updated 8/16/2004 4:01:06 PM ET 2004-08-16T20:01:06

Thousands of Americans have defected to satellite TV as the providers have reported hefty gains while the cable industry has declined. Consumers likely will see aggressive marketing promotions in the next six months as companies jockey for customers, analysts say.

The battle comes down to service and price: Cable companies offer video-on-demand features, high-speed Internet and, in some cases, telephone service. Satellite providers have all-digital service and channel packages that can be cheaper and broader than digital cable.

"The consumer is voting with their pocketbook and they're saying they prefer satellite, and I don't think we're as good as we're going to get," CEO Charlie Ergen of EchoStar Communications Corp., which operates the Dish Network, told analysts last week.

Comcast Corp., the nation's largest cable company, is expecting a slightly more competitive environment but believes it will post a net subscriber gain by year end. "We like the fact that we're going to have unique competitive advantages in the marketplace," said Dave Watson, executive vice president of Comcast Cable operations.

As a self-described creature of habit, Glen Goldman stayed loyal to his cable company until he was left without a choice.

Goldman switched to satellite TV service when he moved into a new home that lacked the proper wiring for cable and he's never looked back. The advantages he sees roll off his tongue — digital picture, high-definition TV, more choices and a user-friendly channel guide.

"The number of channels and variety is much better than what I had in cable for a few dollars more a month," Goldman said. "I like being able to get the direct signal without it being weakened by having to go through various switches and cable lines."

Many Americans pay for TV
Satellite television has grown substantially since 1999 when Congress allowed providers to begin offering local channels. Today, it has nearly one-fourth of all households that subscribe to pay television services.

News Corp.'s DirecTV, the nation's largest satellite TV provider, is in 106 markets and No. 2 EchoStar is in 144 markets. By June 30, the satellite providers had posted a combined net gain of about 1.6 million subscribers, putting their total at 23.2 million subscribers, according to Kagan Research LLC, a media business research firm.

Part of the growth can be attributed to the expansion into new markets, including rural areas, as well as competitive pricing because cable customers typically have to pay extra for digital service, analysts say.

Satellite providers also have been quicker to the market with innovative technology, such as interactive services and digital video recorders, said Sean Badding, president of The Carmel Group market research firm.

Goldman, who purchased his Dish Network service from Sun Comm Technologies Inc., pays from $10 to $15 more a month than he did for analog cable. He particularly enjoys the DVR, which allows him to record multiple showings of a program his 3-year-old son loves.

"That's extremely important when you have a kid that loves a certain cartoon and they may be in school or unavailable," he said. "You want to get them so they can watch that at some point in the day when you need a few minutes to yourself."

The cable industry posted a net loss of about 300,000 subscribers in the first six months, dropping its total to about 65.7 million, said cable analyst Renee Shaening of Kagan Research LLC, a media business research firm.

About 80 percent of television households in the United States subscribe to some sort of pay television service, leaving the market mature but not saturated, she said.

Broadband Internet may be key
Most analysts believe cable will rebound slightly by year end, with flat to modest growth. Satellite will grow steadily, they say, until it completes local market launches.

They note that a key advantage cable has over satellite is broadband Internet service. Both satellite providers have marketing relationships with some telephone companies that offer DSL lines, but they are not truly bundled services, Shaening said.

Ergen said his company is making "small bets" on broadband technology, such as its relationship with SBC Communications Inc. It also is scheduled to launch a satellite next month that has some broadband capability and some satellite spectrum will be available in the next few years that will have more wireless capability, he said.

"We're treading water because we don't know how it's all going to turn out," he said. "I feel pretty comfortable that we understand the technology and discipline. When it's all said and done ... I think we will be in pretty good shape."

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