Satcaster cites programming costs rising in high single digits for expected rate hikes
Get ready to spend more for DirecTV service: The biggest satcaster in the U.S. will be forced to hike prices again next year as programming costs continue to climb, according to president and CEO Michael White.
White, speaking at Goldman Sachs’ Communacopia conference Wednesday in New York, said DirecTV will “be careful” about how high the increases will be for TV packages.
DirecTV raised pricing this past February, which increased customer bills an average of 4.5%. White said 2014 rate hikes will not be as much but “while it might be not as much, it is still going to be meaningful.”
White blamed the ongoing rise in TV programming costs, which DirecTV projects will increase in the “high single digits” this year. Retransmission-consent costs are a particular pain point, he said: DirecTV’s payments to TV broadcasters have increased 50% this year and 600% since 2010.
“I would say clearly I’ve seen an impact from consumers on churn in terms of their feelings about the bill,” he said.
In the most recent quarter, DirecTV’s total monthly churn was 1.53%, unchanged from the second quarter of 2012. But the company lost a net 84,000 subscribers in the quarter ended June 30, only the second time in DirecTV’s history that its subscriber base shrank.
DirecTV is “two-thirds of the way across the river in terms of a reset on content costs” with big media companies, but several deals have yet to be worked out this year.
Sports continues to be another major driver of overall TV cost increases. White commented on DirecTV’s standoff with Pac-12 Networks, saying the collegiate conference would not allow the satcaster to carry channels only in certain markets.
“I can’t tax all my customers for something that 98% or 99% of them are not going to watch. There’s a point at which you have to stand up for the 99% who are already angry about their bills,” he said about the Pac-12.
“What I can’t live with is content costs that go up 50% forever,” White continued. “Median consumer income is not growing, folks. That’s what the challenge comes back to.”
As for DirecTV’s $4 billion deal with the NFL for the Sunday Ticket package, White said he is hopeful the satcaster can renew the pact when it comes due next year.
“It’s one of the few exclusive properties left in the media space,” he said. I’m still optimistic we will still be able to do that. But it’s too soon to speculate.” Sunday Ticket is a loss leader, he said, that has helped DirecTV increase gross subscriber adds in the third quarter.
The NFL has said it is approaching other parties about the Sunday Ticket rights; those include Google, which reportedly met with league officials about a possible distribution deal.
Meanwhile, after DirecTV’s failed bid for Hulu, the satcaster is looking at some “targeted ideas” for launching an over-the-top video service, White said, reiterating comments he made last month. It won’t be a broad subscription VOD service like Netflix or Hulu Plus, however.
Commenting on a potential merger of DirecTV and Dish, White said U.S. regulators would be likely to reject such a tie-up. A consolidation of the two satcasters would provide billions in cost savings, and would give a combined company much more leverage in negotiating programming deals.
“There’s no question for all businesses in every industry that it is a much more challenging regulatory environment than it would have been five or 10 years ago,” he said.