In a move that could significantly improve its subscriber
base, PrimeStar Inc. late last week announced a deal with United Video Satellite Group
Inc. to acquire UVSG's Superstar/Netlink Group C-band satellite business.
PrimeStar president Dan O'Brien said the deal ensures
"a bright future, irrespective of what happens in Washington." PrimeStar's
plans to move its business to a high-power direct-broadcast satellite service are on hold,
awaiting approval from the Department of Justice and the Federal Communications
Commission.
The deal with UVSG, which is expected to close May 31,
would give PrimeStar access to SNG's 1.2 million C-band customers, which PrimeStar
would continue to service. When added to PrimeStar's 2 million-plus medium-power
DBS-subscriber base, the new C-band business gives PrimeStar greater economies of scale,
volume-programming discounts and additional cash flow. What's more, the new customers
offer PrimeStar a captive audience -- and one that is predisposed to subscription
programming and larger-than-normal satellite dishes -- to try to convert to its own
satellite service.
In addition, UVSG will give PrimeStar the names of nearly
800,000 more C-band customers from its former subscriber base that PrimeStar can also
attempt to convert.
O'Brien said he expects initial C-band conversions to
PrimeStar to number about 75,000 annually. In the meantime, PrimeStar expects to see $500
million in annual cash flow from the C-band business.
In exchange for the C-band business, PrimeStar will pay
UVSG $430 million in new convertible security, and it will assume $50 million in
programming liabilities.
After this and other transactions are completed, UVSG is
expected to own about 10 percent of PrimeStar, according to UVSG president and chief
operating officer Peter Boylan.
"The vast majority of C-band customers are very
satisfied and long-term customers," O'Brien said, adding that they typically
wait to switch to a DBS service until their larger-dish C-band systems break. Since a
typical C-band repair can cost $400 to $500, some find it simpler to migrate to DBS.
Because it will own a majority of the country's C-band
customers, which number about 2 million today, PrimeStar will be able to market its
conversion offer to those subscribers on an ongoing basis, through billstuffers, monthly
programming guides and the like. O'Brien said the cost to market to those customers
will be significantly lower than the $150 to $200 in marketing fees that it now pays to
acquire each new PrimeStar subscriber.
"We will protect our investment by having a very
attractive combination of low programming rates and low cost of converting from C-band to
PrimeStar," O'Brien said.
He would not disclose specific details of a conversion
plan, citing competitive reasons.
DirecTv Inc. and EchoStar Communications Corp. are not
precluded from attempting to woo PrimeStar's C-band customers.
