Demand for television is expanding at a breathtaking pace. By 1995, over 800 million households around the world had television, 56 percent of the total (Exhibit 1). This is expected to rise to 60 percent or almost a billion house-holds by 2005 (Exhibit 2). However, only 29 percent of viewing households currently have access to multichannel cable or satellite offers (Exhibit 3); the rest must content themselves with a few terrestrial channels until multichannel penetration deepens (Exhibit 4).

Yet in some developed countries where television penetration is high, offerings are booming. Households that used to be confined to a handful of broadcast channels, some controlled by the government, now have the chance to subscribe to cable bouquets offering 20 to 150 different options. Instead of receiving exactly the same broadcast stream as their neighbors, they can choose what they watch through innovations like pay-per-view.

Over the past few years, the direct-to-home (DTH) satellite industry has emerged from nowhere. It has grown in just three years from a niche delivery mechanism for a few million hard-to-reach households into a mainstream business that is expected to reach 87 million subscribers over the next decade (Exhibit 5). The spread of subscription-based DTH...