USDTV Targeting 2 Million Subscribers Within 5 Years
USDTV -- the subscription-based over-the-air terrestrial DTV service -- will ship a 2nd-generation set- top box in first half 2006, along with optional MPEG-4-to- MPEG-2 transcoders and 250 GB hard drives as it sets a goal of landing 2 million subscribers within 5 years, CEO Steve Lindsley told the UBS Global Media Conference in N.Y. Thurs.
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USDTV’s product plans lay dormant for nearly a year before being revived this fall with the injection of $25.75 million from 6 broadcasters. Those plans come as USDTV expands its service into the Dallas market, where 28 local channels and 12 digital cable channels are being transmitted. The service, which carries a $19.95 monthly fee, also is available in Albuquerque, Las Vegas and Salt Lake City, where USDTV leases spare DTV capacity from local broadcasters to deliver a mix of HD cable networks and local programming.
The new STB will be manufactured by Hisense, which built USDTV’s first-generation model, and features 2 USB 2.0 ports and a slot for inserting the optional hard drive, COO Richard Johnson said. Hardware and installation will continue to be free, but the storage option -- for future on-demand music and movie service offerings -- will carry an additional $5-$10 monthly fee, Johnson said.
Pricing for the transcoder, which attaches to the current STB through a dongle, will be less than $25, Johnson said. The transcoder contains an Analog Devices 600 MHZ DSP chip, he said. Lab tests have shown that use of MPEG-4 technology with the USDTV service will result in a 60% improvement in bandwidth efficiency, Johnson said.
In expanding the service, USDTV expects its subscriber acquisition costs (SACs) to average $300-$325 over 5 years, with average monthly revenue per user (ARPU) of $32, Lindsley said. Churn is expected to be in the 2- 2.5% range, he said. The infrastructure cost of installing the service in a given market is about $100,000, which doesn’t include lease fees for broadcast spectrum, Johnson said. Local broadcasters receive a share of the $19.95 monthly fee, he said. “Once we're in a given market, it’s difficult to draft us because we've picked up most of the available spectrum from broadcasters for our service,” Johnson said.
Retailers also will qualify for a share of the revenue, but Lindsley wouldn’t provide specifics. The service is sold through about 40 Wal-Mart stores in the USDTV’s 4 markets, including 29 in metropolitan Dallas, Johnson said. Wal-Mart’s participation will expand to 48 stores in the Dallas market in “the next several months,” he said. USDTV also is selling the service through R.C. Willey stores in Las Vegas and Salt Lake City, Johnson said.
In adding services such as VoD and storage options, Lindsley conceded that USDTV is balancing a low-cost alternative for receiving DTV against finding new revenue streams. “The opportunity for us is to provide a low-cost alternative,” Lindsley said.
But USDTV’s financial backers also want a return on their investments, said Johnson, among the few speakers representing a privately held company at a conference dominated by those traded publicly. Investors want USDTV to broaden its reach in the financial markets, although there are no immediate plans for an IPO, Johnson said.