 2003) and EchoStar.

8
Content The Basic Tier

• Affiliates of major networks
• Signals of local independents (these now
  stronger as result of cable)
• Imported distant stations
• Super-stations (local signals distributed
  nationally by satellite)
• Local access channels (education,
• government, community sometimes split)
• Text services (news, weather, sports etc.).

9
Content Expanded Basic Tier

• Advertiser-supported networks (e.g. CNN, ESPN,
  MTV, USA Network, BET).
• Shopping Channels (e.g. Home Shopping, QVC).
• C-SPAN 12

10
Content Premium Tier and PPV

• Film channels (e.g. HBO and The Movie Channel
  Showtime and Home Box Office)
• Pay-Per-View (e.g. video on demand for films and
  sports events).
• Audio services.

11
Programming categories

• General entertainment (most watched non-network
  channels) e.g. USA, TNT, TBS.
• News and current affairs e.g. CNN.
• Sports e.g. ESPN.
• Demographics e.g. Nickelodeon, Lifetime.
• Specialty / genre e.g. MTV, Sci-Fi.
• Information and Education e.g. History,
  Discovery
• Improvement, religious, shopping, special
  interest
• Film.

12
Convergence of Cable and Telephony

• POTS will grow only gradually
• Enhanced services (call-waiting, call-forwarding,
  business service etc., wireless and data
  communications).
• Video distribution by cable
• 1996 Telecommunications Act allowed Telco mergers
  with Cable (leading to ATT Broadband takeover of
  MediaOne, but later sold to Comcast).

13
Cable and Network Television

• ABC/NBC/CBS prime time share (of all viewers)
  fell from 90 to 53 in 1979-1995
• Network share fell below 50 in 2002 ceding to
  Basic Cable
• Basic Cable share rose from less than 10 to 30
  in 1995 to over 50 in 2002
• Combined prime time ratings of top 20 basic cable
  networks in 1995 was only 22.4, less than half
  the combined ratings for the broadcast networks.

14
Expansion of DTH

• 1996 limits on local authority restrictions on
  setting up dishes
• Smaller dishes, with more power and higher
  frequency (C to Ku-band to Ka-band)
• 1999 court permission to DTH services to carry
  local TV signals without payment to broadcasters
• Mass production, lower cost of dishes

15
The Failed Echostar/DirectTV Proposal

• GMs Hughes (owner of DirecTV) sold to EchoStar
  in 2002, pending reg. Approval. Rejected by FCC.
  BUT NewsCorp has now bid successfully for DirecTV
• DirecTVEchoStar combination would have
  controlled 91 of DTH market.
• Would have reached at least 17 mn (10) homes,
  surpassing ATT Broadbands 14m. (but later
  Comcast purchase of ATT Broadband was bigger).
• Presence in 78 of 210 TV markets, with plans to
  serve all
• 42m US homes still without DTH option in 2002
• May have to carry all (1500) local signals
• Would bring broadband to rural U.S.

16
DirecTV and News Corp

• 2003, Murdochs News Corp gets approval to
  purchase a 34 stake in Hughes Electronics.
  Hughes owns DirecTV, for 6bn.
• DirecTV (12 mn subs) now in same stable as Fox
  Network (25 TV stations, 196 affiliates),
  Twentieth Century Fox, ESPN and 19 other cable
  sports channels, and Fox News Cable Channel

17
Implications of merger

• Will News Corp raise prices charged to cable ops
  for Fox programming?
• Murdoch now has strong presence in broadcast,
  cable, satellite TV in U.S. and overseas
• Easier to create new channels (helped by fact
  that Fox affiliates have had to hand over their
  digital channels to Fox)