• by David Goetzl  @dgoetzl, May 9, 2007

As the cable industry holds its annual convention this week, the company acquiring satellite competitor DirecTV says it can trump its MSO counterparts with essentially an HD-first strategy. That optimism comes even as cable boasts that its high-speed broadband service gives it an edge--the satellite operator only offers a slower DSL Internet option via a partnership with a telco.

John Malone, chairman of Liberty Media, which is awaiting clearance of its deal to acquire controlling interest in DirecTV from News Corp., said consumers are hungry for high-def content as they increasingly purchase large-screen HD-compatible sets. There is a desire for high-capacity DVRs that can record the HD content. It hits "the sweet spot of what the public is particularly interested in right now," Malone said on a conference call to announce Liberty's first-quarter results.

DirecTV has said it will offer a slate of 100 national HD channels by year's-end, and it has a DirecTV Plus HD DVR. (Even as the cable convention continues, the History Channel said the satellite operator would be the first distributor of its coming HD outlet.)

Cable operators such as Comcast and Time Warner Cable contend their high-speed cable modems, which they sell in a bundle along with TV and phone service, give them an advantage against DBS services, such as DirecTV and Dish Network. DirecTV only offers the slower DSL service in a bundle (with phone), through a partnership with Verizon (the combo serves about 620,000 customers of DirecTV's overall 16 million-plus).

The lack of a so-called in-house broadband solution is one reason Rupert Murdoch has said News Corp. was willing to part with DirecTV. (There were other issues involving control of News Corp. stock.) Comcast CEO Brian Roberts has said, "DSL is the new dial-up," comparing it to the once dominant way to access the Internet.

But Malone believes customers are satisfied with DSL, based partly on its lower cost (perhaps half as much) to give DirecTV enough of a broadband position not to lose ground. "The bundling of satellite with DSL will give satellite a reasonably effective package, as compared with what cable can offer," Malone said.

Cable can continue to boost the speed of its modems vis-à-vis DSL, but that risks so-called "content bypass"--or "cable bypass" as it's more commonly known--in which consumers and networks might turn to the Web for video. That could decrease the value of the cable TV offering, "which I don't think anybody wants to jump to too fast in the cable industry," Malone said.

Malone added that DirecTV will be able to outfox cable with mobile TV services it can sell in a bundle, something that's beyond cable's capabilities. Last week, DirecTV announced the launch of DirecTV Sat-Go, a portable "briefcase-size" unit allowing customers to view DirecTV programming out of the home.

Separately on the conference call, Liberty CEO Greg Maffei said the company is "optimistic" that the deal to take control of DirecTV will receive all government clearances by August or September at the latest.

In the first quarter, Liberty said revenue for its QVC unit increased 8% to $1.68 billion versus the same period a year ago, and revenue edged up slightly by 2% to $265 million at Starz Entertainment.