Satellite TV Pitch Is a Holding Company Fight

Big Three build teams to chase Cablevision upstart Rainbow DBS

Questions about cost and viability have dogged Rainbow DBS, Cablevision Systems Corp.’s planned foray into satellite television. Some analysts believe the service will never get off the ground. But if the company’s search for marketing help is an indicator, Cablevision is serious about challenging category leaders DirecTV and EchoStar.

Cablevision has earmarked $100 million for a marketing budget to support a December launch of Rainbow DBS. The assignment would involve everything from traditional advertising and media buying to public relations, direct marketing, corporate identity and digital marketing, according to sources.

And, in another example of a client taking a holding-company approach to a pitch, the contenders for the Rainbow DBS business are teams from Interpublic, WPP and Omnicom.

That approach mirrors last year’s $150 million Bank of America review, in which an IPG scrum led by Bozell beat an Omnicom team led by BBDO. It also recalls last year’s $100 million Prevacid review, in which TAP Pharmaceutical Products initially sent RFPs to three holding companies—Omnicom, IPG and WPP—and asked each to recommend one or two agencies. In the end, Omnicom’s Merkley Newman Harty & Partners defeated IPG’s McCann-Erickson to land the account.

Each team pitching Rainbow DBS, based in Bethpage, N.Y., is anchored by a New York-based global ad agency. WPP’s is led by J. Walter Thompson, IPG has put Lowe at the steering wheel, and TBWA\Chiat\Day is leading the charge for Omnicom, sources said.

Each team consists of a handful of agencies. WPP’s, for example, also includes MindShare, brand identity firm Landor Associates and public relations shop Robinson Lerer & Montgomery, among others, sources said.

Presentations took place at the agencies’ offices over three days last week. They focused on strategy but included some creative ideas, sources said.

The shops declined comment. Charles Schueler, Cablevision svp of media and community affairs, said, “Rainbow DBS is in the preliminary stages of exploring options regarding several alternative business plans. … No decision regarding advertising or communications is expected at this time.” He declined to comment further.

Rainbow DBS’ competitors also take an integrated approach to marketing, but in each case they are not wedded to a single holding company. DirecTV, for example, uses IPG’s Deutsch/LA in Marina del Rey, Calif., for general-market ads, Omnicom’s Rapp Collins in Dallas for customer relationship management and independent Vidal Partnership in New York for Hispanic efforts. EchoStar’s agencies include Havas’ Euro RSCG MVBMS Partners in New York for general-market ads and independent TMPG in White Plains, N.Y., for media planning and buying.

As for the service itself, Rainbow DBS will be able to shoot high-definition images to viewers of anything produced in that format. To date, Showtime, Comcast Sports Net, NBA TV, ESPN and HBO are among the stations that have produced such programming. Both DirecTV and EchoStar have also offered high-definition entertainment. (The market is still in its infancy: Estimates are that about 4 percent of U.S. households currently have HDTV sets, and only about 180,000 DirecTV subscribers have HDTV set-top boxes.)

A big problem for Rainbow DBS is that its competitors have such a head start. DirecTV, which launched in 1993, has more than 11 million subscribers. EchoStar’s Dish network, which rolled out in 1996, claims over 8 million subscribers. Rainbow DBS, moreover, will beam out the service over just one satellite, covering Denver to New York but not the West.

Further complicating Cablevision’s mission is that it has yet to launch that satellite, Rainbow 1. It was due to be sent up by the end of this month, but that has been delayed until May or later.

Also, the startup costs are expected to be high—between $1.5 billion and $2 billion, according to Jessica Reif Cohen, a cable industry analyst for Merrill Lynch in New York. Citing the cost, possible signal problems west of the Mississippi River and the difficulty of providing viable service with just one satellite, Reif Cohen has recommended that Cablevision shed the DBS business and sell it to EchoStar. That could bring in $300-500 million to cash-hungry Cablevision.

“Investors are wary” about the new service because “they don’t want to see Cablevision spend what it has to spend,” said John Mansell, a senior analyst at Fairfax, Va.-based consultancy Kagan World Media. Plus, Mansell said, “we don’t know what combination of local channels, high-definition TV and other programming will be [offered].”

But Mansell added that Cablevision chairman and founder Chuck Dolan “has long been a believer in the business.”

“When push comes to shove, they will put the bird up,” said another analyst, “even though the only subscriber will probably be Chuck Dolan himself.”