# Locals driving up the cost?



## Link (Feb 2, 2004)

Someone pointed out that when Directv and Dish Network first started in the mid-90s that the year to year price increases weren't that much. My guess is the main reason we have seen the costs go up is because of all the satellite expansion they have had to use for local channels. If it weren't for launching hundreds of local channels, would our prices be going up this high?

Now they are expanding to launching HD locals in some markets and using the MPEG4 technology to do it--all costing more money.  Would it be necessary to switch to MPEG4 if so many local channels weren't taking up bandwidth??

Another factor is that they pretty much give away the equipment with a contract agreement or now lease. I remember when my parents got Directv, they paid $1300 for 2 regular receivers!!

But I guess the same can be said for cable--raising costs to expand more services with HD packages, DVR recorders, high speed internet, digital phone service, and Video on Demand.


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## FTA Michael (Jul 21, 2002)

More locals = more subscribers in more areas.

More subscribers = less cost per sub for fixed costs (uplink station, etc.)

A better explanation is that, in the early years, the satellite companies repressed prices to grow market share.


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## Ray_Clum (Apr 22, 2002)

Part of the reason is a hybrid local cost - those channels that get bundled because a media producer that owns several local channels, also has a special new cable channel that they want carried and get it on through negotiation for the local channel.


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## James Long (Apr 17, 2003)

One of the deeper numbers on the annual and quarterly reports is the subscriber acquisition cost. How much does it cost the company to get a new subscriber. It's been a few hundred dollars for the past few years IIRC. No large change there.

We can look at the subsidized equipment, but we also have to understand that the cost of that equipment has fallen over the past few years. In a retail environment one normally marks up the manufacturing cost to the wholeseller, then to the dealer, then to the consumer. A $1000 unit may have only cost $250 to manufacture (if that much). The ability for E* and D* to go direct from a manufacturer to the customer lowers their costs. They are not giving away $1000 receivers (they don't even sell for that price when sold anymore). They are loaning $250 cost receivers to customers.

*Important note: All figures fictional but based on prior retail experience outside the satellite business. "$250" is not intended to be an accurate quote of manufacturing cost. For illustrative purposes only.*

The biggest increase E* has shown is in programmer costs. They keep getting the rate they pay for the programming increased every year. There is also the issue of replacing satellites (which I'm sure they have built in to their costs).

Locals is an interesting issue. Would they be at 12 million subscribers if they did not offer locals? I don't believe so. But they do take up space that could be used for national programming. It's a trade off, but I believe that having locals wins.


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## SamC (Jan 20, 2003)

People seem to accept as true two things that I have never seen proven. Both show up in this thread.

"More locals = more subscribers". People wanted access to network PROGRAMMING. Not to particular local affiliates. Had DBS worked it out to legally provide network access otherwise would subscription rates be any different? Also, as you work your way down the DMA list every group of 20 DMAs has about half the population of the group above it. The law of diminising returns. But, now we have, pretty much nearly 100 "unserved" DMAs which as a group add up to abotu 8% of the population. Obviously these will never be served because none of them are big enough to bother with. And these tend to be areas where cable is bad or non-existant. So would not the biggest pool of potential subscribers be in taking yet another bite at the Congressional apple?

"The equipment is heavily subsidized". Everyone says that. It is? Poeple quote $1000 as the "true" cost of the boxes. Now, I can buy a standard LNB from Radio Shack for $40 as a part, so this is obviously NOT subsidized. So there is $1000 worth of "stuff" in a box. Now the cable company has a box for its so-called digital cable. It is not subsidized. Wal-Mart will sell me an unsubsidized CD player for $20, VCR for $40, DVD player for $70 and TV for $175. I can order a PC for $500 that will do anything I want it to.

None of these things are subsidized. Somebody please explain what is in a box that makes it cost $1000 to build it on an assembly line in Asia?


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## FTA Michael (Jul 21, 2002)

SamC said:


> People wanted access to network PROGRAMMING. Not to particular local affiliates. Had DBS worked it out to legally provide network access otherwise would subscription rates be any different?


First, I hope you agree that there exist _some_ TV viewers who really want their local stations, complete with local news and weather, and who would refuse to sign up for anything that doesn't include that. That describes my mom, and I suspect that she's not alone. You can try to estimate what percentage truly cares about locals vs. the percentage that just wants the networks, but why bother?

Because, second, that's a very speculative "what if". It didn't happen, and it's unlikely to happen anytime soon. You can try to guess what would have happened if networks had been allowed to be delivered directly to viewers via satellite (and cable too?), but in real history, the only way DBS satellites could deliver the major networks is by delivering the nearby local stations.

The OP's original assertion was that price increases were driven by all these extra local stations. I disagree. Would Dish really add extra markets if it thought that doing so would be unprofitable?


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## Stewart Vernon (Jan 7, 2005)

SamC said:


> Wal-Mart will sell me an unsubsidized CD player for $20, VCR for $40, DVD player for $70 and TV for $175. I can order a PC for $500 that will do anything I want it to.
> 
> None of these things are subsidized. Somebody please explain what is in a box that makes it cost $1000 to build it on an assembly line in Asia?


I don't know what the cost of the satellite boxes are... but you probably picked some bad examples above!

Wal-Mart, K-Mart, Target, and other similar stores have made a living of selling some items at or even below cost just to get you into the store. The theory is, if they lose money selling you a $20 CD player, you won't just go to Wal-Mart to buy that... while you are there, you will buy other things to save yourself a trip to another store... and it is the other things you buy there that they make their money on!

Many computer companies have realized that the home PC market is not that lucrative in terms of money they can make on selling the hardware... so what they do in many cases is sell the hardware as cheaply as they can, but bundle things with it like service/warranty options hoping you will pay for those and that is where they make there money. A lot of people buy PC service/warranty contracts, and if they don't make a claim then that becomes pure profit to the company that collected the money!

Businesses routinely sell things at or below cost... and in the example of this thread, Dish may sell their receivers at close to cost because in order to use the receiver you must sign up for their service, and that's what they want you to do! Periodically they make new boxes with new features like DVR/PVRs or HD not so much to sell you a new receiver, but knowif they do sell you a new receiver you are likely to stay with them and pay the programming fees for another year or two at least.


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## Nick (Apr 23, 2002)

HDMe said:


> ...stores have made a living of selling some items at or even below cost just to get you into the store...


This is a very old retailing device, called a 'loss-leader'.

E* and D* both have a published subscriber acquisition cost, or SAC, typically of over $600 per new sub, a large part of which is subsidized equipment and installation costs. They want the monthly revenue from you, usually for a minimum commitment period of 12-24 months, a period which it would take to 'break even', then expecting that a high percentage of those subs will continue their subscription.


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## Tower Guy (Jul 27, 2005)

The satellite companies might have been better off if they made sure that their subscribers could receive local channels off the air. They should have included a proper antenna and integration in the complete installation. A bent trombone around the dish didn't count.

Instead, they mumbled "waivers" and drove away, leaving the end user frustrated.


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## James Long (Apr 17, 2003)

SamC said:


> People seem to accept as true two things that I have never seen proven. Both show up in this thread.
> 
> "More locals = more subscribers". People wanted access to network PROGRAMMING. Not to particular local affiliates.


People want what they can get from cable. The rules for cable REQUIRE a certain percentage of channels offered to be local channels. You end up with either tiny cable systems that don't have to offer all locals but do because their purpose began as "community antenna TV" or systems large enough that they must carry all the local stations. Sales in markets without locals jump when locals are added. Ask a dealer who was in business when their market was added.


SamC said:


> But, now we have, pretty much nearly 100 "unserved" DMAs which as a group add up to abotu 8% of the population. Obviously these will never be served because none of them are big enough to bother with.


E* is holding steady at 164 of 210 markets, 56 to go. D* is behind that with less than 100. E*'s about to launch a super satellite with enough spotbeams to finish the job. D* may not get to the finish line, but E* will serve every DMA with their own locals. Try to remember that many of the remaining markets don't even have a full set of locals. These are not 12-20 station markets, these are 2-4 station markets - easy to put somewhere on a satellite.


SamC said:


> None of these things are subsidized. Somebody please explain what is in a box that makes it cost $1000 to build it on an assembly line in Asia?


Did I miss the post where someone claimed it cost $1000 to build a satellite box? It might cost that much at the store (especially high markup places like Best Buy, Circuit City and Radio Shack) if it went through the usual channels with multiple markups. With leasing and direct sales from the manufacturer (E* makes their own receivers) the markups can fall away. That's the "subsidy" side if the math ... not losing cash by paying more to the manufacturer than the unit is sold for but reducing costs so that there are not so many people grabbing a piece of the pie.


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## Stewart Vernon (Jan 7, 2005)

Tower Guy said:


> The satellite companies might have been better off if they made sure that their subscribers could receive local channels off the air. They should have included a proper antenna and integration in the complete installation. A bent trombone around the dish didn't count.
> 
> Instead, they mumbled "waivers" and drove away, leaving the end user frustrated.


I think the problem here is... there seems to be a growing number of people who simply do not want proper antennas on their house or outside in their yard, even to receive TV signals. I don't remember at what point antennas became a bad thing... but at some point, it did.

I grew up with a nice large outside antenna and we always got all the local analog channels... but I wanted cable as a kid for the other channels that we could not get once cable started to become a big thing... but the locals weren't a big deal to me, because we had an antenna.

I could be wrong, but most of the satellite installers around where I live will also put up an antenna for local channels if you want them to for an extra charge of course for the extra work... but most folks just don't seem to want them.


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## diospyros (Nov 14, 2005)

Let's see... 622 presumably has a RISC computer with an embedded OS and a great big hunk of RAM. Large harddrive, 3 high-def TV tuners, 2 remote controls -- one with UHF, one HDMI output processor, component, TOSLINK and several other outputs... Probably will include some cables and a manual. Let's say about a one year warranty. Going to retail for somewhere around $650.00.
When you consider the difference between a HD TV with 2 tuners and the same TV in a monitor configuration without the tuners, is going to be about $300-400.00 it looks like the 622 will be priced about right. It is more or less in line with similar offerings from D* and Sony, etc.


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## KyL416 (Nov 11, 2005)

The thing is, there are many people who live in areas where the OTA signal is crap compared to the signal they would get on cable or satellite, specifically those who live in the edges of their market, in wooded areas, or behind a mountain blocking the signal. They rather have a good picture similar to the rest of the channels they have without needing a 50ft tower in their backyard.


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## Stewart Vernon (Jan 7, 2005)

KyL416 said:


> The thing is, there are many people who live in areas where the OTA signal is crap compared to the signal they would get on cable or satellite, specifically those who live in the edges of their market, in wooded areas, or behind a mountain blocking the signal. They rather have a good picture similar to the rest of the channels they have without needing a 50ft tower in their backyard.


I'm in support of those people getting locals first... Unfortunately, many of them end up in the smaller DMAs so they are way down the list if they ever get their locals.

Personally, I would prefer the satellite companies launch the smaller market locals first... but there just isn't any money in it, so they won't go that way.


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## Link (Feb 2, 2004)

Tower Guy said:


> The satellite companies might have been better off if they made sure that their subscribers could receive local channels off the air. They should have included a proper antenna and integration in the complete installation. A bent trombone around the dish didn't count.
> 
> Instead, they mumbled "waivers" and drove away, leaving the end user frustrated.


I agree with you. I don't understand why all receivers couldn't have had a built in off air tuner with an onscreen guide for local channels from the beginning. It would have made a big difference for people. It was a pain to have to switch between antenna/satellite box. Then when the DVRs came out you couldn't record local stations because the receivers didn't have off air tuners. It wasn't until the HD receivers came out that they put in a tuner.


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## Stewart Vernon (Jan 7, 2005)

Link said:


> I agree with you. I don't understand why all receivers couldn't have had a built in off air tuner with an onscreen guide for local channels from the beginning. It would have made a big difference for people. It was a pain to have to switch between antenna/satellite box. Then when the DVRs came out you couldn't record local stations because the receivers didn't have off air tuners. It wasn't until the HD receivers came out that they put in a tuner.


The DVRs today still cannot record analog over-the-air signals. They only record the digital stations... because it would require having an MPEG encoder in the box which would be a lot more expensive and require more sophisiticated hardware than currently exists for the home TV market.

Since all TVs came with an OTA tuner for standard analog signals, there was absolutely no incentive or reason to build in an analog tuner to the satellite receivers.

Now, since they are putting a digital tuner in the box to tune OTA digital, and allowing DVRs to record those... it doesn't take much to go ahead and put the analog OTA tuner in there, but you still cannot record them because of the lack of support for MPEG compression in the boxes, and that will never happen.


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## Marvin (Sep 14, 2003)

Im in Salisbury MD DMA, which is like #148 I think. Neither E* or D* serve this DMA. We have 4 channels OTA (WBOC,UPN21,WMDT and PBS) that I can pick up with an 80 or better signal, 3 of which are in HD now (all but UPN21 which is a subchannel of WBOC).

My feeling is that there is no reason for me to opt for locals if they ever decide to add them because it would be paying for something I already get, and I more than likely wouldn't even be getting them in HD until even further down the road. I was really hoping for significantly viewed channels as well, as Id much rather watch NBC and FOX out of Washington DC/Baltimore than out of NY, but Id lose them in HD as well since I get the HD DNS feeds of NBC and FOX right now.


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