Steve Mehs
12-18-02, 04:21 AM
By Bruce Leichtman
With the holiday season upon us, it is time to look at a couple of the gifts that the DBS industry has recently earned.
In the second and third quarters of this year, DirecTV and EchoStar reported a combined addition of 2.7 million new subscribers. DBS also continues to top cable in customer satisfaction ratings. In a recent study of households in areas served by cable by my firm, Leichtman Research Group, 72 percent of DBS subscribers rated their satisfaction with their DBS provider an 8-10 (on a 1-10 scale with 10 being extremely satisfied), while just 55 percent of cable subscribers rated their satisfaction with their cable provider an 8-10. Yet before the DJ starts spinning Kool and the Gang at the holiday party, there are a few lumps of coal in DBS’ stocking that are more ominous for the industry.
While DBS providers were adding millions of new subscribers, they also saw 1.7 million subscribers disconnect service in the second and third quarters. This represents an annual churn rate of over 20 percent. And while 10 percent of cable subscribers in our study say that they are somewhat or very likely to switch from their cable operator in the next six months, 15 percent of DBS subscribers say that they are likely to switch from DBS in the next six months.
How did both cable and DBS get to this point? With combined cable and DBS penetration at 75-80 percent of all households in cable areas, the core video market is relatively saturated, leaving limited room for further expansion – particularly in a weak economy. As the multichannel video market has grown, more cost-conscious subscribers have been introduced to the category. Attractive discount offers may help woo subscribers in this group, but these offers also create challenges for retaining these subscribers.
DBS, in particular, seems to have a problem with new subscribers. First year DBS subscribers tend to spend less per month on service than other subscribers, and a whopping 24 percent of first year subscribers say that they are likely to switch from DBS in the next six months.
Vastly discounted offers may temporarily help to grow DBS subscriber counts and dampen cable’s subscriber numbers, but it in the long run will prove to be an unprofitable proposition. Bringing on these "fringe" customers who spend less, are unlikely to upgrade, and are more likely to quickly disconnect service, will accomplish little more than creating an endless cycle of discounts in order to add new subscribers into the "top of the funnel" to make up for those who are churning out the bottom.
To paraphrase Animal Farm, "All subscribers are equal, some are just more equal than others." The DBS industry from the start has done an excellent job of attracting higher-end premium subscribers. Our study found that DBS premium subscribers are far more satisfied than cable premium subscribers. Also, current cable premium subscribers say that they are more likely to switch from cable than non-premium subscribers.
The opportunity is still available for DBS to achieve sound, cost-effective subscriber growth in competing for consumers who are looking for more channels and choices, and better picture and sound, at a reasonable cost. DBS grew the business to the point where it is now based on these features. If operators resist the temptation to battle using unprofitable price wars, there will be continued reasons for DBS to celebrate in holiday seasons to come.
Bruce Leichtman works for Leichtman Research Group, which can be found on the Web at: www.leichtmanresearch.com.
From SkyReport (http://www.skyreport.com/skyreport/dec2002/121802.shtm#four) (Used with Permission)
With the holiday season upon us, it is time to look at a couple of the gifts that the DBS industry has recently earned.
In the second and third quarters of this year, DirecTV and EchoStar reported a combined addition of 2.7 million new subscribers. DBS also continues to top cable in customer satisfaction ratings. In a recent study of households in areas served by cable by my firm, Leichtman Research Group, 72 percent of DBS subscribers rated their satisfaction with their DBS provider an 8-10 (on a 1-10 scale with 10 being extremely satisfied), while just 55 percent of cable subscribers rated their satisfaction with their cable provider an 8-10. Yet before the DJ starts spinning Kool and the Gang at the holiday party, there are a few lumps of coal in DBS’ stocking that are more ominous for the industry.
While DBS providers were adding millions of new subscribers, they also saw 1.7 million subscribers disconnect service in the second and third quarters. This represents an annual churn rate of over 20 percent. And while 10 percent of cable subscribers in our study say that they are somewhat or very likely to switch from their cable operator in the next six months, 15 percent of DBS subscribers say that they are likely to switch from DBS in the next six months.
How did both cable and DBS get to this point? With combined cable and DBS penetration at 75-80 percent of all households in cable areas, the core video market is relatively saturated, leaving limited room for further expansion – particularly in a weak economy. As the multichannel video market has grown, more cost-conscious subscribers have been introduced to the category. Attractive discount offers may help woo subscribers in this group, but these offers also create challenges for retaining these subscribers.
DBS, in particular, seems to have a problem with new subscribers. First year DBS subscribers tend to spend less per month on service than other subscribers, and a whopping 24 percent of first year subscribers say that they are likely to switch from DBS in the next six months.
Vastly discounted offers may temporarily help to grow DBS subscriber counts and dampen cable’s subscriber numbers, but it in the long run will prove to be an unprofitable proposition. Bringing on these "fringe" customers who spend less, are unlikely to upgrade, and are more likely to quickly disconnect service, will accomplish little more than creating an endless cycle of discounts in order to add new subscribers into the "top of the funnel" to make up for those who are churning out the bottom.
To paraphrase Animal Farm, "All subscribers are equal, some are just more equal than others." The DBS industry from the start has done an excellent job of attracting higher-end premium subscribers. Our study found that DBS premium subscribers are far more satisfied than cable premium subscribers. Also, current cable premium subscribers say that they are more likely to switch from cable than non-premium subscribers.
The opportunity is still available for DBS to achieve sound, cost-effective subscriber growth in competing for consumers who are looking for more channels and choices, and better picture and sound, at a reasonable cost. DBS grew the business to the point where it is now based on these features. If operators resist the temptation to battle using unprofitable price wars, there will be continued reasons for DBS to celebrate in holiday seasons to come.
Bruce Leichtman works for Leichtman Research Group, which can be found on the Web at: www.leichtmanresearch.com.
From SkyReport (http://www.skyreport.com/skyreport/dec2002/121802.shtm#four) (Used with Permission)