Dish and DirecTV: A Digital Hub Opportunity

A bit of background: I'm in a rural area of Michigan where broadband is how wide the high school marching band marches down the street. Over-the-air TV comes from 60 miles away, kids walk to school uphill both ways, etc.

Telecom infrastructure is laughable, so I subscribe to Dish Network for television and Starband, a Dish-related two-way satellite Internet provider. Dish & Hughes Electronics (DirecTV), present competitors in the direct broadcast satellite market, have agreed to merge. Obviously this will be heavily scrutinized, but a nugget that will be highly examined is systems compatibility. Dish is a software based system while DirecTV is hardware based. What follows is a post (not by me) to alt.dbs.echostar commenting on remarks made by Charlie Ergen, CEO of Dish, to the Dish subscribers on 12/10:

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After watching the 2001-12-10 Charlie Chat, I have some observations.

Charlie said that neither DISH Network nor DirecTV subscribers will require new equipment immediately after the proposed merger. He also said that the two systems use different technology. Obviously, DISH and Direct customers won't be using each others' satellites any time soon after a merger, so there is no reason to expect immediate improve DISH or Direct picture quality.

Later in the Chat he mentioned that one standard platform will be developed and at that time we (DISH and Direct customers) will receive new equipment if necessary. The magnitude of that undertaking and the time required to complete it shouldn't be underestimated. By the time any such changeover occurs, we can probably expect the total number of satellite subscribers to be greater than 20 million. Only DISH and DirecTV know how many receivers are active, but it's clearly well above that number due to houses with multiple receivers. In any event, lots of receivers, antennas, and switches are involved.

The easiest change would involve simply adopting one of the existing platforms as the "new" one. All subscribers to the other platform would be given new equipment over a period of time, and the old standard would be abandoned, making its bandwidth available to the new DISH Network. Both platforms would continue to broadcast until the conversion is complete, meaning no bandwidth improvement until that process is done.

If, on the other hand, a completely new platform is implemented, things get a bit more complicated. Designing, engineering, testing, debugging, manufacturing and distributing that number of new devices will take time and loads of money. I wouldn't expect to see an improvement in service due to a new platform any time soon; Charlie mentioned that the new platform would be available a year after the merger.

The changeover from one platform to a completely new one would not be a trivial matter. Try to imagine how it might be done. During the change, the old and new platforms would have to coexist for a transition period to allow re-aiming of antennas, installation of new customer equipment, etc. Those things don't occur overnight when 20+ million customers are involved. Where will all the additional satellite bandwidth come from to maintain multiple platforms during the transition? At some point DISH, DirecTV, and the new platform standards would all have to be transmitted simultaneously. Only after we receive the new hardware would we see the bandwidth benefits.

The topics of Internet via satellite and interactive services were prominent in the presentation. Making those services more generally available will also cost bandwidth that many have assumed would be used to improve picture quality.

I think Charlie is doing what must be done to make satellite service more appealing and competitive with cable in the long run, but those who expect to see an improvement in quality any time soon may be disappointed. The cost involved in making the changes will undoubtedly fall on users, too.

Events are rarely as good as the optimists or as bad as the pessimist expect. Time will tell how this goes, if and when a merger occurs.

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Here are the bullet points:

• 20 million subscribers and growing
• Multiple set top boxes in each household
• Personal video recording (pretty much standard now on Dish)
• Duplex satellite delivered Internet access (no phone line)
• Platform standardization

The complexity of this screams for a partner who can develop a solution quickly on proven hardware and a bulletproof codebase. Does this also have "digital hub" written all over it?

Here's my thought - an Apple home hub/server (a Cube-like box) that runs Darwin (stability) and handles all the decoding of the A/V digital stream as well as serve Internet clients. Connectivity could be ethernet, FireWire, AirPort, or all of the above to either a similarly equipped TV or a small transceiver connected to the digital port. The hub would have a sufficiently large hard drive for PVR and 10-day program guide (fully searchable, of course). This is just off the top of my head.

Look at this as a combination satellite TV reciever, Internet hub, TiVo, and network server.

Anyway, Microsoft wants in this market badly; they are already investors in Starband (a PC-only service thus far) and they provide PVR software, so the next step would be to control the gateway. Apple must not let this opportunity slip by. If Steve Jobs really is hooked on the digital hub, here's the opening.

Are you ready to hit the home run - or just come up with interesting but not terribly groundbreaking toys with little real imagination or lasting value?