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Satellite TV: Is HD Better Than "Triple Play" Option?

Direct TV
CNBC.com
Direct TV

DirecTV earnings came in this morning--with net income down 2 percent from last year and killed by a 22 percent INCREASE in operating expenses. This canceled out the good news that a key revenue metric for the satellite TV business was up 7% thanks to higher demand for High Definition and DVR services. It's that high definition that's DirecTV's saving grace. Starting in September, it'll launch a bunch of more HD options, giving it about three times the high def channels of most cable operators and by the end of 2008 it'll have hundreds of high def channels.

But satellite TV faces all sorts of challenges. For one thing, all television providers are going to be hit by declining home sales: When people buy or build new homes they're likely to upgrade their TV service, when they stay put they don't. And the DTV stock got a boost back in July when there was talk that Liberty Media (which is about to finish its stock swap with News Corp for a controlling stake in the company) would buy out the rest of the company. While some analysts still do think this could happen others are skeptical, and at best, it's already priced into the stock.

Then there's the bigger issue of all the competition both DirecTV and EchoStar face from cable and telecom. Cable companies are offering the ultimate "triple threat"--selling phone, Internet, and cable services bundled together. Phone companies are doing the same--and in fact Verizon's new fiber optic service picked up 40% of its new customers from DirecTV and EchoStar customers. The odd thing about the satellite firms' battle with the phone companies is that they're both competitors AND partners, because that's who DirecTV and EchoStar are partnering with to offer their own triple play service.

The bottom line: success or failure for the satellite TV companies hinges heavily on whether people would rather have more high definition channels, or a simple triple play. And once they switch to one, is it too much trouble to switch back?

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.