Why I'm Bearish on Satellite TV

Satellite TV providers might be in danger of eventually being squeezed into oblivion by the cable and phone companies. Rupert Murdoch, whose News Corp. owns a 38.5% interest in Directv, recently referred to it as a "turd bird," a term that needs no explanation. Murdoch is apparently seeking to unload his company's interest in that satellite operator, after eagerly buying into it several years ago. I don't know about his reasons for such a negative attitude toward Directv, but I would like to briefly discuss some reasons why I feel that way about satellite TV in general. I believe that, in the near future, satellite TV providers will not compare favorably to cable and phone companies when it comes to video-on-demand (VOD), high-definition TV (HDTV), broadband Internet, and voice over Internet protocol (VoIP).

VOD requires two-way communication, which seems to work better over cables and wires than via satellite. Right now, Directv and Dish Network don't do it very well, or at least not as well as cable companies like Comcast, which offers a VOD lineup that the satellite operators can't come close to matching. In addition, phone companies like Verizon and AT&T are in the process of rolling out extensive VOD offerings as a part of their new IPTV technology.

HDTV channels require massive amounts of bandwidth, something for which there is a finite supply. Much of Directv's and Dish Network's HDTV capacity is used up carrying local HDTV channels in various markets. This limits the number of national HDTV channels they can carry, without constantly having to launch new satellites. In spite of this handicap, both Directv and Dish Network are keeping up with and even surpassing their wired competition by offering an impressive lineup of national HDTV channels at this time. But will they be able to keep pace with cable and phone companies in the future? Cable systems and phone companies do not have the multiple-market problem, as they only have to worry about a single market (the one they serve), freeing up their HDTV bandwidth for more potential national channels in the future.

Initially, satellite operators were hoping to be able to carry local channels in no more than one market in each of the four continental U.S. times zones (ex. ABC, CBS, NBC, Fox, CW, and PBS affiliates from New York, Chicago, Denver, and Los Angeles), but local channels, fearing a loss of advertising revenue, would not agree to this and took successful legal steps to block it. If satellite operators were to carry network affiliates, they would have to offer them in each customer's natural market. All markets would eventually have to be covered - that's 1260 channels, six (the number of network affiliates in each market) times the 210 U.S. TV markets. This feat has not been (and won't be) easy for satellite operators to accomplish. It's tantamount to forcing the proverbial square peg into a round hole. It was troublesome enough with just the broadcasters' analog channels, but the problem grew exponentially with the advent of HDTV. Could anyone imagine a satellite provider offering 1260 local HDTV channels? Think of the bandwidth that would tie up.

So far, satellite operators have not figured out how to offer competitive broadband Internet service on their own. Their offerings have generally been much slower and much more expensive than cable or DSL. For the most part, only those who can't get cable or DSL subscribe to satellite broadband services. Since VoIP rides on the back of broadband infrastructure, quite naturally it follows that satellite operators have not been able to offer competitive VoIP either. For a while, satellite operators were partnering with phone companies, so that satellite operators could offer DSL and VoIP deals to their customers, while the phone companies could off satellite TV deals to their customers. However, these partnerships seem to be ending, now that phone companies are starting to offer their own video services like IPTV. They now view the satellite operators more as competitors than as partners. Directv and Dish Network are promising improved broadband services in the very near future. They will certainly need to make good on that promise.

For all the reasons mentioned above, I'm bearish on satellite TV. I'm not saying it won't survive; just that it has a tough road ahead trying to compete with cable and phone companies, which seem to have most of the advantages right now. Perhaps satellite operators will come up with something new and innovative than will give them the advantage once again. I'm not holding my breath though.