Business Journal article on Cable/Satellite competition

[Tom Snyder]

Rich Kirchen from the Milwaukee Business Journal gave us permission to post this article:

INDUSTRY WRAPUPS
Leading Edge

Cable 'pig' flies; satellite pokes rate increases

Rich Kirchen

While southeastern Wisconsin's cable television monopoly rolls out yet another new year's inflation-rate-plus price increase, its satellite competitors are growing stronger and nastier.

Time Warner Cable has informed its customers that rates are rising by at least 5 percent, depending on the community, for its standard package, to $41.75 per month. The figure that doesn't include converter rental and other fees. The 2004 hike follows a 6.4 percent increase in 2003.

The cable rate increase is necessary because Time Warner's costs for acquiring programming from cable networks have increased 20 percent, said Celeste Flynn, director of public affairs for Time Warner in Milwaukee. As Time Warner has done with its previous rate increases in recent years, it will add channels to sweeten its offerings. The two new channels are Outdoor Life Network and Discovery Health Channel.

"We continue to try to keep rates as reasonable as possible," Flynn said. "We've done everything we can to hold the line so that the cost is minimal."

Time Warner Cable spent more than $250 million in upgrading its southeastern Wisconsin system in the late 1990s to fiber optics that now allow more channels, Roadrunner Internet connections, high-definition options and video-on-demand services. The cable company ran an advertising campaign bragging about its improved products and services with the theme "Pigs Can Fly."

Cable rates are not regulated, so cable companies can raise rates as they see fit. While rate increases are unwelcome among customers, they have lacked viable alternatives.

However, in recent years, satellite television became more affordable and started carrying programming that is competitive with cable, most notably local television stations. Satellite leader DirecTV has carried Milwaukee stations for a couple years, and No. 2 satellite firm Dish Network announced Dec. 17 it has added eight Milwaukee stations and is still negotiating with Milwaukee CBS affiliate WDJT-TV (Channel 58).

Executives for Dish, which is owned by EchoStar Communications Corp., Englewood, Colo., wasted no time in trashing Time Warner and its rate increases.

"We think that's piggish," said Dish spokesman Marc Lumkin. "We think cable companies are showing greediness in raising their rates."

In fact, Dish is in the midst of an advertising campaign that takes direct aim at "The Cable Pig.

"Cable costs are eating customers out of house and home," the ad says.

The sell line is: "Why keep feeding The Cable Pig? Let us show you an alternative."

Dish offers Milwaukee-area viewers more than 50 cable channels plus the Milwaukee stations for $29.99 per month. The satellite hardware and installation is free for customers who commit to one year of service through Dish, Lumkin said. Dish raised its rates 4 percent last year, he said.
Direct attack

Dish executives are hustling to take customers from cable even as Dish braces for an onslaught of competition from DirecTV under News Corp. Rupert Murdoch's company paid $6.6 billion for controlling interest in DirecTV in a deal that federal regulators approved Dec. 19.

Murdoch isn't spending that kind of money to maintain the status quo. He will need to recruit more customers and convince them to buy more value-added programming and services that will deliver greater profit margins.

Satellite has already proved it is a threat to cable in terms of grabbing subscribers. The percentage of Wisconsin consumers subscribing to satellite has reached about 20 percent, said Tom Hanson, executive director of the Wisconsin Cable Communications Association, Madison. That compares with about 60 percent penetration in Wisconsin for cable, a figure that has been flat for several years.

In fact, Time Warner Cable subscriptions in southeastern Wisconsin are flat to slightly down at 420,000 compared with 425,000 two years ago.

"Dish Network and DirecTV are good, strong competitors to cable," Hanson said.
Municipal system

Then there's the Reedsburg municipal utility. A few years ago, officials in the south central Wisconsin city of 8,000 were unhappy that their cable company hadn't connected their community to broadband lines, so they decided to invest $8.5 million in building their own cable system.

Connect Reedsburg, as it's called, launched Sept. 1 and already has 300 customers and anticipates 2,000 within the next 20 months, said Dave Mikonowicz, Reedsburg utility manager. Charter Communications, the area's cable company, has 3,000 to 3,500 subscribers, he said.

Hanson said the municipal utility has an unfair advantage over Charter in terms of lower taxes and low-interest financing.

Charter raised its rates again this year, Mikonowicz said, but Connect Reedsburg will keep its rates the same, at $37 per month for standard service, or at least $7 less than Charter.

Most communities are not as fortunate as Reedsburg to enjoy real competition among cable TV providers. But cable customers are clearly willing to disconnect from their local cable monopoly for better services and lower prices.

Competition, regardless of the source, will continue to result in advances in both cable and satellite programming and services.

"You're going to see a lot more improvement," said Time Warner's Flynn.

RICH KIRCHEN is managing editor of The Business Journal Serving Greater Milwaukee. He can be reached at 414-278-7788 or rkirchen@bizjournals.com

Original article HERE