Broadband seductions

It's not that the European direct-to-home television players stumbled onto stone tablets that detail satellite television's ancient secrets.

The paper version is still being written. And Europe is doing most of the writing, but there aren't any secrets to its DTH success.

Providers are simply benefiting from the sluggish state of fiber deployment in Europe and seducing customers with value-added services and lower start-up costs. The result has been a substantial audience begging for direct-to-home bandwidth.

"Certainly they haven't been as good in deployment of cable as has been the case in the U.S.," says Stephane Chenard, chief analyst at Paris-based Euroconsult (www.euroconsult-ec.com). "The second major reason is the companies that deployed DTH were very good. Rupert Murdoch focused a great deal of his energy on BSkyB. He found a very efficient and well run vehicle with SES Astra.

"Also, I guess there was an unmet demand in the TV market by a lot of people who were not satisfied with the choice of over the air televison and the alternative to cable programming was limited. I'm not saying it wasn't very good, because the public TV in Europe is often of very high quality. People lived with only five channels for a very long time, well after the TV lineup in the U.S. went into double digits."

According to Astra research, from January 2000 to mid 2000, the number of satellite television subscribers increased 6.3 percent, while cable subscribers increased just 2.6 percent.

"I think it's fair to say that whether a DBS market does well or not depends on a whole raft of different things," says Comsys operations director Adrian Bull. "What you can offer in programming, how much that programming costs, how easy it is to install and how well you market the product.

"Throughout the various markets DTH platforms have done well or not so well, depending on how they dealt with all of these issues together. It may be that you have a wonderful amount of programming and your dish and your IRD cost next to nothing but you don't market it very well. It's a matter of pulling all those together and to achieve some kind of scale that will work."

That's exactly what BSkyB's Sky Digital, which is mostly responsible for the United Kingdom's 24.8 percent penetration rate in Europe's digital satellite homes, has been able to pull off despite a shady past.

The Rupert Murdoch owned broadcaster has given away its set-top boxes, switched its customers from analogue to digital free of charge and created interactive channels such as Sky Sports Extra.

Providing such customer service certainly came at a hefty cost to the company, but it was one Murdoch accepted as necessary.

"I think generally, Sky in particular, has done exceptionally well in what it does," says Bull. "Spotting the time to go to digital and spotting how to phase that into your subscribers so they don't' sit there thinking, `We've only bought this analogue service months ago and now suddenly we've been told we have to change.' To do that is a considerably object. You can end up with a lot of very cross subscribers if you do that.

"Admittedly a lot of that has been done through the way that they have subsidized boxes and installation. Boxes are free. There are a lot of companies who would not have said, `Well we're just going to have to bite the bullet and give away the boxes.' They have really made this inroad now and it's not really an issue. Two or three years ago people were saying oh this is going to be a hard one."

Sky Digital's transferring current analogue customers to digital for free in recent months has been a big reason that Astra has found that 77.9 percent of digital subscribers in Europe are on a satellite platform rather than cable or terrestrial.

"The economics of digital is quite different," says Thomas Merz, Astra's market information manager. "BSkyB probably is able to have better leverage with having the subscribers in digital, but of course they have tried to drive the transition very fast."

But there are other reasons, Merz says, and cable might not be far behind.

"That is not only driven by consumer preferences but also driven by availability," he says. "The satellite signal is universally available, while for terrestrial infrastructures, you still have to invest in cabling, particularly the last-mile connection. It needs additional investment and is more time consuming than the satellite because when the satellite signal is available, it is available everywhere by definition. But I would suspect that digital cable will increase over the next few years and analogue cable households will be transformed into digital. You won't maybe find the same market share but definitely satellite is the driver for digital right now."

BSkyB's Sky Digital is accelerating the pace. The willingness to spend in order to earn might be lessons learned from BSkyB's past failures in the satellite direct-to-home industry.

"It's been evolving for 10 years," Chenard says. "It took time. In the U.K., there was a period when BSkyB was a miserable flop. They tried an antenna that people didn't want, they had bad distribution, they had bad installation of servicing, they had expensive programming. It took a lot of patience. And Murdoch had patience with his money."

Patience might have to be put on hold, as many within the industry are expecting the increase in the number of satellite television subscribers to level out soon.

That means something has to be added to satellite television services to drive subscriber numbers and compete with digital cable, which is attempting to catch up. What services are going to be vital is debatable.

"The frequent answer to that question is interactive programming, telephone service, interactive this and that," Chenard said. "On some of that, there may be some truth. But I think the success in television is programming. You can make your programming more sticky by throwing in interactive applications provided you find any that are really compelling. People actually will want to pay for it or that don't have to pay for it, which will really keep them from turning to somebody else. Things like the PVR, the personal video recorder. I think there is a high potential in that making your lineup more sticky provided you have a proprietary solution once everybody has them, well everybody has them."

Bull is a believer in the value-added services but still holds some reserve as to what will lead to future success.

"Obviously at the end of the day, people take the DTH option for various reasons. The ability to give value-added services, anything as basic as teletext through to delivering your email via television set, being able to order online, whatever it is," says Bull.

"But it's also the quality of service. If you look at the U.S. market for example, the reason DTH did well at first was because [with cable] quality of service was awful and the customer service was terrible. When DTH or DBS started there were bunches of people who would have gone to anything just to be able to get rid of their cable service."

Direct-to-home is heading another direction in Europe. Europe Online is scrapping its Internet service provider via satellite model and becoming a direct-to-home PC broadcaster.

"Europe Online I think had execution management issues," Chenard says. "It's clear that you need to sell millions of dishes to succeed in that business. The people who try to sell Internet access dishes - SES, StarBand, DirecPC - have not tried really. They're still starting."

The future of Internet via satellite services in Europe is sketchy, but Chenard still believes it has potential for success with the right business model.