After nearly four years as a nascent industry,directbroadcast satellite is beginning to hit the subscriber levels that make it feasibleto start selling commercial time to national advertisers.
DirecTv Inc. is pushing well past the 3 million subscribermark. Its partner in the Digital Satellite System, U.S. Satellite Broadcasting, hassignificantly fewer subscribers. However, because it can reach everyone who owns a DSSdish, USSB can point to the total number of DSS households when it decides to startselling advertising.
EchoStar Communications Corp. hit the 1 million subscribermark for its Dish Network service late last year. And PrimeStar Partners L.P. has nearly 2million customers for its mediumpower service.
Together, the DBS industry represents over 6 millionhouseholds. That's still not enough to be tallied separately by ratings services suchas Nielsen Media Research, although DBS homes are included in counts of total U.S.television households.
MUCH SKEPTICISM
The lack of strong DBS subscriber ratings for anyparticular network works against DBS companies trying to sell national advertising,according to Gene Jankowski, managing director for Veronis, Suhler and Associates, aninvestment banker that publishes annual forecasts on media.
'Advertisers look for circulation,' Jankowskisaid, 'and they want accurate information.'
'When you go to a client and recommend that they spendmoney, 6 million to 7 million households is not very large,' said Bill Croasdale,president of the national broadcast division at ad agency Western International Media.'DBS would not be high on our list of properties to look at.'
Still, some ad buyers are staring to look at the fledglingtechnology.
Bob Igiel, executive vice president and director ofbroadcast for Young & Rubicam, said DBS is starting to reach the viable stage.
'Like any cable system, you hope to get between 10million and 12 million to get a threshold,' he said. 'This is different, becauseyour numbers are spread out all over the country. That might be good for certainproducts.'
And the sheer number of channels available on DBS thatworks to attract new subscribers may work against a DBS company trying to sell ad time onany one channel.
'You may have millions of homes nationwide,'Igiel said, 'but if you have 100andsome channels, that's a lot ofchannels.'
PrimeStar is putting an infrastructure in place that wouldmonitor its own ratings, said Denny Wilkinson, the company's senior vice president ofmarketing and programming. The new software program should be ready by May, he added.
Under the new system, PrimeStar would use Nielsen'sratings research data to see how different its subscribers' viewing patterns arecompared with the national average. With the statistics that it gathers, PrimeStar wouldbe able to tell potential advertisers whether a particular spot sold would reach, say,rural males in their 30s.
'Our goal is to start selling ad space on the networksby July,' Wilkinson said.
PrimeStar already sells ad space in its monthly programmingguide, which is mailed to all of its subscribers. The other DBS providers offer printedprogramming guides only as an option.
'We have the infrastructure now to sell adspace,' Wilkinson said.
He added that the company will offer discounts toadvertisers that buy both airtime and space in the printed programming guide.
BACKBURNER ITEM?
Jankowski said that before DBS companies start sellingadvertising inventory, they should consider the costs involved in setting up a marketingoperation and the sales team needed, and whether the overhead would be covered by theadvertising rates that a company is able to charge.
In order for DBS companies to start selling ads, Jankowskisaid, they would 'incur another cost, and they're having trouble making a profitnow. Getting subscribers that should be their first concern.'
Mary Pat Ryan, senior vice president of marketing at USSB,said, 'Our primary business will always be subscriber revenue.' She felt that itwould probably be 'a couple of years before you start seeing advertising onUSSB.'
Today, USSB's Channel 900 is devoted to boxingupdates, and Channel 999 handles programming information and promotions for the service.Either of those two channels would be logical places to start running ads, she noted.
Selling advertising surrounding USSB's originalprogramming 'is always a possibility,' Ryan added. Today, USSB airs exclusiveDon King boxing events. USSB is also producing its own director's roundtable,featuring Hollywood insiders.
USSB currently uses its two promotional channels to supportits own services. Ryan said that according to company research, about onehalf of itssubscribers check out one of the channels on a regular basis.
The company learned about the power of onair promotionswhen it promoted its 'HBO Original Weekend,' with Home Box Office, to itssubscribers.
Although USSB has been approached by some potentialadvertisers, Ryan said, the company is more interested in growing the DSS business now. Inaddition to crosspromoting its premiummovie services and specialevents programming, USSBuses airtime on its Channel 900 for general DSS education, such as how to hook up a secondset or how to access surround sound through the system.
Steve Blum, a former USSB executive and now president ofDBS consultancy Tellus Venture Associates, said crosspromotion can be a very powerfultool.
'You're using the medium to sell themedium,' Blum said.
Marketing to current subscribers can be just as importantto a DBS company as trying to build a subscriber base.
'In order to fight churn, to get people to upgradetheir packages and to sell major events, you need to reach them with a message,' Blumsaid. 'Using onair is a very effective way of using that time. The best way to selltelevision is to use television.'
Before buying time on a DBS company's promotionalchannel, Jankowski said, 'advertisers are going to want some accurate level ofviewership.' He added that he didn't think DBS companies would get much moneyfor such ads.
'I don't know what kind of viewer interestyou're going to get' for a promotional channel, Croasdale said. 'I couldsee buying USSB's boxing channel for the male audience, but they'd have toprovide us with some viewing research data.'
Croasdale added that many advertisers shy away from boxingbecause it's considered a violent sport.
Blum said it would be relatively easy for some DBScompanies to sell perinquiry or P.I. directresponse ads. But the additionalrevenue would be so small in relation to the image 'hit' that the DBS companywould take that it probably wouldn't be worth it.
LOCAL AVAILS
DirecTv has started to utilize its local avail time on certaintop networks by selling its own national advertising, according to president EddyHartenstein.
He mentioned Kellogg Co. as one advertiser, along with General Motors Corp. 'Surprise, surprise,' Hartenstein said: DirecTv is a subsidiary ofGM/Hughes. 'We do insertions on about a dozen or so adsupported channels today,'Hartenstein said. DirecTv has been using local ad avails to crosspromote its ownprogramming for quite a while, and it will continue to do so.
For example, the company has run ads promoting the NFL Sunday Ticket outofmarket NationalFootball League package on ESPN. 'The bigger our subscriber base becomes, the moreattractive it becomes to an advertiser,' Hartenstein said. 'It makes sense nowto start looking at actually selling some of those avails.' Just a few months ago,DirecTv signed up its first national ad sponsors. 'Obviously, it's not the localmuffler shop,' Hartenstein quipped.
While he admitted that there is some potential concern among cable networks that worrythat DirecTv is competing with them for advertising dollars, Hartenstein said DirecTv isstill too small to compete directly. 'We're a fraction of what the overall nationalaudience is,' he said.
EchoStar has not yet started to sell time on its local avails or promotional channels.'We'll do it when we reach critical mass,' said chairman and CEO Charlie Ergen.
'I think that the better way is to get the DBS players together,' added Ergen,'and then to get some middleman who will say, 'Place your Snickers ad, and it willget you 3 million DirecTv, 2 million Dish Network and 2 million PrimeStar''subscribers.
Blum said that while selling local avail time might make sense for a DBS company, it makesless sense for the network or the advertiser. Cable networks may be wary of having DBScompete headtohead for national advertisers. The networks envision local avails going tolocal advertisers, and not to national accounts, Blum said. And advertisers save time andmoney buying a network commercial, rather than negotiating for local inventory throughevery cable and DBS company around the country.
'If you want to get a commercial out to a Lifetime [Television] audience,' Blumsaid, 'it's cheapest and easiest to buy from Lifetime. When you look at advertisingrates for most cable networks, they're so low compared to network television that it wouldbe hard to see what you'd gain by going just to DBS.' However, if an advertiserwanted to reach a very specific demographic and found that such a demographic matched thecharacteristics of DBS households, it would be relatively painless to buy DBS, be cause'you're only shipping out three tapes,' Blum pointed out. And the digitalpicture and sound on DBS help to highlight an advertiser's commercial in the best possiblelight. 'The audio and video fidelity is great,' Igiel said. 'That's one ofthe reasons why cable operators are rushing out these [digital cable settop] boxes.'
MCN Linda Haugsted and Ted Hearn contributed to this story.
DirecTv has started to utilize its local avail time oncertain top networks by selling its own national advertising, according to president EddyHartenstein. He mentioned Kellogg Co. as one advertiser, along with General Motors Corp. 'Surprise, surprise,' Hartenstein said: DirecTv is a subsidiary ofGM/Hughes.
EchoStar has not yet started to sell time on its localavails or promotional channels.
'We'll do it when we reach critical mass,'said chairman and CEO Charlie Ergen.
'I think that the better way is to get the DBS playerstogether,' added Ergen, 'and then to get some middleman who will say,'Place your Snickers ad, and it will get you 3 million DirecTv, 2 million DishNetwork and 2 million PrimeStar'' subscribers.
Blum said that while selling local avail time might makesense for a DBS company, it makes less sense for the network or the advertiser. Cablenetworks may be wary of having DBS compete headtohead for national advertisers. Thenetworks envision local avails going to local advertisers, and not to national accounts,Blum said.
And advertisers save time and money buying a networkcommercial, rather than negotiating for local inventory through every cable and DBScompany around the country.
'If you want to get a commercial out to a Lifetime[Television] audience,' Blum said, 'it's cheapest and easiest to buy fromLifetime. When you look at advertising rates for most cable networks, they're so lowcompared to network television that it would be hard to see what you'd gain by goingjust to DBS.'
However, if an advertiser wanted to reach a very specificdemographic and found that such a demographic matched the characteristics of DBShouseholds, it would be relatively painless to buy DBS, because 'you're onlyshipping out three tapes,' Blum pointed out.
And the digital picture and sound on DBS help to highlightan advertiser's commercial in the best possible light. 'The audio and videofidelity is great,' Igiel said. 'That's one of the reasons why cableoperators are rushing out these [digital cable settop] boxes.'
Linda Haugsted and Ted Hearn contributed to this story.
