DirecTV closing in on Comcast

Cowboy Maloney's Electronics City store in Jackson, Miss., wasn't the most auspicious place to launch a national pay-TV service.

But that's where it happened, on June 17, 1994, when 35 Cowboy Maloney salesmen dressed in tuxedos and starched shirts opened the store in a strip shopping center.

Buyers had jetted in from around the nation to sample the innovative 18-inch DirecTV satellite dish. It screwed onto a home's roof for catching digital streams of data from space and cost $699 or $899.

The 400 to 500 dishes sold out in a few hours, said Con Maloney, whose father earned the name "Cowboy" for "corralling" electronics deals. Con Maloney got the product launch after convincing DirecTV executives that he thought a satellite service was the best thing since color TV and could take on Comcast Corp., then a regional company, and other cable firms.

"I said stand back, because we don't know how big [the] thing will get," he said in a recent phone interview.

Fast-forward to 2009. The company's subscriber base is approaching 20 million, with a core of sports fans anchored to DirecTV by the Sunday Ticket package of out-of-market NFL games, which costs $280 a year on top of monthly charges that average about $84.

DirecTV has conquered the customer-service rankings, consistently topping the list in the cable-satellite sector, and it is tightening the cinch on Philadelphia and other urban markets with four satellites for high-def channels.

"People have been sounding the death knell for satellite for five years now because of the triple play," said Derek Chang, executive vice president for content strategy and development at DirecTV. "There was a great debate within DirecTV whether we needed [an Internet] broadband play, and we decided we did not," he said. "There is a certain segment of the population - and it's larger than people think - that will not settle for inferior video products."

This year, DirecTV - 15 years old last Wednesday - passed 18 million pay-TV subscribers. Philadelphia's Comcast remains the nation's No. 1 pay-TV company with 24.1 million subscribers, but the El Segundo, Calif., company is No. 2 and narrowing the gap quickly.

In the first quarter, DirecTV added 460,000 new TV subscribers, its the best quarterly gain in four years, while Comcast lost 78,000 TV subscribers.

Marci Ryvicker, an analyst with Wachovia Securities L.L.C., forecasts that DirecTV's subscriber base will exceed Comcast's by 2014 as DirecTV expands and Comcast shrinks. She said she believed DirecTV was the better operator. "They have a focus on a core product, and they don't have distractions," Ryvicker said.

Comcast also is the nation's largest provider of residential high-speed Internet and third-largest phone company. It competes with Verizon Communications Inc. and AT&T Inc. for the triple-play bundle of phone, Internet, and TV.

Some say they believe that the future will not be easy for DirecTV. Its recent gains have come partly at the expense of the Dish Network, the nation's No. 2 satellite provider, and with the help of joint marketing arrangements with telephone companies Verizon and AT&T, industry experts say.

John Malone, the cable pioneer, controls DirecTV through his Liberty Media Holding Corp., according to regulatory filings. Many say they believe he could sell DirecTV to AT&T, which is trying to build a pay-TV business. On Friday, DirecTV had a stock market capitalization of $23.8 billion, compared with $39.2 billion for Comcast.

Craig E. Moffett, an analyst with Sanford C. Bernstein & Co. L.L.C., said a combination of Dish Network or DirecTV and a phone company would not likely bring major economic efficiencies.

While Ryvicker considers the single focus on TV a plus for DirecTV, she said: "Some people are worried that they're a one-trick pony." A deal between DirecTV and AT&T could happen by 2010, she said.

The next 15 years "will be a different environment for them to compete in," said Derek Harrar, senior vice president and general manager of video services at Comcast. Comcast said it believed the future technological winner would provide interactive television, a potential strength for cable. People have "to look at where the puck is going," Harrar said.

Do not be so sure, says DirecTV. It can expand into more single-family homes and has developed a service aimed at apartment buildings. A recent federal court ruling that canceled exclusive contracts between apartment owners and cable companies could help DirecTV.

And the California company mercilessly attacks cable when it can. DirecTV advertised heavily with billboards, newspaper inserts, and radio spots in franchise areas controlled by Charter Communications Inc., one of the nation's largest cable companies, which filed for bankruptcy protection this year. One DirecTV newspaper insert carried the headline: "Charter Cable Filed for Bankruptcy! We'll Save the Day."

"We have definitely capitalized on their bankruptcy filing," said Paul Guyardo, DirecTV's chief marketing officer.

Eric Shanks, executive vice president of entertainment programming, said there were local markets where DirecTV could grow. DirecTV has an estimated 15 percent of the Philadelphia-area TV market; Comcast has 60 percent to 70 percent.

One obstacle to subscriber additions in the Philadelphia area is that DirecTV does not carry Comcast SportsNet, which televises Phillies, Sixers, and Flyers games. Comcast owns the regional sports network, and federal rules say the company is not required to sell the programming to DirecTV. "Would we prefer to have Philly SportsNet?" Chang asked. "Absolutely. But the law is the law. Does it suppress demand? Yes."

As for any competition with Comcast for the nation's largest pay-TV subscriber base, Chang said: "It's not a stated goal of ours to be bigger than Comcast. If it happens, it happens."