Pay TV Battle Building

-By Katy Bachman

Cable is girding for a dogfight to maintain its dominance in the subscription TV world. In the Television Bureau of Advertising's latest crunch of Nielsen Media Research data being released today, satellite TV has been gradually grabbing a larger share of the pay TV market, growing from 9.5 percent in February 2000 to 29.2 percent in February 2007, while wired cable over the same period has lost share, dropping to 71 percent from 89 percent.

According to the TVB, satellite TV, with 29 million subscribers, now reaches 25.2 percent of all TV households. In the past year, cable's subscriber base fell by 2.3 million subs to 68.3 million and penetration fell from 64.1 to 61.3 percent of TV households, the lowest it has been since February 1990.

Hoping to raise the stakes in the subscription TV business are Verizon's FiOS and AT&T's U-verse, which today have tiny distribution. Offering bundled voice/Internet/video services, they are gearing up to take on cable, which has been aggressively pushing its "triple-play" offerings. "We're looking at an industry that is in the middle of redefining itself. The competitive battle is just starting," said Jeff Kagan, an independent telecom analyst.

FiOS, currently the leader with 207,000 subscribers to U-verse's 7,000, recently showed its competitive zeal by hiring Jason Malamud, a former MTV Networks affiliate sales exec, as vp, general manager of Verizon FiOS Media.

While cable may have a head start with bundled services, the telco services are touting prices 20–30 percent lower than cable bills, along with features like a multi-room DVR.

In the markets where the telcos are currently rolling out services, "they can likely get 25 percent of the market," said Bruce Leichtman, president of Leichtman Research Group. "Over time that will pinch both sides [wired cable and satellite TV]." But whether the telcos become a major force remains to be seen, he added. "There's a presumption that this time is different, but [the telcos] are three years behind where they said they'd be."

With a number of pipes going into the home, content is again trumping distribution, an advantage TV groups are more than happy to leverage in their retransmission negotiations.

"Between now and the digital-switch date of 2009, broadcasters will look to divide and conquer, dangling the fruit of high-definition video to the highest bidder," said Lee Westerfield, managing director of BMO Capital Markets.

"With satellite and telco companies building and enhancing their distribution platforms, [we will get] to a place and time where the value of our product would have to be recognized," said David Barrett, president/CEO of Hearst-Argyle Television, which has done retrans deals with both AT&T and Verizon.