The number of households subscribing to satellite TV service has increased dramatically over the past year, even as cable narrows the gap in customer satisfaction ratings, according to the J.D. Power and Associates 2005 Residential Cable/Satellite TV Satisfaction Study.

The study finds that satellite TV service continues to erode cables market share, increasing every year for the past 10 years and making its most significant leap this year.

Currently, 27 percent of U.S. households subscribe only to satellite service -- up from 19 percent in 2004 and 12 percent in 2000.1 Sixty percent of households subscribe only to cable service -- down from 62 percent in 2004 and 66 percent in 2000.

"Although satellite providers continue to gain market share, overall customer satisfaction among satellite subscribers has declined while satisfaction among cable subscribers is up," said Steve Kirkeby, senior director of telecommunication research for J.D. Power and Associates.

"Overall, satellite customers are still more satisfied with their service than cable subscribers, but if satellite providers want to continue to attract subscribers away from cable, customer satisfaction is a critical area where they cant afford to lose ground."

For the first time since 2001, a cable service provider -- WOW! (WideOpenWest) -- holds the top carrier position in the customer satisfaction rankings. WOW!, which operates in major markets in Michigan, Illinois and Ohio, ranks highest among 14 of the nations largest cable/satellite companies with an index score of 717 (on a 1,000-point scale).

A predecessor company of WOW!, Ameritech New Media, was also highest ranked in 2001, which was the last cable company to do so since Cox held the top spot in 1996. The cable provider receives the highest ratings from customers in three of the six factors driving customer satisfaction: customer service, performance and reliability, and billing.

Following WOW! in the ranking are DirecTV and Cox Communications, respectively. DirecTV leads the industry in cost of service, while Cox leads in offerings and promotions.

The average amount consumers spend monthly on satellite TV service continues to be less than cable service. Satellite subscribers report paying an average of $57.72 per month for service, while cable subscribers pay an average of $58.51 a month.2

Although both satellite and cable service providers have been actively promoting digital video recorders (DVR), which allow viewers to freeze and record live TV, only 12 percent of customers currently own a DVR system.

However, despite low current usage rates of DVRs, 41 percent of consumers indicate that they are likely to use a DVR system in the future. Current usage of DVRs through cable companies (35% of DVR owners) outpaces usage through satellite companies (23%). Another 22 percent of DVR owners use systems by TiVo.

"Both cable and satellite TV providers are beginning to see the benefits of bundling DVRs with their voice, video and Internet services," said Kirkeby. "Both cable and satellite can meet this anticipated customer demand, while improving customer satisfaction and increasing average revenue per unit (ARPU), by offering their subscribers efficient and convenient packages. All our research shows that customers prefer bundles from single providers for convenience, simplicity and a better price for their combined purchases."

The study also finds that 21 percent of consumer report ordering a video on demand (VOD) program -- a decline of 1 percent compared to the prior year.

"Clearly the industry needs to continue to educate subscribers about VOD," said Kirkeby. "One of the most compelling findings in the study is the significant increase in overall satisfaction exhibited by users of VOD services compared to non-usersnearly 30 index points. Service providers must do whatever it takes to ensure consumers know the ordering process and charges, if any, associated with VOD. In some instances, cable companies are offering free VOD programming that their customers are apparently unaware of."

The 2005 Residential Cable/Satellite TV Customer Satisfaction Study is based on responses from 11,586 U.S. households who evaluated their satellite or cable service.