Cable Gets Dished

By Richard Zoglin

They have been around for a couple of decades, clunky-looking status symbols from an era before Al Gore had even heard of the information highway. The sight of a 6-ft. satellite dish on the front lawn traditionally signaled one of two things: here is a house so far away from civilization that the cable company won't even bother coming, or here is a homeowner rich enough to afford the most expensive toy in the media supermarket.

That is changing fast. Direct-to-home satellite broadcasting is making a fresh bid for a share of the television market -- not just people in the boondocks but city and suburban dwellers as well who already subscribe to cable. A new generation of satellites, sending out signals over the high-power Ku-band (rather than the old C-band, which most current dishes utilize), combined with digital compression technology, has made it possible to bring in - many more channels with much smaller dishes -- the size of an extra-large pizza. With prices coming down too, home satellite dishes are becoming a viable alternative for viewers unhappy with cable. "There's no denying that a significant number of people have had it with the TV they're getting right now," says Eddy Hartenstein, president of DirecTV, the satellite-programming unit of GM Hughes Electronics. Enthuses satellite-TV pioneer Stanley Hubbard: "Once consumer expectations change, they never go back. Digital satellite is changing consumer expectations forever."

Cable finds itself in a vulnerable position because, at least temporarily, it is lagging behind in the perennial game of technological leapfrog. Nearly every major cable company is developing sophisticated new fiber-optic technology that will ultimately deliver hundreds of channels and permit full interactivity -- enabling viewers to order programs on demand, buy merchandise at the touch of a button and "talk back" to the set in a host of other ways. But this much vaunted technology is still years away from nationwide operation. For now, most cable customers must settle for 40 or 50 channels of traditional programming, technology that in many older systems badly needs upgrading -- and, in many cases, an annoying busy signal when they call their local cable company for service.

This has created a window of opportunity for potential rivals. (These rivals received a significant boost from the 1992 Cable Act, which requires that cable programmers like HBO and Showtime offer their services to any competing delivery system at comparable prices.) The oldest of these competitors is so- called wireless cable, which collects programming with large satellite dishes and sends it to homes via microwave transmitters. Wireless companies provide a low-cost alternative to cable in a number of cities, such as Houston, New York City and Cleveland, Ohio, but have traditionally been hampered by limited capacity (only about 30 channels in most systems). But wireless operators, like cable, are preparing to upgrade to digital technology, which could expand their capacity to 250 channels, making it more attractive to potential customers.

A more serious challenge to cable may come from direct-broadcast satellites (DBS). A consortium of telecommunications companies that includes GM Hughes Electronics, RCA/Thomson and Hubbard Broadcasting has just completed a nationwide roll-out of its Digital Satellite System, which offers 150 channels to customers who buy and install a home dish only 18 in. in diameter. Though the hardware is still relatively expensive -- between $700 and $900, down from $2,000 to $3,000 for older big dishes -- the monthly cost of various channel packages is comparable to cable's. The chief competitor to DSS is Primestar, a four-year-old venture co-owned by General Electric and six cable operators (among them Time Warner). It requires a larger dish (36 in. in diameter) to bring in fewer channels (up to 77), but costs less up front (a $150 installation charge) since customers are allowed to lease rather than buy the dishes. Primestar, which has just completed going digital, is planning to launch a second satellite next year, which it promises will boost its capacity to 200-plus channels by mid-1996. A third company, EchoStar Communications, intends to launch its own satellite next year and promises a service that will eventually provide up to 250 channels.

DBS's most obvious market is the 10 million to 12 million homes, largely in rural areas, that are not reached by cable. (About 3.6 million of these currently have one of the older-generation big dishes.) But why would an urban cable customer be induced to switch to a dish? The home-satellite companies are trumpeting their higher-quality picture and CD-quality sound, as well as a larger array of channels. Primestar, for example, offers a package of 14 regional sports networks that provide college football games on Saturday, and DirecTV will soon offer pro fans a full complement of 10 to 12 n.f.l. games on Sunday (cost: $49.95 for five weekends). DSS also offers 50 pay-per-view movie channels, with a selection of films repeated continuously at half-hour intervals so viewers can see them at virtually any time they wish.

DBS still has serious drawbacks compared with cable. Despite the space-age technology, satellite dishes cannot deliver one very homely piece of the media pie: local stations. To get them, satellite customers must either switch back to an ordinary antenna or maintain their basic cable service. Despite a better-quality picture, moreover, DBS depends on a clear line of sight to the southern sky (where DBS satellites are floating 22,000 miles above the earth) and can be disrupted by storms. And bugs still remain in the digital picture quality: very fast action, such as football plays, can sometimes break up. Perhaps more seriously for the future, DBS is incapable of providing full interactivity, as cable eventually will. All of which, cable executives argue, means DBS will be a fringe nuisance, not a major threat. "Their first 1 million customers will be easy," says Robert Thomson, senior vice president of Tele-Communications Inc., the nation's largest cable operator. "But then the rubber will meet the road."

Media analysts forecast that the industry will pick up 8 million to 10 million customers by the year 2000. Early sales reports from DSS's initial campaign have been encouraging: according to the backers, dishes have sold out in the 41 states where they have been marketed, and 28% of the early buyers are cable subscribers. (Only 12% retained their cable after getting a dish.) Still, many industry observers are cautious. Tom Wolzien, an analyst with Sanford C. Bernstein & Co., a New York City investment firm, predicts that dbs might steal away 1% of cable's growth over the next five to six years -- "which isn't a killer." However, with the cable industry chafing under federal regulations that have put a cap on rates, any inroads could be damaging. "Even losing a few percentage points at the margins can have a significant impact," says Paul Bortz, a Denver-based telecommunications consultant.

At the very least, the aggressive new competition will provide an incentive for cable companies to improve service and hold down what they can charge. As for the long term, much depends on how quickly cable can deliver on the long- promised, fully interactive 500-channel universe. If it takes too long -- or consumer demand for such futuristic services turns out to be less than anticipated -- cable's rivals may succeed in grabbing a significant portion of the business. "Cable talks about the information highway," says Neal Bobrick, sales vice president of Soundtrack, an electronics chain that sells dishes. "But we are here right now."

With reporting by Tom Curry/New York, David S. Jackson/San Francisco and Richard Woodbury/Denver