Vincent Mazza has a new "toy." He was the first on his block to get one. It's small, but he really, really likes it. Now his neighbors are getting them too.
And that's grim news for the beleaguered cable television industry.
The gizmo in the driveway of Mr. Mazza's Davidsonville home is a direct broadcast satellite (DBS) receiver -- the hottest new consumer electronics product to reach the marketplace since the VCR. With it, a viewer can bring in cable TV programs without paying a dime to the local cable TV monopoly.
"It's going to blow cable away because they're not the only kid on the block any more," said Walter Frazier, president of Stansbury Decker Systems Specialists, a Linthicum satellite dealer that has more than 1,200 customers on a waiting list to buy the dishes when they go on sale in Maryland late this month or in early October.
Mr. Frazier is hardly a neutral observer, but even cable partisans admit that times are tough.
While the cable industry sweats under the burdens of price regulation and a public image even politicians don't envy, all facets of the satellite TV business are booming at its expense.
And if the aerial assault wasn't enough, the telephone industry has launched a ground offensive with its plans to offer video services over its phone lines.
Satellite TV is nothing new, but until this year bringing in a signal has required a bulky C-band dish measuring at least 7 1/2 feet across. Such dishes have become commonplace in the rural areas and atop the taverns of America, but their spread in metropolitan residential areas has been limited by their cost and conspicuousness.
Mr. Mazza's dish measures a mere 18 inches across, about the size of a pizza pan. Unlike traditional satellite dishes, it is "very unobtrusive," the retired chemical engineer said. In fact, it's not all that much bigger than a cable television node.
So far, there are only a handful of 18-inch DBS dishes in Maryland. Mr. Mazza ordered his from a dealer in Roanoke, Va., because he didn't want to wait until the devices go on sale here.
If Maryland consumers follow the pattern of other markets where DBS has rolled out, Mr. Mazza might have sidestepped a stampede.
From Albuquerque to Roanoke, consumer electronics retailers are reporting a buying frenzy worthy of the Mighty Morphin Power Rangers action figures.
Con Maloney, owner of Cowboy Maloney's Electric City in Jackson, Miss., witnessed the birth of the phenomenon because his market was among the first to receive DBS dishes back in June.
"This thing started out on opening day with 200 people outside of our store and it's been burning bright ever since," he said.
Mr. Maloney said he had been surprised to find that consumers were buying more of the $899 dishes, which support two television sets, than the $699 models, which support one. While those prices aren't cheap, they compare favorably with those of 7 1/2 -foot C-band dishes, which start at about $2,500.
Cable customers switch
Most ominously for the cable industry, Mr. Maloney and other retailers say they've had stronger-than-expected sales among customers who are currently cable subscribers.
"We're expecting that over the next three to five years, 60 percent of our customers will come from cabled areas," said Stan Hubbard, chief operating officer of Hubbard Broadcasting Co., managing partner in a venture called USSB, one of the two DBS programming providers.
If Mr. Hubbard's projections of 10 million to 15 million DBS customers by the end of the decade come true, that works out to a loss of 6 million to 9 million current or potential cable customers over the next 5 1/2 years.
Those numbers represent 10 percent to 15 percent of the cable business' current subscriber base of about 60 million -- a fact that has not escaped cable industry officials.
"It's definitely of competitive concern to us," said Stephen R. Effros, president of the Cable Telecommunications Association.
But Mr. Effros dismissed predictions that DBS would cut heavily into the cable industry's franchise. He complained that it had been marketed in a deceptive manner, that it had no potential for interactivity, that there were hidden costs and that the system was highly susceptible to "rain fade" -- a loss or degradation of reception during stormy weather.
"It's entirely a buyer-beware market," he said.
But Mr. Effros would have a hard time convincing Mr. Mazza, who said the programming, pictures and sound are all superior to cable. When his neighbors -- who also happen to be his sons -- saw the laser-disc quality video and heard the CD-quality sound, they ordered their own DBS systems, Mr. Mazza said.
The number of dishes sold is merely a leading indicator of DBS' acceptance. Ultimately, it will live or die by programming. And there it has great strengths -- plus one glaring weakness.
No local broadcast
Unlike cable, DBS won't bring in your local broadcast stations, at least no time soon. So say goodbye to Sally Thorner and Marty Bass unless you're prepared to spend about $10 a month to keep basic "lifeline" cable service or rely on an antenna.
The larger provider, GM Hughes Electronic's DirecTV, started out with 40-50 channels, including most of the familiar offerings, in an expanded basic cable package -- CNN, MTV, the Discovery Channel, the Disney Channel.
Tom Bracken, a spokesman for DirecTV, said the company's offerings will expand to 150 channels by October, including 40-50 channels of pay-per-view movies priced at $2.99, 30-40 channels of sports, and 30 channels of CD-quality music. The cost will be $21.95 a month.
USSB has a much smaller offering of 20 channels, but it has carved out a niche by negotiating exclusive rights to offer the most popular premium movie channels: HBO, Showtime and Cinemax. Its packages, designed to complement rather than compete with DirecTV's, run from $7.95 to $34.95.
If DBS ends up saving you money or improving your service, you can thank a group that seldom gets thanked for much: Congress.
The key change that made DBS possible was enacted over President George Bush's veto in the 1992 Cable Act, a law best known for reimposing price regulation on cable operators. One provision of that act was a requirement that cable programmers offer their shows to satellite broadcasters on an equal basis with cable networks.
That step was "the single most important thing in the success of DBS," said August Grant, professor of mass communications at the University of Texas. "People don't want music videos. They want their MTV."
With such programming on their team, satellite investors felt emboldened to move ahead with a technology that had been viewed as a dangerous gamble because of start-up costs estimated at $500 million to $1 billion. In December 1993, with Hubbard hitching a ride, GM Hughes launched its first satellite, followed by a second this summer. Another six to eight licensees are waiting in the wings.
But DBS is limited by the laws of people and physics.
Like other forms of satellite TV, DBS needs a clear sight line to the south. So if you live in a garden apartment with a north-facing deck or a house in the woods, you probably have no choice but cable.
Meanwhile, according to Columbia attorney Michael Nagle, about 30 percent of the nation's households are covered by homeowners' association covenants. Many of these include absolute bans on satellite dishes written in the days when the standard size was about 14 feet, said Mr. Nagle, a specialist in such cases.
Mr. Hubbard said problems with installing the 18-inch dishes in restricted neighborhoods hasn't emerged as an issue, possibly because the dishes can be inconspicuous.
The competition is well aware that DBS is there. And they're not standing still.
Rather than being hurt by DBS, the C-band market has actually been profiting from the growing interest in all satellite TV, dealers say. Not far from Cowboy Maloney's in Jackson, Doug McHenry at the Satellite Shop said his sales are up in spite of the DBS frenzy across town. In Baltimore, Mr. Frazier said some customers stopped by his showroom to ask about DBS but decided to buy a big dish after hearing about their 350-channel capacity, superior reception and the low monthly cost of programming.
Meanwhile, makers of the big dishes are taking no chances. Uniden, the industry leader, recently cut the price on its basic 7 1/2 -foot dish by $300. Meanwhile another producer called Unimesh has released a 5-foot mesh C-band dish that sells for $1,499, further narrowing the price and size gaps.
And the cable industry has taken to the skies too. Six of the largest operators banded together to launch a satellite TV service called Prime star, which announced its Baltimore rollout last month. The 65-channel service, which expects to upgrade to 150 channels in 1996, minimizes the upfront costs by renting its proprietary 3- and 4-foot dishes to consumers. So far, the venture claims 70,000 subscribers nationwide.
Compete with all comers
But that doesn't mean cable companies have given up on the ground game. Most of the biggest players in cable are committing vast sums to upgrade their networks to compete with all comers -- in telephone service as well as video.
Even the cable industry's detractors have to respect the fact that cable TV penetrates more than half the households in America. And in spite of the industry's image, there are many well-run cable companies with a loyal customer base. Even middling performers have inertia on their side.
Still, those cable monopolies that have spent years mistreating and overcharging their customers may get their comeuppance. "Certain systems may be dead," said Larry J. Yokell, president of Convergence Industry Associates in Boulder, Colo., and a veteran of the cable industry.
Telecommunications industry analysts say the advent of DBS will set off a chain reaction in the industry.
Cable companies will have to cut their rates to match DBS, especially on the premium services. DirecTV and USSB will have to respond to maintain their differential. Telephone companies with video ambitions will have to come in with lower rates than they anticipated. And everybody's going to be seeking a technological edge over the other guy.
Price fall predicted
Hardware prices will also fall as the volume of sales rise.
Ed Creamer, an RCA distributor whose territory includes Pennsylvania and Virginia, said that after the first million DBS dishes are sold, consumers can expect the first of several major price cuts as programmers subsidize dish sales to gain subscribers.
"I wouldn't be surprised if in the next 3-5 years we see this product marketed for free, like a cellular phone," said Mr. Creamer, branch manager of Consumer Satellite Systems in Arbutus. "The C-band hardware's going to go the same route."
But you won't have to become a satellite customer to benefit, said Mr. Grant, the University of Texas professor, who has seen the effect of DBS on the Austin market.
"The biggest group of people benefiting from DBS are those that didn't subscribe but get lower rates because DBS is competitive with the local cable companies. In other words, everybody wins except the cable companies."
THE SPECS ON SATELLITE SERVICES
Direct broadcast satellite
Technical: High-powered (120 watts) signal transmits digital audio and video programming to an 18-inch dish from two GM Hughes satellites.
Channels: 65-75 now, 150 expected in October. Further expansion depends on technology.
Program providers: DirecTV, USSB
Upfront costs: $699 for one-TV dish, $899 for two-TV dish. Prices expected to drop after RCA exclusive expires after millionth dish sold.
Monthly charges: $21.95 for DirecTV basic package of 30+ cable channels plus 30 music channels. USSB, which controls programs from HBO, Cinemax, Showtime, MTV, Nickelodeon and others, offers packages from $7.95 to $34.95.
Other costs: Optional installation cost of $???. Basic cable service or antenna required to received local broadcast stations.
Advantages: Relatively inconspicuous small dish, audio and visual signal generally superior to cable. Signal quality expected to improve further when more advanced video standard is adopted. Dish is portable.
Drawbacks: Dish barred by some housing association covenants, southwest exposure required, vulnerable to signal loss or degradation during rainstorms, slight risk of catastrophic satellite failure, doesn't receive local broadcast channels, providers don't compete.
Prospects: Early response exceeds expectations. Aggressively targeting dissatisfied cable customers.
Primestar
Technical: Medium-powered (48-watt) signal transmits digital audio and video programming to an 36-inch dish from a single satellite.
Channels: 65 now, 75 expected by year-end and 150 in 1996. Further expansion depends on technology.
Program provider: Primestar
Upfront costs: $195 for dish installation, $75 for additional outlet.
Monthly charges: $34.95 basic package includes dish rental and popular cable channels ;6 music channels; 10 pay-per-view movie channels, 14 regional sports channels. Variety of optional packages. $55.95 package includes all premium options. Additional $4.50 for network programming (only in weak-reception areas).
Other costs: $18.95 a month for optional separate programming to second outlet. $20 for TV Japan option. Basic cable service or antenna required to received local broadcasts.
Advantages: Low upfront costs; 3-foot dish less conspicuous than C-band; audio and visual signal generally superior to cable; company bears burden of maintenance, risk of technological change.
Drawbacks: High monthly cost; dish still barred by some housing association covenants, southwest exposure required, vulnerable to signal loss or degradation during rainstorms, slight risk of catastrophic satellite failure, doesn't receive local broadcast channels, single provider.
Prospects: Serves 70,000 customers. Ownership by cable companies limits aggressive marketing in cabled areas.
C-band
Technical: 7 1/2 -foot dish to pick up low-powered (20-watt) signals from a variety of satellites.
Channels: Estimated 350, ranging from popular programming to niche players such as Ostrich and Emu Channel. Some signals free, others require unscrambler. Picks up some unscrambled network feeds.
Programming providers: Many
Upfront costs: $2,500-$4,200 for 7 1/2 -foot automatically adjustable dish, depending on options. $1,500-$2,000 for 5-foot and 6-foot dishes with manual controls, lesser reception.
Monthly charges: Packages to pick up unscrambled packages start about $9.95 in a competitive market. Rates for premium channels about 50-60 percent below cable.
Other costs: Basic cable or antenna required to receive local broadcast stations.
Advantages: Superior channel selection and signal; widest access to sporting events, including all NFL games; best resistance to rainstorms; low monthly costs, choice of providers.
Drawbacks: High upfront cost; dish barred by many housing association covenants; aesthetic objections even where allowed; southern exposure required; doesn't receive local broadcast channels.
Prospects: Loyal base of 2 million or more residential subscribers. Strong recent sales. "Stealth" devices to conceal dishes opening new markets. Equipment prices dropping.