The Strategic Management Cycle, management homework help (4 pages)

The Strategic Management Cycle, management homework help (4 pages)
WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 1 IBISWorld Industry Report 51711b Satellite TV Providers in the US December 2015 Nick Petrillo Competition streaming in: The rising popularity of online entertainment will slow revenue growth 2 About this Industry 2 Industry Definition 2 Main Activities 2 Similar Industries 3 Additional Resources 4 Industry at a Glance 5 Industry Performance 5 Executive Summary 5 Key External Drivers 7 Current Performance 10 Industry Outlook 12 Industry Life Cycle 14 Products & Markets 14 Supply Chains 14 Products & Services 15 Demand Determinants 16 Major Markets 17 International Trade 18 Business Locations 20 Competitive Landscape 20 Market Share Concentration 20 Key Success Factors 20 Cost Structure Benchmarks 22 Basis of Competition 23 Barriers to Entry 24 Industry Globalization 25 Major Companies 25 DirecTV Inc. 26 Dish Network LLC 29 Operating Conditions 29 Capital Intensity 30 Technology & Systems 30 Revenue Volatility 31 Regulation & Policy 32 Industry Assistance 33 Key Statistics 33 Industry Data 33 Annual Change 33 Key Ratios 34 Jargon & Glossary www.ibisworld.com | 1-800 -330 -3772 | info @ ibisworld.com WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 2 Companies in this industry distribute television (TV) programs on a subscription or fee basis through direct broadcast satellites. The industry also includes multipoint distribution system operators that deliver wireless TV programming using ground stations. These companies operate in rural areas and have a negligible effect on industry performance. This industry excludes broadcast TV networks and other satellite telecommunications providers. The primary activities of this industry are Providing basic satellite TV programming Providing premium and pay-per-view satellite TV programming Leasing or retailing digital video recorders and set-top boxes 51511 Radio Broadcasting in the US This industry includes radio broadcasting stations, networks and syndicates that transmit audio programming through AM, FM and satellite radio channels. 51512 Television Broadcasting in the US This industry operates studios and facilities that program and deliver audiovisual content to the public via over-the-air transmission. 51521 Cable Networks in the US This industry includes companies that operate studios and facilities to distribute TV programs on a subscription or fee basis through cable. 51741 Satellite Telecommunications Providers in the US This industry provides telecommunications connections via satellite for broadcasters and other telecommunications providers. This industry excludes direct-to-home satellite TV services. 51791b Radar & Satellite Operations in the US The industry works with companies that provide satellite telecommunications services, telemetry and tracking and control services. It also operates radar stations and satellite terminal stations. 51711a Cable Providers in the US This industry delivers TV programming received from cable networks or local TV stations via cable systems on a subscription basis. Industry Definition Main Activities Similar Industries About this Industry The major products and services in this industry are Basic programming DVR service HD channels Video on demand Other WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 3 For additional information on this industry www.fcc.gov Federal Communications Commission www.nielsen.com Nielsen www.sbca.com Satellite Broadcasting & Communications Association www.satbiznews.com Satellite Business News Additional Resources IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com About this Industry WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 4 Millions 10694 96 98 100 102 104 20 06 081012141618 Year Number of cable tv vsubscriftions SOURCE: WWW.IBISWORBfD.COM D .MO4-S 16 -40 4 8 12 21 0b 091113151b19 Year bevenue Emfloyment bevenue vs. emfloymevnt growth Products and services se.gmentation (2015) 39.f%Basic programming 3b.1% Video on demand bb.1%HD channels 4.0%DVR service b.3%Other SOURCE: WWW.IBISWORLf.COM Key Statistics Snapshot Industry at a Glance Satellite TV Providers in 2015 Industry Structure Life Cycle Stage Growth Revenue Volatility Low Capital Intensity High Industry Assistance None Concentration Level High Regulation Level Heavy Technology Change High Barriers to Entry High Industry Globalization Low Competition Level High Revenue $52.8bn Profit $9.6bn Wages $2.9bn Businesses 25 Annual Growth 15-20 4.0% Annual Growth 10-15 7.1% Key External Drivers Number of cable TV subscriptions Per capita disposable income Number of mobile internet connections Number of households Consumer Confidence Index Market Share DirecTV Inc. 53.3% Dish Network LLC 29.4% p. 25 p. 5 FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 5 Key External Drivers Number of cable TV subscriptions The cable industry, which competes directly with satellite TV providers, has been bundling TV services together with internet, telephone and other home services to generate higher demand and average revenue per subscriber. As cable attracts consumers, market potential for satellite providers shrinks. The number of cable TV subscriptions is expected to decrease slowly in 2015. Per capita disposable income Satellite TV services are a discretionary purchase for most consumers. As a result, the industry is very sensitive to changes in economic activity. Lower disposable income during periods of economic decline hurt the industry’s ability to hold onto existing subscribers and attract new ones. Per capita disposable income is expected to increase during 2015, representing a potential opportunity for the industry. Executive Summary Satellite television (TV) providers distribute TV programs on a subscription or fee basis through direct broadcast satellites. New networks, more channels and bonus features have strengthened the industry despite shaky subscriber growth rates in recent years. The introduction of high-definition TV improved the quality of programming and attracted subscribers to higher- margin packages. IBISWorld expects higher spending on industry services to result in revenue growth of 7.1% over the five years to 2015. However, in 2015, revenue is expected to increase at a slower 4.2% to $52.8 billion, as large investments raise expenses and offset the positive influence of increased prices and subscriptions. Companies in the industry fight in a saturated market invaded by external competition. With satellites already in orbit, major players incur low costs per additional subscriber, keeping profit healthy. However, the cost of acquiring and maintaining subscribers has increased, and stiff competition prevents providers from passing costs on to customers. Progressive technologies have advanced the quality and speed of direct-broadcast satellite transmissions, increasing the medium’s marketability. New online services and mobile app devices are mitigating losses stemming from customers migrating to online streaming. Nevertheless, the threat from these external competitors is expected to increase as internet streaming companies acquire and produce original content, shoving their way into the industry. Telecommunication providers have thrust themselves into the contest, with AT&T acquiring DirecTV and expanding the company’s services into a range of telecommunications spheres. The growing availability of online content, along with an expanding market for connected devices, internet- connected TVs and emerging mobile technologies, will continue to pose a threat to traditional TV. The ability of the major players that survive the competition and continue developing ways to retain and attract subscribers will determine industry revenue growth. With a slower annual rise in demand from subscribers, IBISWorld forecasts revenue will increase at a slower annualized 4.0% to $64.2 billion over the five years to 2020. Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage The growing availability of online content will continue posing a threat to traditional TV WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 6 Key External Drivers continued Number of mobile internet connections Over the past five years, broadband- enabled mobile devices, such as smartphones and tablets, have proliferated throughout the United States. As mobile broadband connections have become more ubiquitous and reliable, consumers are increasingly using these devices to stream online content, intensifying the external competition satellite providers will face. Mobile internet connections are expected to increase during 2015, representing a potential threat to the industry. Number of households The industry’s primary market is residential households. Thus, household formation provides a natural increase in potential demand for satellite services. However, competition in this market is intense, as robust broadband connections and faster wireless internet services are increasingly bundled with cable TV subscriptions. The number of households is expected to increase during 2015. Consumer Confidence Index Changes in consumer sentiment directly affect discretionary expenditure, particularly on high-priced, value-added services. These expenditures decline when economic activity falters, as consumers opt to pay down loans, build their savings and conserve available income for basic needs. The consumer sentiment index is expected to increase in 2015. % change 3 -3 -2 -1 0 1 2 20 08 1012141618 Year Per capita disposalble incofe SOURCE: WWW.IfISWORLID.COM Millions 106 b4 b6 b8 100 102 104 20 06 081012141618 Year Nufber ob cable TV sulbscriptions Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 7 Profitability fluctuates temporarily Companies in this industry face high initial costs, but then experience low costs per additional subscriber. Most industry operators outsource in-home product installation and setup services, such as services for satellite dishes and digital video recorders. DirecTV is also investing in the construction of new satellites. As a result, with all other costs remaining equal, this industry earns a higher proportion of profit from each additional subscriber’s revenue than the Cable Providers industry (IBISWorld report 51711a). With subscriber growth stalling in recent years, the Satellite TV Providers industry’s average profit margin has been inconsistent. Despite a projected increase to 18.2% of industry revenue in 2015, profit growth was not steady in the years leading up to 2015. To capitalize on the wave of consumers switching providers (analog TV broadcasts have been entirely phased out), many companies used advertisements to highlight the extra content provided by satellite versus cable. Satellite TV providers have also continued to leverage exclusive programming, including DirecTV’s NFL Sunday Ticket, to gain subscribers. Satellite vs. cable Satellite TV providers compete directly with operators in the Cable Providers industry. The competition between these two industries is particularly intense, as they offer similar TV programming to consumers. In terms of availability, a home must be prewired for cable TV, so consumers in remote locations often lack the option of subscribing to cable services. To receive satellite TV, Current Performance The Satellite TV Providers industry operates within the larger broadcast distribution sector, offering TV programs on a subscription or fee basis through direct broadcast satellites. Industry operators have competed favorably over the past five years by offering leading picture quality and customer service, as well as the largest array of content. Prior industry investments in secondary and tertiary transmission systems, as well as developments in data compression and signal strength, allow the industry to provide much higher quality services than a decade ago. Over the five years to 2015, new networks, more channel offerings, apps and bonus features are expected to increase industry revenue at an annualized rate of 7.1% to $52.8 billion. This growth will be hindered by new and fierce competition emerging from online streaming companies that have been cutting into the number of satellite TV subscribers. In 2015, revenue is expected to increase by a relatively slim annualized 4.2% as consumer preferences shift to cable-bundled packages and online streaming companies, but customers will pay more for monthly services. % change 122 4 6 8 10 21 07 091113151719 Year Industry revenue SOURCE: WWWfIBISWORLbfCWOM Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 8 Streaming becomes a serious threat As internet speeds increase and data compression technologies become more widespread, streaming video has become a viable alternative to watching TV. With a large increase in the number of consumers with wired broadband connections and broadband-enabled mobile devices, a significant amount of video content has become available through the internet. Some examples of legitimate streaming services that compete directly with subscription TV include Netflix, Amazon, YouTube and Hulu Plus. These services offer ways to bring entertainment from the computer onto the TV screen and allow consumers to stream TV shows and movies directly to their TVs, computers or wireless devices. Nonetheless, many of these services do not yet offer enough content to fully substitute a TV subscription. For example, live sporting events are often not available for streaming through these channels. Additionally, the quality and reliability of streaming services are lower than that of satellite TV. Although the number of people streaming online video has steadily increased over the past five years, a majority of video is still watched on a traditional TV set. Although the threat from streaming video was negligible for the industry in the past five years, streaming video will pose an inevitable threat to the industry in the future, as wired and wireless internet connections continue to improve and consumers switch to broadband-enabled mobile devices. Additionally, Netflix, Amazon and Hulu are each investing in original programming that has received both popular and critical appeal. These new developments are expected to negatively influence future revenue growth as homeowners must install a dish in a place with an unobstructed view of the southern sky. Cable companies have increased their competitiveness with the advent of fiber-optic technology, which enables companies, such as Verizon and Comcast, to provide high-speed, digital-quality TV subscriptions similar to traditional cable, but with higher-quality feeds. However, because satellite TV providers do not have to wire multiple houses to provide their services, they incur lower costs per subscriber. As a result, the industry typically outperforms the cable industry in terms of price. Operators in the Satellite TV Providers industry have also taken steps to gain a competitive edge in providing superior customer service. In line with subscriber growth, the industry has hired more employees to improve customer relations. As a result, the number of industry employees has increased at an annualized rate of 4.3% to 30,088 workers over the five years to 2015. Consequently, total industry wages are expected to increase at an annualized rate of 6.1% to $2.9 billion over the same period. The number of establishments is expected to increase 3.5% over the five-year period, reaching 120 locations in 2015, which has contributed to employment increases. The number of highly skilled engineers and technicians has increased significantly as companies attempt to offer new innovative products and lower skilled employment increased with companies focusing more on customer service. Satellite vs. cable continued Online streaming has not yet hurt satellite TV demand due to these services’ limited content Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 9 consumers migrate to other forms of content distribution. Although alternatives to cable and satellite TV are limited in content availability, operators have scrambled to offer viable alternatives to the new external competitors. In August 2013, DirecTV launched its own Pivot TV Everywhere app to allow subscribers to watch the service live on computers, smartphones and tablets. Dish followed suit by offering Dish Anywhere, a website that allows customers to instantly watch TV shows and movies, along with the Dish Anywhere App that allows the content to be viewed on a smartphone or tablet. The balance of media services is constantly being shifted and reevaluated as cross-industry acquisitions and deals create a more widespread fight for consumers’ living rooms and mobile devices. According to Nielsen, nearly half of smartphone and tablet owners use their devices as second screens while watching TV every day. TV networks, such as AMC Networks, are even launching second-screen content. The rise in mobile video watching has made the market even more dynamic and prompted a rush of all telecommunications, cable and satellite companies to be the first to reach consumers’ pockets. AT&T acquired DirecTV in 2015, marking a new convergence of broadband internet and video services. DirecTV has also made strategic investments in LiveClips, a technology company that develops and delivers video content from live sporting events for any internet-enabled device, and i.TV, a social TV and second screen platform that enables customers to watch and engage with TV. Dish went one step further, signing an accord with the Walt Disney Company in 2014, allowing the company to offer programming over the web, a first for a US cable or satellite provider, and a potential answer to the Netflix threat. Streaming becomes a serious threat continued Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 10 Industry Outlook Although new household formation and increasing per capita disposable income are expected to drive revenue growth over the next five years, the number of households that sign up for pay-TV services is expected to decrease slowly. Dish reported in its 2014 annual report that the company had lost 79,000 net pay-TV subscriptions in 2014. This news comes a year after the company announced a miniscule 1,000 net additions in pay-TV subscribers in 2013. This continued decline presents a significant challenge to the industry, with industry revenue forecast to increase at a milder annualized rate of 4.0% to $64.2 billion over the five years to 2020. Increasing competition from online streaming companies over the next five years is anticipated to stimulate spending on marketing and new product development, which will likely cut into the extra revenue generated from new subscriptions. Furthermore, amid this competitive environment, industry providers will likely be unable to pass rising programming costs onto their subscribers. With high programming costs and mergers and acquisitions, profit is forecast to decrease over the coming five years. Satellite uplink costs (i.e. transmitting between earth stations via satellite) and investment in new equipment and facilities to support the subscriber base will also contribute to a lower industry profit margin. While some consumers prefer to pay extra for more content, others will look to save money at the cost of bonus features and added channels. With tiered packages for channels, satellite TV providers are best able to walk the fine line between pricing and quantity of services. Providers are expected to entice digital screen consumers by offering slimmed-down bundles to replace the expensive ones that offer hundreds of channels. IBISWorld expects that the industry will develop additional tiers of service or enable consumers to better customize their features as a way of maximizing revenue. As the industry better develops customer services and focuses on quality, additional uplink facilities and call centers are expected to facilitate industry expansion, causing establishments to continue growing at an annualized rate of 2.1%, reaching an estimated 133 locations in 2020. Consequently, industry employment is anticipated to increase at an annualized rate of 3.8% to 36,287 workers in the same five-year period. Increased multiplatform streaming Multiplatform viewing will continue to be a competitive external threat to the industry. More than 45.0% of the population views content on mobile devices, according to the research company Nielsen, indicating the already widespread appeal and accessibility of streaming videos. While consumers have not entirely substituted streaming video for satellite TV services yet, the industry will evolve its services to provide consumers with added value as the amount of content offered through this new medium increases. One way satellite TV providers have been able to mitigate the threat of streaming content over the internet has been through offering their own streaming content free to subscribers of their services. Over the next five years, Multiplatform viewing will continue to be a competitive external threat to the industry Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 11 Increased multiplatform streaming continued operators are expected to take steps to monetize that online content by selling advertising space. Advertisements will appear throughout the consumer’s content streaming experience, during live programming as well as content viewed on demand. This developing trend is evident in DirecTV’s strategic 2013 investment in video advertisement company FreeWheel, which provides a platform for ad insertion in on-demand and live video feeds online. DirecTV has also ventured into the mobile app space, launching the first Pivot TV app offering a live feed of the network, as well as programming on demand on portable devices. Dish followed suit, offering Dish Anywhere to watch online and the Dish Anywhere app to watch on smartphones and tablets. Industry efforts will be met with heavy resistance, as online streamers continue to push their way into the TV space, providing faster and more reliable connections as well as original content. Furthermore, streaming set-top boxes, such as the Roku, Apple TV and Chromecast, allow users to bring content available on the web, from any browser tab, to the TV screen. Responding to these changes, consumers are increasingly cutting the cord and watching their TV programs exclusively online. The relatively new development of the smart TV, which focuses on online interactive media, internet TV and streaming media, is also a threat to the industry. As online streamers find new and efficient ways to provide consumers with the speed, reliability and variety of shows they are seeking, TV providers are expected to see lower rates of revenue growth. Niche appeal Smaller industry players will continue to rely on niche audiences for the bulk of their revenue. This segment is forecast to expand as existing providers find new ways of attracting an increasingly diverse American audience. Companies specializing in providing multicultural programming will need to increase their offerings as more international content becomes readily available online, as well as through traditional cable companies. Similarly, satellite broadcasters will need to communicate with growing multicultural audiences to convey the full value of their offers. Sports fans represent a key niche market for satellite providers. By offering extensive sports channels at a higher price, providers are already maximizing revenue from this subscriber segment. For example, DirecTV began a partnership with the NFL in 2011 to offer a comprehensive NFL game package, NFL Sunday Ticket. With the advent of 3D TV, this industry has a unique opportunity to offer an even more exclusive package to fans. Producing a live sports show is expensive and requires cameras at several angles to accurately portray what is happening on the field or court to TV audiences. Smaller industry players will continue relying on niche audiences for the bulk of their revenue Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 12 Industry value added is projected to grow faster than GDP in the 10 years to 2020 The industry is adapting new technologies to expand its subscriber base Industry employment is expanding as providers seek to capitalize on advertising and customer service Life Cycle Stage SOURCE: WWW.IBISWORLD.COM.AU 20 15 105 0 -5 -10 % Growth in share of economy % Growth in number of establishments -10 -5 0 5 10 15 20 Decline Shrinking economic importance Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets Maturity Company consolidation; level of economic importance stable Quantity Growth Many new companies; minor growth in economic importance; substantial technology change Key Features of a Growth Industry Revenue grows faster than the economy Many new companies enter the market Rapid technology & process change Growing customer acceptance of product Rapid introduction of products & brands Radio Broadcasting Communication Equipment Manufacturing Television Broadcasting Movie & Video Production Cable Networks Satellite TV Providers Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 13 Industry Life Cycle The Satellite TV Providers industry is in the growth phase of its life cycle. Despite its sluggish subscriber growth, the industry is taking full advantage of economies of scale and scope. Industry value added, which measures the industry’s contribution to the overall economy, is expected to increase at an annualized rate of 3.5% over the 10 years to 2020. In comparison, GDP is forecast to grow at an average annual rate of 2.2%. Clients are slow to shift preferences and adopt products of the new external competitors, and the industry has thwarted the increasing number of online threats through acquisitions and consolidations with cellular networks and internet service providers. Industry employment is forecast to continue growing at a healthy pace as satellite TV providers hire more staff to capitalize on a budding trend within the industry: the sale of advertising space. As companies continue to provide digital content to consumers over the internet and broadband-enabled mobile devices on an on-demand basis, the potential to advertise over this transmission medium is enormous. Providers are now able to offer targeted one-to-one advertising, down to the household level, based on subscribers’ demographic profiles and browsing history. As the amount of digital content that satellite TV providers make available over the internet increases, advertising is expected to bring a temporary revenue stream to the industry. As consumers increasingly use online streamers to watch TV shows and movies, satellite TV providers are expected to face increasing competition. A growing number of consumers are expected to drop or reduce their traditional multichannel video programming subscription package, decreasing profit margins and slowing revenue growth. This industry is Growing Industry Performance WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 14 Products & Services Satellite TV providers offer several services in addition to basic TV programming. Such services are generally bundled together in packages; therefore, revenue is not divisible by the number of services purchased. Instead, IBISWorld estimates the extent to which people use such services. In general, satellite TV providers earn revenue from monthly subscriptions to basic and premium programming; video-on-demand and pay-per-view services; monthly fees from leased videos or equipment fees from purchased digital video recorders (DVRs); and set-top receivers; and advertising services. Revenue from advertising accounts for a small, but increasing, portion of industry revenue. Basic programming and HD Two sectors that are growing in popularity, albeit at a slower rate than in Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations KEY BUYING INDUSTRIES 99 Consumers in the US Satellite TV providers distribute their services to end users via direct-broadcast satellite technologies. KEY SELLING INDUSTRIES 33422 Communication Equipment Manufacturing in the US Satellite TV providers buy broadcasting equipment from communication equipment manufacturers. 51211a Movie & Video Production in the US Satellite TV providers buy motion pictures and videos from movie and video producers. 51211b Television Production in the US Satellite TV providers buy TV series and made-for-TV movies from TV producers. 51212 Movie & Video Distribution in the US Satellite TV providers buy audiovisual productions from movie and video distributors. 51791b Radar & Satellite Operations in the US Satellite TV providers lease satellite equipment from radar and satellite operators. Supply Chain Products and services se$gmentation (2015) Total $f2.8bn 39.f%Basic programming 32.1% Video on demand 22.1%HD channels 4.0%DVR service 2.3%Other SOURCE: WWW.IBISWORLf.COM WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 15 Demand Determinants Since the majority of this industry’s customers are residential households, demand is influenced by trends that affect the disposable incomes of families and private individuals. Satellite TV is particularly popular among families, and the industry’s growth can be tied to the number of new families with young children. When the number of residential households increases, the size of the industry’s potential market among these new households increases, naturally leading to an increase in demand for satellite TV discretionary services. Consumer disposable income also influences demand; during times of higher per capita disposable income, demand for satellite TV services increases. The growing popularity of other alternative methods of consuming media can have a directly negative impact on satellite TV providers. An increasing number of cable TV subscriptions negatively affects demand for satellite TV Products & Services continued previous years, include basic programming and high-definition (HD) channels. The number of subscribers interested in obtaining basic services has risen, while video-on-demand and DVR services face increasing demand and heavy competition from alternative services like Netflix and Hulu. Other services that this industry provides include content-specific features like DirecTV’s ScoreGuide, which keeps track of scores and start times of major matches for fans. As more programming is introduced, this product segment is expected to expand as a portion of revenue. However, the increasing cost of carrying programming is a challenge that the industry must contend with to remain competitive. Operators throughout the broadcast distribution sector have been vertically integrating or forming partnerships with upstream content producers to mitigate the negative effect of rising programming costs. Video-on-demand The major satellite companies attract a particularly wide audience by providing a multitude of content-specific programming (e.g. sports channels) and add-ons. For consumers who do not subscriber to a particular value-added programming package, live content can be purchased on demand for a fee. Similarly, movies and TV shows can be purchased and accessed on an on- demand basis. This product segment has increased in prominence over the past five years as content has been increasingly viewed on broadband- enabled mobile devices. While this trend has the potential to siphon revenue and subscribers away from the industry, the industry’s major players have introduced their own mobile streaming content (tied to a monthly subscription) to soften this competitive threat. DVR services and other Satellite providers also garner revenue through fees that they charge subscribers for multiple leased or purchased set-top receivers, warranty service fees and advertising services. As the industry continues to stream digital content over mobile devices and make digital content available over the internet, the potential to advertise over on-demand and live streaming video is huge. Advertising is expected to account for an increasing portion of industry revenue, in line with DirecTV’s stated focus to generate a greater share of revenue from commercial and local advertising. Indeed, in 2013 DirecTV announced a strategic investment in and partnership with FreeWheel, a platform for dynamic ad insertion in on-demand and live video feeds online. Products & Markets WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 16 Major Markets A narrowing proportion of US households subscribe to satellite TV, and a thinning proportion of the industry’s revenue is derived from basic TV services. Historically, a higher proportion of older viewers have been attracted to this medium because they are more likely to live in rural, isolated areas that are not wired for competing broadband cable services. They are also less likely to adapt quickly to newer technology. However, satellite TV offers more advanced services because it reaches a broader variety of households. Satellite TV services appeal to multicultural audiences with interests in the foreign- channel offerings. As a result, the industry’s audience is also more ethnically diverse than the overall population. Younger consumers represent a dwindling percentage of the industry’s Demand Determinants continued services since both are substitute goods; when a cable provider gains a subscriber, the Satellite TV providers industry has lost either a potential customer or a prior subscriber to satellite TV. Additionally, cable TV providers offer bundles of services, including phone and internet, which can retain customers who wish to have their home phone and broadband internet bills consolidated into a single package. Satellite TV providers have attempted to mimic this customer retention model by introducing their own packages; DirecTV was acquired by telecommunications provider AT&T in 2015, with the goal of providing competing satellite and home phone bundles to customers. Externally, the number of mobile internet connections has also had a negative effect on industry demand. As broadband-enabled mobile devices have proliferated throughout the United States, an increasing number of consumers have canceled their pay-tv subscriptions and opted instead to stream content through the internet. Companies like Netflix, Amazon, Google and Apple are all attempting to move into the TV market. Netflix and Amazon have even released several original- content TV series, several of which have been highly critically acclaimed. Apple launched Apple TV and Google launched Chromecast to allow users to bring online entertainment to their TV screens. Smart TV interfaces allow users to get instant access via their television to the content stored on their streaming services. To date, the number of consumers that view content solely through the internet remains small. The cord-cutting trend, however, is expected to accelerate moving forward. As internet connections become faster and more reliable and a greater number of video-on-demand streaming services are introduced, the satellite TV industry will shrink at an increasing speed. Demand for industry services is also driven by the introduction of new channels, programs and content from satellite TV providers. To attract and retain consumers, distributors require an array of networks and channels and continuously must introduce new and alluring programming. Therefore, distributors demand network programming that has wide appeal with households over a large geographical area, either nationally or in a regionally concentrated area. Some programming cost discounts are offered to the larger satellite TV providers due to their ability to provide services over a larger geographic area and their larger subscriber base. Also, satellite services are increasingly being bundled with telephone, internet, interactive-TV, video-on-demand and DVR services to increase demand and reduce the subscriber churn rate. Products & Markets WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 17 International Trade Due to the service-based nature of this industry, satellite TV providers do not participate in international trade. However, companies in this industry do air international programming from foreign markets such as Canada, Mexico and the UK. By offering foreign language and cultural channels, these companies can generate revenue from a wider multilingual audience. Expanding the industry’s multicultural viewing options creates a broader audience base and increases revenue potential. Major Markets continued consumer base. Much in the same way that cord-cutters have abandoned broadband cable subscriptions in favor of more affordable alternatives such as online streaming services and over-the- top channel subscriptions, satellite TV has also been threatened by these emerging methods of consuming media. Younger consumers have been the most receptive to this switch, and some consumers (referred to as “cord-nevers”) have embraced online streaming media without ever having been a cable subscriber. Consumers aged 24 and younger represent a minimal 3.6% of the industry’s consumers, while consumers between the ages of 25 and 34 represent a more significant 14.5% of the industry’s base. The industry’s eldest consumers represent an increasingly high proportion of satellite TV viewers. Viewers between the ages of 55 to 64 represent 19.5% of customers, while consumers older than 65 represent an industry-leading 24.2%. Many older consumers represent a generation that had embraced satellite TV as an alternative to cable TV, particularly when satellite emerged in the 1990s as a significant and technologically viable alternative to traditional TV viewing. These consumers, however, have been reluctant to pursue cord-cutting and have grown as a percentage of the industry’s customer base over the past five years. Major market segmentation (2015) Total $52f8bn 24f2b Consumers aged 65 a2nd older 3f6b Consumers aged 24 and younger 20f7b Consumers aged 45 to2 54 19f5b Consumers aged 55 t2o 64 17f5b Consumers aged 35 t2o 44 14f5b Consumers aged 25 to2 34 SOURCE: WWW.IBISWORLf.COM Products & Markets WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 18 Business Locations 2015 MO2.4 VT0.4 MA2.7 RI0.3 NJ3.1 DE0.4 NH0.7 CT1.1 MD1.9 DC0.4 1 53 7 2 6 4 8 9 Additional States (as marked on map) AZ1.2 CA9.2 NV0.6 OR1.3 WA2.0 MT0.5 NE0.6 MN1.8 IA1.5 OH3.8 VA3.4 FL5.2 KS1.4 CO2.0 UT0.7 ID0.5 TX7.6 OK1.5 NC3.2 AK0.5 WY0.3 TN1.9 KY1.5 GA3.0 IL4.3 ME0.8 ND0.2 WI2.3 MI2.9 PA4.6 WV0.9 SD0.3 NM0.6 AR1.0 MS1.0 AL1.5 SC1.4 LA1.3 HI0.3 IN2.1 NY5.9 5 6 7 8 3 2 1 4 9 SOURCE: WWW.IBISWORLD.COM Establishments (%) Less than 3% 3% to less than 10% 10% to less than 20% 20% or more Products & Markets West West West Rocky Mountains Plains Southwest Southeast New England Mid- Atlantic Great Lakes WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 19 Business Locations Satellite TV providers do not need to rely on business location to succeed. While some larger content production and administrative operations are conducted near major content providers in New York City or Los Angeles, the provision of satellite TV can be spread throughout virtually all parts of the contiguous US states. Satellite reception strength is very strong and in some cases can be more reliable that standard broadcast reception. In addition to programming centers, most providers also operate several uplink facilities to connect with satellites in orbit and ensure the smooth, continual transmission of broadcasts. As a result, satellite TV is readily available for most consumers and is therefore spread throughout the US in line with regional populations. For example, the Southeast is the most populous region of the US and carries 25.5% of the country’s population. It also represents the most dominant region in terms of the distribution of satellite TV providers, at 25.3% of the industry’s total. Conversely, the Rocky Mountains represent a very small of the US population (4.1%) and also hold the smallest percentage of industry establishments (4.0%). The Satellite TV providers industry historically experiences a greater proportion of satellite subscribers as a percentage of the state’s population in less populous states when compared with the subscription rates of larger states. That is to say, small states such as Kansas, which possesses 0.9% of the US population, actually holds a relatively large 1.4% of the industry’s establishments. In comparison, California represents the largest US state in terms of population (12.2%), but holds a relatively slim 9.2% of industry establishments. This phenomenon is due to the technological advantage that satellite TV providers hold over broadband cable providers in remote areas. Since cable broadband cannot be routed to homes located far from nearby municipal cable and electric infrastructure, as is more often the case in rural states, it is far more convenient for homes to install dishes into older houses that lack cable connectivity. This has led the industry to hold a significant marketing advantage in smaller states. % 300 10 20 Southwest West Great Lakes fid-btlantic New England Plains Rocky fountains Southeast Establishments Population Distribution of esta blishments vs. popul ation SOURCE: WWW.IBISWORLkD.COf Products & Markets WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 20 Cost Structure Benchmarks The costs associated with building, launching and maintaining satellite constellations are extensive. During the construction and launch phases of satellite development, providers’ profitability shrinks, while depreciation and purchase expenses increase. However, once satellite networks are operational, well-established companies with large subscriber bases experience high profit margins. Due to the industry’s high concentration (Dish and DirecTV effectively control the national market), the average industry cost structure is in line with the two major players’ operational expenses. Key Success Factors Close monitoring of new competition Companies must monitor competition in the cable and satellite markets for delivery of network channels and audience acceptance. Content is increasingly being delivered through a number of other media formats in addition to traditional channels. Having a loyal customer base Establishing a strong and loyal customer base within national, regional or even international areas of operation is crucial to maintaining steady cash flow. Ability to quickly adopt new technology Companies must adopt the newest technology to provide continually high quality services in a timely fashion, preferably ahead of their competitors, to attract new customers and retain existing ones. Maintaining excellent customer services Maintaining a reputation for fast and efficient customer service is crucial to retaining customers. Customers that do not have reason to complain about their services will not need to be swayed or convinced to remain a customer through price discounts. Ensuring pricing is competitive It is essential to monitor prices across basic and higher-price, value-added services, especially for subscriber acceptance and adoption. Customers may be willing to pay more for a service which they perceive as having a higher value. Market Share Concentration The Satellite TV Providers industry has a high level of concentration, with the top two companies, DirecTV and Dish Network, accounting for about 82.6% of the total market. Over the past five years, these companies have successfully expanded their scope and revenue by offering an increasing array of services and continually improving their quality. These two major satellite providers feature about 200 HD channels and various on-demand services, such as digital video recording. This industry is highly concentrated due to the high fixed costs involved in developing, launching and maintaining satellites. Due to high start-up costs, regulation and intense competition, few small producers have managed to develop a niche market. Such companies typically vie for specific target audiences, such as religious or immigrant viewer groups, by providing channels specific to their interests or culture. These smaller players are able to survive in the industry, but do not compete directly with the major players. Consequently, IBISWorld expects industry concentration to remain high over the next five years. Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization Level Concentration in this industry is High IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 21 Cost Structure Benchmarks continued Profit Industry profit, defined as earnings before interest and taxes, is expected to average 18.2% of revenue. Over the past five years, profit has swelled because providers spent a smaller portion of their earnings on satellite launches and updates. However, in 2013, average profit in the industry decrease due to Dish Network’s depressed margins; Dish’s margins first decreased in 2012 primarily due to $730.0 million of litigation expenses. Higher programming costs and increased advertising associated with the Hopper set-top box have also hindered Dish’s profit; however, this decrease is not expected to have a long-lasting impact on average industry profit. While subscriptions and on-demand revenue have grown over the past five years, marketing costs have increased as companies continue to vie for viewership amid increasing competition and rising programming costs. Heightened competition has also prevented providers from passing increasing costs on to subscribers, pressuring profitability. As these costs continue to rise, profit growth is forecast to be relatively flat over the next five years. Purchases Purchases account for about 36.5% of total industry revenue and primarily include the cost of carrying different programming. Purchases of satellite transmission and receiving equipment, and miscellaneous office equipment, such as computers, software and peripheral equipment, are also included in this category. DirecTV’s construction of two new satellites increased purchase costs in 2013. Purchases as a whole have increased as the cost of programming has risen, particularly the cost of sports programming. This trend is expected to continue over the next five Sector vs. Industry Costs n P r o fi t n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other Average Costs of all Industries in sector (2015) Industry Costs (2015) 0 20 40 60 Percentage of revenue 80 10 0 SOURCE: WWW.IBISWORLD.COM 16.5 18.2 23.2 4.9 3.9 7.8 36.5 5.5 21.3 4.8 4.5 7.6 24.1 21.2 Competitive Landscape WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 22 Basis of Competition The basis of competition in this industry relates to the diversity, quality and consistency of programming. Programming caters to the needs of both general subscribers and niche markets. Federal Communications Commission (FCC) regulations ensure that users have a variety of choices for their TV services, resulting in continued competition. Internal competition Satellite networks compete on a national level. Internal competition is high between DirecTV and Dish Network, as these two companies offer a similar range of channels and services, which are difficult for customers to distinguish. As a result, internal competition is mostly based on price and packaging. These companies make services risk-free to consumers to attract them, but subscribers are locked into multiyear contracts as a way of guaranteeing returns after the initial promotional offer or deal expires. External competition Cable TV is the biggest competition to satellite TV providers due to the similarity of the products and services Cost Structure Benchmarks continued years, further pressuring providers’ profitability as they struggle to pass higher purchase costs on to consumers amid intense competition throughout the broadcast distribution sector. Marketing Marketing, an expense that accounts for about 3.9% of revenue, is a tool companies use to reach out to audiences and inform potential consumers about their services. In recent years, satellite TV providers have bundled services and improved the quality of their offerings in an effort to attract and retain customers. They have also found it necessary to offer products that can compete with online video distributors and providers that are aggressively penetrating the market. As external competition intensifies in the next five years, providers are expected to invest even more heavily in marketing. Additionally, the release of new products, such as Dish’s Hopper set-top box, increases marketing costs and eats into companies’ profit. Wages Wages have been mostly stable over the past five years and are expected to account for 5.5% of revenue in 2015. A relative decline in wages is due to a lack of investment in new satellites (until 2014), which has hampered the industry’s investment in workers to perform installation and setup tasks. Instead, the industry hired more customer service representatives to improve consumer satisfaction. This strategy has served to decrease the industry’s average wage over the past five years, because a greater portion of the workforce is made up of lower-paid customer service personnel. Additional expenses Additional industry costs include depreciation, rent, utilities and administrative costs. Rent and utilities are relatively stable expenses and do not change much as a percentage of revenue in any given year. The costs of satellites and transmission equipment, which contribute to the industry’s significant depreciation expenses, are cyclical, spiking with new technologies and decreasing as these technologies become more mature. Other costs include administrative and legal costs; these costs are relatively static but spike during periods of heightened merger and acquisition activity. Level & Trend Competition in this industry is High and the trend is Increasing Competitive Landscape WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 23 Barriers to Entry The major barrier to entry to this industry is the substantial initial capital investment required to build, insure and launch a satellite. Additionally, participants need to invest considerable resources in satellite communications equipment to transmit broadcasts. Moreover, there are significant costs associated with upgrading to and using the latest technologies related to TV programming and satellite uplinks. The present illiquid environment has increased the magnitude of these barriers because it has become more difficult for prospective players to gain funding for such investment. The economic downturn and its aftermath have exacerbated the barriers to entry since 2008. Astronomical start-up costs and the relatively high fixed-cost nature of the industry demand a solid customer base if profit is to be achieved. This raises another problem and barrier for new entrants: the difficulty in establishing a customer base, especially amid high competition with cable TV providers and broadband-enabled mobile devices. Satellite-based services are often offered through service contracts that limit accessibility to key industry subscribers for start-up companies The industry is also highly regulated by the FCC; therefore, another barrier to entry faced by prospective industry entrants is the need to hold various licenses or authorizations. Uncertain waiting periods and complex laws increase the likelihood of a business being refused mandatory licenses. Basis of Competition continued these industries offer. While cable provides a more reliable connection, satellite providers compete on the basis of price and perks. They bundle more services and offer a wider variety of add-ons and channels to attract and retain consumers. Also, a certain percentage of US homes are not wired for cable, which gives satellite providers a clear advantage to service them. Competing industries also include telephone companies, online video streamers, mobile video and local broadcasters. Broadcast TV competes against this industry; however, competition from this medium is limited due to its declining audience. Home- video products and the internet are intensifying competition as consumers increasingly view programs over the internet, through internet TV, on MP3 players, smartphones and games consoles that are linked to the internet. As mobile broadband connections become more robust and ubiquitous, broadband-enabled mobile devices that stream content are emerging as the most significant external competitor to this industry after cable TV providers. Netflix recently broadcast a content-original show and Amazon and iTunes are following closely. Google introduced its new Chromecast, which allows users to bring content from the web to their TV screen. Indeed, these devices have greatly increased the prevalence of cord cutters (i.e. consumers that do not subscribe to any pay-TV services and simply stream content through the internet) over the past five years. Competition from online streamers is expected to intensify quickly over the next five years. Barriers to Entry checklist Competition High Concentration High Life Cycle Stage Growth Capital Intensity High Technology Change High Regulation & Policy Heavy Industry Assistance None SOURCE: WWW.IBISWORLD.COM Level & Trend Barriers to Entry in this industry are High and Decreasing Competitive Landscape WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 24 Industry Globalization Satellite communication is a global activity capable of covering large areas of customers. Satellite infrastructure is global in nature, and this technology can be used and shared by multiple companies spanning vastly different industries in regions throughout the world. Despite this global reach, the Satellite TV Providers industry and its largest companies are domestically owned and generate a negligible amount of their business abroad. For instance, DirecTV generates about 21.0% of its revenue from foreign markets. In addition, foreign satellite TV providers have been slow to enter the US market due to high competition and regulation. Level & Trend Globalization in this industry is Low and the trend is Steady Competitive Landscape WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 25 Player Performance DirecTV began broadcasting in 1994 and is engaged in acquiring, promoting, selling and distributing digital entertainment programming via satellite to residential and commercial subscribers. The company, which was originally part of the late Howard Hughes’ empire, was spun off as DirecTV in late 2006. The company segments its operations into DirecTV US, which encompasses its US satellite digital TV services; DirecTV Latin America, which provides digital TV services throughout Latin America; and DirecTV sports networks, which compose the company’s three regional sports TV networks. The industry-relevant DirecTV US operating segment makes up 78.8 percent of company revenue; this percentage has decreased over the past five years as the company’s business in Latin America has grown. In 2014, industry-relevant revenue is expected to total $28.1 billion, and profit is expected to total 17.5%, mainly due to price increases, higher penetration of advanced services and less discounting. DirecTV has a fleet of satellites from which it broadcasts to consumers. It launched two new satellites D14 and D15, to provide additional HD, replacement and backup capacity. The company gathers its programming content in two broadcast centers and an additional six uplink facilities throughout the United States, enabling it to send redundant transmissions to satellites to avoid service interruptions to its customers. The company has 20.4 million subscribers in the United States and provides upward of 10,000 movies and TV programs and more than 185 HD channels. The company’s relationship with the NFL and some collegiate sports franchises has been beneficial to its financial performance. DirecTV has been Major Companies DirecTV Inc. | Dish Network LLC | Other Companies 17.3%Other DirecTV Inc. 53.3% Dish Network LLC 29.4% SOURCE: WWW.IBISWORLD.COM Major players (Market share) DirecTV Inc. Market share: 53.3% DirecTV Inc. (DirecTV US segment) – fi nancial performance Year Revenue ($ million) (% change)Operating Income ($ million) (% change) 2010 20,268 8.65,216 11.3 2011 21,872 7.95,289 1.4 2012 23,235 6.24,153 -21.5 2013 24,676 6.24,444 7.0 2014 26,001 5.44,749 6.9 2015* 28,128 8.24,936 3.9 *Estimates SOURCE: ANNUAL REPORT WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 26 Player Performance Dish Network (Dish) launched in 1996 as a service of EchoStar Corporation. In 2008, the company split into two separate entities, with Dish Network operating as a satellite TV provider and EchoStar holding the digital set-top boxes, uplink and satellite transmission assets, real estate and other related liabilities. After splitting assets in 2008, Dish Network and EchoStar commenced operating as two separate public companies, with neither having any ownership interest in the other. Dish Network operates two primary business segments: Dish, which includes the company’s Dish branded direct broadcast satellite (DBS) pay-TV service, and wireless, consisting of wireless spectrum Player Performance continued able to leverage these networks to gain subscribers through popular promotions, such as the NFL Sunday Ticket, which offers DirecTV’s subscribers the largest selection of Sunday football throughout the season. In addition to providing an abundance of channels beyond cable and local content, DirecTV uses new technology to provide value-added services to consumers. For example, in 2013, the company introduced DirecTV Genie, a premium HD whole home DVR service with a terabyte hard drive that allows consumers to record five different HD programs simultaneously while viewing and controlling content from one DVR to four other locations. Expanded sports features have been one of the company’s main avenues of growth over the past five years. Additionally, the company introduced DirecTV Genie in 2012, a premium whole-home HD DVR that provides customers with HD DVR in all rooms without separate receivers and allows them to record up to five shows at the same time. In line with its goal to increase revenue from advertising, DirecTV invested in video advertisement company FreeWheel in 2013. The program allows the insertion of ads into TV series offered through DirecTV Everywhere, an app that streams live TV on portable devices. In July 2015, AT&T completed its acquisition of DirecTV in a deal valued at $48.5 billion. The deal is expected to significantly expand the company’s service offerings to compete with internet service providers, cable TV providers and mobile phone carriers. AT&T is likely to become the largest pay TV provider in the US as a result of the deal. Financial performance Over the five years to 2015, revenue from DirecTV’s US operations is expected to grow at an annualized rate of 6.8% to $28.1 billion. Premium content, price increases and less discounting, advanced services, growth in commercial and advertising sales and a solid reputation for reliable services have brought in new customers and, in turn, driving revenue growth for the company’s US segment. Increasing average monthly rates from subscribers have also spurred revenue growth. Profit growth was exceptionally strong in 2010, due to the company completing amortization of intangible assets. DirecTV has stated that its US operations will focus on generating a greater share of revenue from commercial and local advertising, as well as managing rising programming costs. The company will face increasing competition over the next five years as broadband internet penetration improves and more content is streamed online and to mobile devices, such as tablets and smartphones. The AT&T deal will likely enable greater revenue generation through new bundled internet, mobile phone and satellite TV packages. Dish Network LLC Market share: 29.4% Major Companies WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 27 Player Performance continued licenses and wireless assets that Dish has acquired over the past five years. Dish has been responding aggressively to the new threats from online streaming companies. Attempting to reach the millennial population, the company is offering Dish Anywhere, a mobile app that allows customers to watch TV anywhere and share their viewing experiences on social networks. In July 2013, Dish and Southwest began offering TV service to customers through their own personal devices. Dish briefly sought to buy number three US mobile provider Sprint. Although no formal deal was made, the company is still looking to enter into the wireless space to increase the company’s economy of scope and drive demand for its core satellite TV service. In 2015, Dish’s pay-TV service had 14.0 million subscribers in the United States. The company’s maintain relevance in the era of cord-cutting is due largely to its heavy promotion of the Hopper set-top box, which can record up to six HD channels at once, store up to 2,000 hours of programming and skip commercials with PrimeTime Anytime. Shortly after its launch, Dish was under attack from Fox and other broadcasters, concerned about a reduction in revenue coming from advertisers who fear subscribers will fast-forward past their commercials, for a violation of copyright laws. In July 2013, however, a federal court decision supported the new technology, allowing consumers to skip commercials. The company also started marketing its new dishNET broadband service, targeting mostly rural residents, as well as wireline voice, primarily bundling the services with the Dish branded pay-TV service. In 2014, the company signed an accord with the Walt Disney Company, effectively ending part of the ad-skipping controversy, as Dish agreed to disable its AutoHop ad- skipping function for ABC, which Disney owns, for three days after programs are initially shown. The agreement also allows Dish to offer its newly attained programming over the web along with live and on-demand viewing of TV programming on mobile devices. Financial performance Over the five years to 2015, industry relevant revenue is expected to increase by an annualized 4.2% to $15.5 billion. The company has generated higher revenue per user than ever before, although both consumer churn rate and new subscriptions have wavered amid heightened competition from other TV services. These factors, in turn, have increased the cost of acquiring Dish Network (Dish segment) – fi nancial performance Year Revenue ($ million) (% change)Operating Income ($ million) (% change) 2010 12,640.7 8.41,940.8 39.9 2011 13,073.6 3.42,928.6 50.9 2012 13,064.9 -0.11,258.4 -57.0 2013 13,764.8 5.41,348.2 7.1 2014 14,495.1 5.31,824.5 35.3 2015 15,506.8 7.01,875.3 2.8 *Estimates SOURCE: ANNUAL REPORT Major Companies WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 28 Other Companies The Satellite TV Providers industry is highly concentrated, with the two largest players controlling an estimated 82.7% of the market. The remaining portion of the market is primarily divided between small, localized multipoint distribution- system operators and small satellite TV provider Home2Us Communications Inc. Home2Us is a direct-to-home satellite broadcaster headquartered in Herndon, VA. The company provides broadcast uplinks, mostly to foreign TV channels, to appeal to niche ethnic groups. By providing language-specific channels, Home2Us sets itself apart from other satellite TV providers rather than directly competing with them. Its audiences subscribe via a pay-TV model similar to that of the major players. IBISWorld estimates that the company maintains minimal market share in the United States. Player Performance continued subscribers considerably. Profit took a hit in 2012 when the company’s litigation expense increased to $730.0 million. The company reported that it had added a miniscule 1,000 net subscribers for its pay-TV service over 2013 and estimated that gross new pay-TV subscriber activations had been negatively impact in the early months of 2014 as a result of increasing legal battles and subsequent programming interruptions. Major Companies WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 29 Capital Intensity The Satellite TV Providers industry exhibits a very high level of capital intensity. Using wages as a proxy for labor and depreciation as a proxy for capital, IBISWorld estimates that for every dollar spent on wages in the industry, $1.42 is spent on capital. This industry relies on satellites to transmit TV programming to its consumers, though this industry does not directly operate satellites. Satellites are extremely expensive to build, launch and maintain; on average, direct broadcast satellites cost about $175.0 million and have a useful life of 10 to 15 years. Other advanced technologies that this industry invests in include satellite dishes, uplink facilities and programming centers. These expensive technologies make up the majority of this industry’s capital investments. While the industry’s skilled technical Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance Tools of the Trade: Growth Strategies for Success SOURCE: WWW.IBISWORLD.COM Labor Intensive Capital Intensive Change in Share of the Economy New Age Economy Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. Traditional Service Economy Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth. Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan. Radio Broadcasting Communication Equipment Manufacturing Television Broadcasting Movie & Video Production Cable Networks Satellite TV Providers Capital intensity 2.0 0.0 0.4 0.8 1.2 1.6 SOURCE: WWW.IBISWOLRLf.COM fottbd linb shows a higLh lbvbl of capital intLbnsity Capital units per labor unit Satbllitb TV Providbrs Information Economy Level The level of capital intensity is High WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 30 Revenue Volatility The industry exhibits a low level of revenue volatility. Measured as the average absolute change in revenue per year, Satellite TV Providers have experienced an estimated 2.3% revenue volatility over the five years to 2015. Multiyear subscription contracts to the major satellite TV providers’ services reduce this industry’s volatility by locking in consumer spending for several years at a time. Additionally, service add-ons, pricing comparable to that of cable and improving video and sound quality have attracted new customers and provided operators with stable revenue growth. Generally, industry revenue is affected by changes and trends in interest rates and the housing market. Over the next five years, external competition is expected to increase as mobile devices such as Technology & Systems The industry has experienced high technological change in recent years. Recent changes in digital broadcasting by distributors have affected studio and equipment upgrades, operations and purchases. Many operators now use digital networks following a large investment in this infrastructure to roll out high-speed data services, video-on- demand services, mobile and pay-TV (subscription based TV services), and other services. Also, encryption systems are constantly redeveloped and enhanced to continually minimize broadcast security issues such as signal theft. Satellite dishes have become smaller while still transmitting a clearer signal, reducing their adverse visual impact on home exteriors. High-definition TV (HDTV) is a digital TV format delivering theater- quality pictures and sound. HDTV offers an increase in picture quality by providing up to 1,920 active horizontal pixels by 1,080 active scanning lines, representing an image resolution of more than two million pixels. In addition to providing video with more visible detail, HDTV offers a wide-screen format and Dolby Digital 5.1 surround sound. Satellite TV providers have been at the forefront of providing HD programming (along with Cable Networks), and began delivering HD services to customers in 2002. Deployment has been on an upward arc ever since. The industry is also working closely with TV set manufacturers to ensure that consumers receive HD in the most convenient and user-friendly ways possible. As disposable incomes recover, new technologies like 3-D TV are anticipated to be adopted at a faster rate by consumers and providers will therefore invest more to provide more programming in such formats. Capital Intensity continued labor force leads to a high average wage, the number of people needed to service satellite TV technology is relatively low. For example, the largest company in the industry, DirecTV, employs about 16,500 people full-time in its US services division to serve about 20.4 million subscribers. Level The level of Technology Change is High Level The level of Volatility is Low Operating Conditions WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 31 Regulation & Policy Congress passed the Satellite Home Viewer Improvement Act in 1999. Since then, satellite TV companies have offered local programming to many areas throughout the United States. For areas where local TV signals are not being offered via satellite, satellite systems offer built-in electronic A/B switches, which enable satellite TV subscribers to access off-air or cable TV signals. While the Federal Communications Commission (FCC) generally issues direct to home (DTH) space station licenses for a 15-year term, direct broadcast satellite (DBS) space station and earth station licenses are generally issued for a 10-year term, which is less than the useful life of a healthy DBS. Upon expiration of the initial license term, the FCC has the option to renew a satellite operator’s license or authorize an operator to operate for a period of time on special temporary authority, or decline to renew the license. If the FCC declines to renew the operator’s license, the operator is required to cease operations and the frequencies it was previously authorized to use would revert to the FCC. Operators in the industry must apply for permissions to launch and operate future satellites to support their services. These licenses take a significant amount of time to acquire. The Cable Television Consumer Protection and Competition Act of 1992 requires the FCC to impose “public interest or other requirements for providing video programming” for satellite TV providers. In 1998, a congressional commission chose four percent as the minimum amount of nonprofit or educational programming that satellite TV providers must offer to subscribers. Satellite providers are subject to disclosure requirements. They must maintain a file containing measurements of channel capacity, yearly average calculations used to determine the four percent set aside and a record of noncommercial programmers requesting and obtaining access to capacity. Revenue Volatility continued smartphones and tablets become an increasingly viable means of distributing video content to consumers. Companies may need to lower prices or spend more to add more services to retain subscribers. Level & Trend The level of Regulation is Heavy and the trend is Steady SOURCE: WWW.IBISWORLD.COM Volatility vs Growth Revenue volatility* (%) 1000 100101 0.1 Five year annualized revenue growth (%) –30 –10 10305070 Hazardous Stagnant Rollercoaster Blue Chip * Axis is in logarithmic scale A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly. Satellite TV Providers Operating Conditions WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 32 Industry Assistance The industry does not receive any direct or special federal government assistance. Some states and municipalities do provide tax and monetary incentives for TV production in their jurisdiction; however, such assistance is usually more applicable to the Television Production industry (IBISWorld report 51211b). The Telecommunications Industry Association is the leading trade association representing the global information and communications technology industry in the United States. It supports the industry through standards development, policy initiatives, business opportunities, market intelligence and networking events. The association counts hundreds of companies among its membership, enhancing the business environment for companies involved in broadband, mobile wireless, information technology, cable, satellite, unified communications and emergency communications. Similarly, the Satellite Broadcasting and Communications Association represents all segments of the consumer satellite industry and provides skills assessment and training programs to industry participants. Level & Trend The level of Industry Assistance is None and the trend is Steady Operating Conditions WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 33 Key Statistics Revenue ($m) Industry Value Added ($m) Establish – ments Enterprises Employment Exports Imports Wages ($m) Domestic Demand Number of Cable TV Subscriptions (Mils) 2006 29,511.4 10,356.8 117 26 20,988 — — 2,112.3 N/A 98.0 2007 31,183.8 9,962.6 125 28 22,290 — — 2,156.9 N/A 102.0 2008 33,412.6 10,742.5 90 20 21,927 — — 2,068.9 N/A 104.1 2009 34,901.2 12,352.2 94 21 22,797 — — 2,070.9 N/A 104.7 2010 37,416.5 13,195.7 101 22 24,424 — — 2,144.6 N/A 104.5 2011 39,698.3 13,925.9 108 23 27,480 — — 2,285.8 N/A 104.0 2012 43,796.0 11,060.2 108 23 27,217 — — 2,476.7 N/A 103.2 2013 48,364.3 11,864.0 115 24 27,700 — — 2,628.0 N/A 100.3 2014 50,669.0 14,743.2 118 25 28,915 — — 2,757.8 N/A 100.2 2015 52,802.7 16,589.1 120 25 30,088 — — 2,882.1 N/A 99.3 2016 55,230.1 16,420.8 122 26 31,373 — — 3,020.4 N/A 98.3 2017 57,432.0 17,384.9 125 26 32,538 — — 3,146.2 N/A 97.2 2018 59,602.3 16,689.0 127 27 33,746 — — 3,275.3 N/A 96.4 2019 61,887.5 17,819.9 130 27 35,007 — — 3,410.9 N/A 95.6 2020 64,192.7 18,617.5 133 28 36,287 — — 3,548.8 N/A 94.7 Sector Rank 9/38 13/38 38/38 38/38 24/38 N/A N/A 24/38 N/A N/A Economy Rank 191/1373 180/1373 1201/1373 1332/1373 714/1373 N/A N/A 487/1373 N/A N/A IVA/Revenue (%) Imports/Demand (%) Exports/Revenue (%) Revenue per Employee ($’000) Wages/Revenue (%) Employees per Est. Average Wage ($) Share of the Economy (%) 2006 35.09 N/A N/A 1,406.11 7.16 179.38 100,643.22 0.07 2007 31.95 N/A N/A 1,399.00 6.92 178.32 96,765.37 0.07 2008 32.15 N/A N/A 1,523.81 6.19 243.63 94,353.99 0.07 2009 35.39 N/A N/A 1,530.96 5.93 242.52 90,840.90 0.09 2010 35.27 N/A N/A 1,531.96 5.73 241.82 87,807.08 0.09 2011 35.08 N/A N/A 1,444.63 5.76 254.44 83,180.49 0.09 2012 25.25 N/A N/A 1,609.14 5.66 252.01 90,998.27 0.07 2013 24.53 N/A N/A 1,746.00 5.43 240.87 94,873.65 0.08 2014 29.10 N/A N/A 1,752.34 5.44 245.04 95,376.10 0.09 2015 31.42 N/A N/A 1,754.94 5.46 250.73 95,789.02 0.10 2016 29.73 N/A N/A 1,760.43 5.47 257.16 96,273.87 0.10 2017 30.27 N/A N/A 1,765.07 5.48 260.30 96,693.10 0.10 2018 28.00 N/A N/A 1,766.20 5.50 265.72 97,057.43 0.09 2019 28.79 N/A N/A 1,767.86 5.51 269.28 97,434.80 0.10 2020 29.00 N/A N/A 1,769.03 5.53 272.83 97,798.11 0.10 Sector Rank 29/38 N/A N/A 1/38 38/38 1/38 16/38 13/38 Economy Rank 696/1373 N/A N/A 41/1373 1270/1373 24/1373 102/1373 180/1373 Figures are in inflation-adjusted 2015 dollars. Rank refers to 2015 data. Revenue (%) Industry Value Added (%) Establish – ments (%) Enterprises (%) Employment (%) Exports (%) Imports (%) Wages (%) Domestic Demand (%) Number of Cable TV Subscriptions (%) 2007 5.7 -3.8 6.8 7.7 6.2 N/A N/A 2.1 N/A 4.1 2008 7.1 7.8 -28.0 -28.6 -1.6 N/A N/A -4.1 N/A 2.1 2009 4.5 15.0 4.4 5.0 4.0 N/A N/A 0.1 N/A 0.6 2010 7.2 6.8 7.4 4.8 7.1 N/A N/A 3.6 N/A -0.2 2011 6.1 5.5 6.9 4.5 12.5 N/A N/A 6.6 N/A -0.5 2012 10.3 -20.6 0.0 0.0 -1.0 N/A N/A 8.4 N/A -0.8 2013 10.4 7.3 6.5 4.3 1.8 N/A N/A 6.1 N/A -2.8 2014 4.8 24.3 2.6 4.2 4.4 N/A N/A 4.9 N/A -0.1 2015 4.2 12.5 1.7 0.0 4.1 N/A N/A 4.5 N/A -0.9 2016 4.6 -1.0 1.7 4.0 4.3 N/A N/A 4.8 N/A -1.0 2017 4.0 5.9 2.5 0.0 3.7 N/A N/A 4.2 N/A -1.1 2018 3.8 -4.0 1.6 3.8 3.7 N/A N/A 4.1 N/A -0.8 2019 3.8 6.8 2.4 0.0 3.7 N/A N/A 4.1 N/A -0.8 2020 3.7 4.5 2.3 3.7 3.7 N/A N/A 4.0 N/A -0.9 Sector Rank 15/38 1/38 17/38 22/38 13/38 N/A N/A 14/38 N/A N/A Economy Rank 367/1373 64/1373 590/1373 909/1373 253/1373 N/A N/A 262/1373 N/A N/A Annual Change Key Ratios Industry Data SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 34 BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor. CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator. DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry. ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTS Total value of industry goods and services sold by US companies to customers abroad. IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States. INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%. LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services. NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. Industry Jargon IBISWorld Glossary CHURN RATE The percentage of subscribers to a service that discontinue their subscription in a given time period. DIGITAL VIDEO RECORDER (DVR) A device that records video in digital format to a disk drive and allows consumers to pause and rewind programs as they watch them. DIRECT BROADCAST SATELLITE (DBS) A satellite that broadcasts directly to a home satellite receiver. FEDERAL COMMUNICATIONS COMMISSION (FCC) An independent US agency that regulates radio and TV communications. MILLENNIALS Also known as Generation Y, the term refers to the generation born between 1980 and 2000, and brought up surrounded by technology and mass media. PROGRAMMING The programs and series networks develop that this industry delivers to subscribers. Jargon & Glossary WWW.IBISWORLD.COM Satellite TV Providers in the US December 2015 35 PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax. VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%. WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure. IBISWorld Glossary continued Jargon & Glossary Disclaimer This product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. 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