Screening Your TV Options

Here's a consumer's guide to cable vs. satellite, digital vs. analog, hardware, fees, customer service, and what the future may offer

By June Kim

After subscribing to digital cable service for three years, Duncan Haberly was sick of the unresponsive and unknowledgeable customer service. Not to mention the service outages, frequent problems with his digital video-recording (DVR) equipment, and subscription-rate hikes. "They reach right into our pockets and take a large chunk every month and treat it as a sinecure, a birthright...you begin to wonder what you're getting for 70 to 100 bucks." says Haberly, a San Francisco attorney. "Not being able to count on catching the Survivor finale or the end of the Super Bowl can be quite frustrating."

Haberly is one of more than 100 million Americans who subscribe to pay-TV services, whether delivered via cable or satellite. And despite rising subscription rates, on top of general dissatisfaction with customer service and confusing programming options, the number of subscribers continues to rise.

"NO REAL CHOICE."

  Paid TV programming has become a staple of the typical American household, but one of the biggest complaints from consumers is that they have little choice in content or service providers, even in the face of relentlessly rising prices of the dominant cable services, says Mark Cooper, director of research at the Consumer Federation of America. "The simple fact of the matter is, [consumers] have no real choice," Cooper says. He estimates that the top 20 networks account for 70% of viewing, but consumers are forced to buy the next 50 channels in the packages sold by providers. His organization is lobbying for "a la carte" programming options for consumers.

The good news for consumers is that the growth of satellite-TV services since the mid-'90s is finally beginning to put pressure on cable monopolies to make programming and prices more competitive, says Michael Goodman, a senior media analyst at Yankee Research.

A year ago, Haberly switched over to national satellite service DirecTV (DTV ), and he's delighted. "It works perfectly," Haberly says. "I wouldn't go back to cable for anything at this point."

However, deciding which service is a better deal can be bewildering. Consumers can choose from two different kinds of cable -- analog and digital -- as well as satellite services. Each offers packages and bundles that include specialized programming, as well as innovative video services such as DVR, high-definition TV, and video-on-demand services. And now cable companies are throwing in data and voice services. "Trying to figure out where the best deal is, where the best value is, is a tall order for a lot of people," says David Heim, deputy editor of Consumer Reports magazine.

As you navigate the maze of issues and options, here are some things to think about when signing up for service or considering a switch:

Analog vs. dgital. If you're a no-frills TV watcher looking for bare-bones service with basic channels at a low cost, traditional analog cable is the way to go. In some parts of the country, this basic service can be found as low as $20, Heim says.

From there, customers can add on premium channels, like HBO (TWX ) and Cinemax, to their standard cable fare. Expect an average of $10 to $15 added to your monthly bill. However, sometime in the future, cable companies will begin to phase out this analog option as broadcasters switch to digital signals.

For better picture and sound quality, consumers can sign up for digital TV services from their local cable operator or from a national satellite service such as EchoStar's (DISH ) DISH Network or DirecTV. The digital technology also allows for interactive capabilities, such as the video-on-demand services offered by cable companies, says Gary Arlen, a media analyst at Arlen Communications, a telecommunications and media research firm in Bethesda, Md.

Digital services, of course, will cost you a bit more, with satellite offering the cheaper option. The average monthly service bill for satellite-TV is $48.93, vs. $49.62 for cable, according to marketing-research firm J.D. Power & Associates.

Also consider the rate at which prices are likely to increase. Cable charges have risen an average of 6% a year for the past three years, says Susanna Montezemolo, a cable and media telecommunications policy analyst at Consumers Union in Washington, D.C. And average monthly consumer spending for satellite TV rose just 8% from 1998 to 2003, vs. 41% in the same time period for cable, according to a J.D. Power study. By June Kim Programming and extras. Cable and satellite customers see virtually the same programming options, says Adi Kashore, a senior analyst at Yankee Group. That may change over time, but for now, the key differences are in the bells and whistles available. For example, sports fanatics and those interested in international programming might choose satellite services for their special packages that have a richer range of offerings than a local cable company could provide, Heim says.

Digital cable also offers video-on-demand and other extras that satellite cannot, as well as data and voice services. Often these bundles of video, high-speed Internet access, and voice services save consumers money as well as giving them the convenience of a single bill. Cable also provides better local programming than satellite services, experts say.

Hardware and logistics. Besides monthly fees for subscription, consider the cost of the hardware and installation. Cable companies have nominal setup fees, which they often waive. Satellite services usually charge $50 per receiver for installation of the rooftop dish and the interior wiring that connects the dish to the box, though satellite companies frequently run promotions that include free installation. You can do it yourself, but it probably pays to ante up for professional installation. "Having a dish installed by someone who knows what they're doing will create fewer problems getting things up and running," says Heim.

Some homes aren't compatible with satellite services because the dish must have a clear shot of the southern skies. In urban areas, tall buildings may get in the way. In the suburbs, a large McMansion next to your one-story ranch can bring trouble. Or you simply may not like how the 18-inch dish looks on the outside of your home.

Both digital cable and satellite services offer HDTV and DVR capabilities such as TiVo (TIVO ). You might want to go with cable for HDTV, however, since the special receiver and dish you'll need with satellite services can cost upward of $450 extra.

Customer service counts. Satellite beats cable in terms of overall customer satisfaction, according to a 2004 J.D. Power study. Satellite scored 723 points on a 1,000-point scale, vs. 659 for digital cable and 621 for analog cable. Although cable companies have been making improvements in customer service, satellite subscribers are happier than their cable counterparts in almost every metric, says Yankee Group's Kashore. That's likely because there's competition in satellite.

A service or warranty contract is more important with a satellite service than cable because the dish that sits outside on your rooftop is exposed to the elements. DirecTV's protection plan offers repairs and service for $6 to $8 per month.

TV in the future. The industry will move toward HDTV in a few years. The Federal Communications Commission hopes to end the transition to digital TV signals and phase out analog by decade's end. "There are already more than 1,000 hours a week of HDTV broadcast on the big networks, and cable networks have shows broadcast in HDTV," says Arlen. Fox network football games are all in HDTV, for instance. "You may want to prepare for that inevitable change and consider making the switch now." HDTV sets start out at a little more than $500 for a 32-inch model.

In many smaller towns and newer residential construction areas, phone companies offer TV delivered via the phone line, though these services aren't available in most major metropolitan areas yet. Also, expect telecoms like SBC Communications (SBC ) and Verizon (VZ ) to jump in on the paid-TV arena in the future.

That will add to the confusion of choosing a TV provider. But it could also create competition, and with that, consumers may someday get a price break, better customer service, and more choices on programming. For now, gather as much information as possible before making your choice about which service and which plan best fits your needs.

Kim is a reporter for BusinessWeek Online in New York

Edited by Thane Peterson

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