Getting a “Free” Bird

By: Jimmy Schaeffler and Sean Badding

In the more than three years since April 2004, when Rupert Murdoch shut down the more than two mil. pirates attacking his newly-acquired DirecTV, the DirecTV system has remained “hack free” (which is another way of saying no one has yet found a way to break into the system that secures the DirecTV boxes and signals). Yet, like water that flows into and eventually around a dam, that most-effective 2Q 2004 DirecTV shut down was the bane of rival EchoStar, because it meant pirate resources were consequently shifted from DirecTV to the now more vulnerable DISH Network. Since 2004, there has been a large expansion in the number of pirates that target the Digital Broadcast Video (DVB) set-top box standard that supports the DISH Network programming. These pirates use the so-called Free-To-Air (FTA) set-top boxes to view, for free, subscription TV services for which the overwhelming majority of normal, legal DISH Network subscribers pay monthly.


FTA pirates tapping into the 13 mil. legal subscriber DISH Network, as well as into the 2.3 mil. legal subscriber Bell ExpressVu (BEV) system (which is the Canadian satellite operator that uses the conditional access system supplied by the EchoStar and Nagra joint venture company, called NagraStar), have now distributed their illegal services and products to an estimated two million illegal TV Households (TVHHs) in the U.S. and Canada, at an average hardware unit price of around $200, accounting for almost $350 mil. in total cumulative revenues. (See chart, below). The top three distributors of FTA devices for the EchoStar and BEV systems are, in order, Sun Valley, CA-based PanSat; South San Francisco, CA-based Coolsat; and Mississauga, ON, Canada-based Fortec. Among just these top three FTA providers, they have already distributed an estimated 1.385 mil. units, representing sales of well over $200 mil. in estimated cumulative revenues since 2004. The Carmel Group believes that the top eight FTA manufacturer/distributors listed in the chart below account for three-quarters of the FTA business in North America. In short, FTA today in North America is big business. Take the NFL Sunday Ticket that is carried on BEV in Canada, and the level of hacking is even more disturbing.

European FTA Roots
So, just what is FTA? Well, sometimes it’s extremely helpful to compare domestic U.S. practices and infrastructures to those in other parts of the world. Perspective, understanding and point of view are just a few of the resulting benefits. In the case of North American FTA TV, the comparison to tens of millions of European FTA set-top boxes and systems seems apropos.
Free-To-Air in Europe today is a thoroughly legitimate infrastructure, supporting an estimated 30 mil.-40 mil. unscrambled subscribers, who buy their systems for several hundred Euros each, then watch advertising-supported free TV from their homes in Europe. This way, they get scores of channels—albeit almost all ad-supported—without having to pay a monthly subscription fee. Indeed, when one travels through continental Europe, the strong majority of the dishes mounted on houses in continental Europe are from the FTA ad-based business model. The United Kingdom is an exception to the FTA rule, because the Murdoch-controlled BSkyB satellite system is the dominant multichannel TV provider, and is instead a subscription-based service with more than eight mil. subscribers. France and Germany also have relatively smaller satellite subscription businesses, with a total of about five mil. subs each. 
Conversely, in North America, there are a fair number of FTA programming channels, but unlike the general fare in Europe, the North American versions offer mostly free ethnic and religious programs, which are of interest to only very limited audiences. Turning to piracy, industry pundits note that such limited programming sources are not capable of justifying the more than two mil. volume of FTA sales sold in North America to date.

How It Works
The way piracy works in North America, consumers turn their FTA receivers into FTA units that steal DISH Network. Also, because DISH Network utilizes the universal DVB standard, and DirecTV does not, the former operator is more vulnerable. Conversely, pirates can’t steal high definition signals from DISH, yet.
Once the FTA manufacturers get their hardware into North America and into the hands of North American consumers, their success depends substantially on the support they provide customers. “FTA support,” in this case, means providing the best scripts (or codes to open the boxes to “free” programming), the best picture quality, the fastest response after an operator’s Electronic Counter Measure (ECM) has disabled all FTA units, and the best features and functions, including program guides, and doing so at the best price. That is the battle ground among the different FTA competitors. 
As it relates to providing the needed code to consumers, a one-time script writer, nicknamed Blacklist, is a good example of its importance to the manufacturers. Blacklist worked for a time with the then-leading FTA manufacturer, Blackbird. As a result, Blackbird retained the Number One spot for FTA sales for the time it was associated with the effective script writer, Blacklist. Blacklist was known to have done a most effective job of releasing pirate scripts for Blackbird’s FTA units. Indeed, later, when Blacklist switched to a Blackbird rival, PanSat, the latter’s sales shot up and PanSat then became the Number One North American FTA seller. The Carmel Group believes today that the FTA manufacturer, Oceanside, CA-based ViewSat, is one of the top four FTA sellers, in large measure because of its superior customer service and support. PanSat and ViewSat have become so popular through the years that clone – or copy – units, ironically, made in China, entered the U.S. market several years ago. Another provider, CoolSat, with its card reader, has also become very popular and its FTA unit is very effective in stealing DISH Network signals.

China Connection

As mentioned immediately above and as is true of most of today’s FTA set-top boxes, they are made in and shipped to the U.S. from locales in mainland China. South Korea is the other center for FTA set-top box manufacturing.
Indeed, there is substantial irony in this situation involving the Chinese. The Chinese government seeks to control content delivered to its citizens and to those abroad, yet, at the same time, the government seems unable to control the set-top boxes produced in their own country, which, in turn, are then used to steal content.

Bottom Line
Where is this all going? Whichever manufacturer provides the best piracy support, best features and functions at a price below $200.00/FTA unit, is going to sell a lot of FTA units. This means companies like DISH Network in the U.S. and Bell Express Vu in Canada are losing a lot of subscriber revenues. Moreover, as noted above, the FTA manufacturers and others associated with the multichannel TV piracy business, are delivering a lot of ill-gotten gains. 

Source of Our Data
The Carmel Group’s FTA report and analysis was based on conducting primary and secondary research on the North American market, as well as using our own industry research, projections and market intelligence. The process for the primary research involved surveying executives of leading FTA manufacturers, as well as respected industry experts. Each executive was asked nearly a dozen questions that included how many FTA receivers have been shipped, price points and thoughts about FTA’s future growth. Our secondary research process included gathering in-house data and utilizing our in-depth database for industry projections. Between our primary and secondary research, we believe the data gathered on the FTA market is among the most thorough and complete in the industry.

The Carmel Group’s latest research and analysis on the FTA industry shows the market for the Top 8 manufacturers increasing by more than 10% during the last three months.

With an average retail price of just under $200 for FTA receivers, the eight major manufacturers generated approximately $348 million in sales. We estimate the eight top FTA manufacturers account for about 75% of the total FTA industry in North America.

Jimmy Schaeffler is the chairman and chief service officer, and Sean Badding is the president and senior analyst, of The Carmel Group, a 12-year-old Carmel-by-the-Sea, Calif.-based consultancy, publisher and conference organizer that focuses on the global multichannel industry. They can be reached at info@carmelgroup.com and 831-643 2222.