Cablevision Systems' much criticized startup DBS service is aiming squarely at high-def junkies, loading up on HDTV services, creating a slate of new, narrow-interest HD networks of its own, and possibly selling its dish through Sears stores.
Expected to be unveiled Oct. 1, the DBS service is designed as a direct replacement for cable, DirecTV or Dish Network. The service aims at the high end of the TV market, viewers who have invested in high-definition TV sets, currently around 2 million homes but growing quickly as TV prices drop to $1,000-$2,000. Cablevision's Rainbow 1 DBS service wants rights to every HD channel available, from HBO to startup HDNet.
"Everything is sprinkled with HD," said an executive at a cable network that has been briefed on Rainbow 1's plans. "That's his point of differentiation."
Another said that "in time they want to replace every basic cable service with their HD feed."
DirecTV currently carries four HD channels; EchoStar offers five channels. HDTV is such a bandwidth hog that the satellite companies will have a hard time fitting many more into their lineups. But right now, there aren't many more HD channels available to carry.
The Rainbow DBS venture is the pet project of Cablevision Chairman Charles Dolan, who has enthusiastically spent months working out details. "I haven't seen Chuck engaged like this in years," said one cable executive.
The company projects 30,000 subscribers by year-end, 150,000 by the end of '04, 500,000 in '05 and 1 million in '06. By comparison, DirecTV, the biggest DBS service, has 10 million subscribers.
The venture's working name is Rainbow 1 DBS and executives have also used and trademarked the name Rainbow Sat. But, in June, a Cablevision unit trademarked the brand "Voom" for satellite services and equipment and two weeks ago grabbed the Internet domain voom.com.
Whatever it's called, Cablevision is having a difficult time locking up deals with programmers.
As a top-10 multichannel distributor serving 3 million metro New York customers, Dolan is an important customer to cable networks. But some are exploiting his pressing need for networks for the DBS venture to squeeze better carriage terms out of Dolan's cable systems. "They may announce a package with us in it, but that doesn't mean we have a deal," said one cable-network executive.
That may present a problem since Cablevision has promised investors it will spin the DBS venture off as an independent company by December. "Will the systems pay higher license fees for the next decade so the spin-off can get off the ground?" asked one securities analyst.
Cablevision declined to discuss its DBS plans, saying it expects to unveil them within the next few weeks.
Dolan has been secretive, keeping many of his own executives in the dark about programming and marketing details, but he has a timetable: Cablevision's DBS license from the FCC mandates that it light up some sort of service by year-end.
Wall Street analysts have been harshly critical, contending that it's going to burn too much cash. Dolan has already spent $342 million building and launching a satellite and has committed another $564 million. His son, James, who is president of Cablevision, has estimated that the venture could ultimately burn up $2 billion.
"I can't believe we've gotten to this point," said Fulcrum Global Partners media analyst Richard Greenfield. "I hope to God they spin it off by year-end so I don't have to worry about it any more."
The bulk of the HD channels available will be home-grown services targeting narrow niches. The executives say they'll be similar to the product on Cablevision's Mag Rack video-on-demand service, which patterns itself after small, enthusiast magazines. Mag Rack channels include Photography Close Up and Celebrating Dogs. But some will be part-time channels, either dark during some hours or repeating several hours of how-to programming over and over.
At least initially, there will be no local broadcast signals available on the Rainbow 1 service, so subscribers would have to rely on cable or over-the-air reception to get local stations. But Cablevision's satellite receiver is to come with a separate antenna.
The base package would cost subscribers $49.95. They would get one slate of 21 HD channels, the "Rainbow exclusive" services. They would also get another slate of conventional, standard-definition cable services like A&E, MTV or Lifetime.
Subscribers would then get to choose one of six premium packages. One is dubbed "HD Marquee," envisioned as a lineup of core HD channels, such as HDNet, Discovery HD Theater, ESPN HD, and Bravo HD.
A second tier would be sports, a blend of high-definition services, like the NBA TV's HD service, and smaller services, like ESPN News and Fox Sports product.
The remaining four packages would be movie channels: for example, all of HBO's various feeds, including its HD service, or a similar lineup from Showtime, Starz or Cinemax.
Details of the equipment deals, such as retail pricing, subsidies and commissions to retailers, could not be learned. However, one industry executive pointed out that the location of the Rainbow 1 satellite means the signal will be weak on the West Coast, requiring subscribers to acquire a much bigger dish.
Rainbow 1 is hovering at the equator, pretty much over an Amazonian forest in Brazil. Going north, that longitude runs 300 miles east of the coast of Maine. That means weak signals in the West, and the Pacific Northwest may be completely beyond reach.
Cablevision talks about the satellite's ultimately having capacity for 468 standard-definition video channels. Further, "spot beams" can direct different programming to 22 circular regions, 252 channels per region. But that high capacity presumes the satellite will transmit in the MPEG-4 compression scheme, a standard not yet finalized for video delivery. That, in turn, means decoder chips aren't readily available and won't be at mass-market prices anytime soon.
Cablevision has said it will initially deploy receivers using MPEG-2 decoders, with slots available for consumers to upgrade to MPEG-4 later.
Cablevision executives are still working to secure Sears as the service's initial retail outlet. They have told prospective business partners that Sears has committed to sell the service and receivers through the electronics department of about 860 full-line stores.
One Wall Street executive familiar with the plan said Cablevision is tapping Motorola to supply satellite receivers and dishes. Motorola's broadband division is the top supplier of cable set-top converters (which consumers currently can obtained only through cable operators) and cable modems (sold widely at retail).