• by David Kaplan , May 4, 2005

The job of a local cable ad sales team in a rural area is getting tougher, as two studies released this week noted that satellite TV is overtaking cable by leaps and bounds.

Looking at Nielsen's latest data comparing cable and satellite penetration in local TV markets, Horizon Media noted several major milestones for direct broadcast satellite.

"For the first time ever, satellite TV has reached a higher household penetration than cable in a local market," said Brad Adgate svp, director of research for Horizon, noting that as of this month, Springfield, MO became the first television market to have a greater household penetration for satellite TV, as DBS edged out cable 39.6 percent to 39.2 percent, respectively. Additionally, Meridan, MS became the first DMA to have a household satellite TV penetration of 40 percent. By contrast, just five years ago only one TV market had a satellite TV penetration figure of above 25 percent.

Meanwhile, the Durham, NH-based media analysis firm Leichtman Research Group similarly found that rural areas nationwide now have more DBS subscribers than cable subscribers.

"DBS now accounts for over 25 million subscribers nationwide," said Bruce Leichtman, president and principal analyst for the company. "The impact of DBS has been greatest in areas where cable has not sufficiently upgraded its offerings to respond to the more competitive landscape."

According to Leichtman's figures--which are based on a telephone survey of 1,600 adults from throughout the country that was conducted in March--42 percent of individuals who define themselves as living in a rural area say that they subscribe only to DBS; 37 percent to cable-only; and 2 percent to both cable and DBS. In a similar study last year, 38 percent in rural areas said that they subscribed to DBS-only, and an equal percentage to cable-only.

The story these numbers tell is an indication of the direction of the competitive balance between satellite and cable TV, Adgate said.

"Locally, this will also have an impact on TV advertising revenue for cable operators who are gradually losing market share," Adgate said. "This is something the [Television Bureau of Advertising, which advocates on behalf of local broadcast] has been warning advertisers about for some time, namely, that even with interconnects, if you're mainly buying cable, you're not getting as much coverage for your advertising dollars."

In the Leichtman study, 71 percent of people in rural areas say that cable TV is available, while 96 percent people in urban areas and 97 percent of people in the suburbs say they have access. And where cable TV is available, DBS penetration is twice as high in rural areas, as in other areas. DBS continues to lead cable in customer satisfaction ratings, but a similar percentage of cable and DBS subscribers express "a likelihood to switch providers" in the next six months.

In terms of cable not upgrading its services in rural areas, Leichtman specifically pointed to the fact that most of the cable systems handling rural areas have relied on old technology, and are not able to present the enormous number of channels and other options that satellite can offer its customers.

And in competing with DBS, the cable companies in rural America are caught in a Catch-22, he said.

"The cable companies that serve rural areas are not the Comcasts and Time Warners of the world," Leichtman said. "These are small operators and they tend not to have the means to upgrade, because they lack the ad revenue. And certainly, the larger cable companies are more focused on expanding in suburban and urban locations, which want to consolidate into the top DMAs, so a large swath of rural areas are being left to satellite. It's going to take a very entrepreneurial individual who can figure out a way to increase ad revenue and upgrade those systems."

On Monday, DirecTV released its first-quarter earnings report, and cited both gross and net subscriber increases of 1.14 million and 505,000, respectively. Revenue at the El Segundo, Calif.,-based company this quarter grew 26 percent from a year ago, to $3.2 billion.