White Knight

DirecTV’s CEO Talks About Telcos, TV Everywhere, Competition

By Mike Farrell -- Multichannel News, 7/26/2010 12:01:00 AM

Michael White burst on the media scene in January, when he left a top management position at PepsiCo — he was CEO of PepsiCo International and vice chairman of PepsiCo — to head up the largest U.S. satellite-TV provider, DirecTV. An accomplished pianist (a director of Whirlpool, he has been known to play at board events) with a reputation as a brilliant manager and marketer — he impressed then-DirecTV chairman John Malone by learning to speak Russian for Pepsi’s launch into that market — White is a relative unknown in the media landscape. That could be changing.

White has spent the last seven months immersing himself in the business by sitting in on customer installations, pulling shifts at call centers and hobnobbing with DirecTV’s technology staff . He joins the satellite giant as it reaches a crossroads: the business is maturing and subscriber growth is slowing — net new subscriber additions in the first quarter 2010 were 100,000 vs. 460,000 in first-quarter 2009.

DirecTV, like its distribution peers, is seeking ways to extract more revenue from existing services, add new products and form new alliances to drive growth. White spoke with Multichannel News senior finance editor Mike Farrell in mid-July about these and other issues.

MCN: You’ve been on the job a little more than six months. Is it different than you expected?
Mike White: It’s going very well. I inherited a terrific brand, we’ve got a great service and product and I’ve got a terrific team.

Not having been from the industry, I didn’t come in with a huge number of expectations in the first place. But I would say a number of things struck me that perhaps I didn’t fully appreciate. One is how intricate and interconnected and interdependent our business model is, both internally and externally.

Our industry touches so many topical things these days. When I was in PepsiCo, if I opened The Wall Street Journal, there might have been an article about Coke or an article about obesity or an article about Nestlé that I would take a look at. Here, I’m looking at everything from articles about digital media and Apple or Google or Netflix to articles about our program providers, CBS or NBC or the NFL and sports or Major League Baseball or the NBA and what’s happening there, as well as what’s happening in Washington, D.C., with the Federal Communications Commission as well as what’s happening, finally, with our traditional competitors. So, you find the industry is really right at the heart of a lot of changes that are going on in our society, which is exciting but also can be challenging, as well.

MCN: When you started, it was just around the time that the new subscriber-growth trajectory for DirecTV was beginning to slow down. Is your focus on getting those numbers back up?
MW: Anytime you look at a business that was performing at a certain level, you have to go back and figure out what was driving it, and then you have to look at what’s appropriate for today and tomorrow. To be honest with you, we had a big, big impact from both the analog-todigital conversion, as well as some of the initial work we did with our telco partners last year. That’s not a normal level. So I’m quite pleased with our subscriber-acquisition numbers this year.

MCN: You’re offering about 200 HD channels, you’re rolling out allhome DVRs and you’ve just launched a 3D channel. What’s left?
MW: I think we’re just scratching the surface on 3D. That’s just beginning, really, and I think that will continue to grow in the years ahead, but it’s in its infancy right now. That’s not to say I think it’s the same as HD — I don’t believe it is — but I certainly think that’s an opportunity.

Second, for us in the satellite business, connecting the box opens up a world of opportunities for us to tap content from the Web. And I think that’s certainly an area that, as we look at other TV apps, if we look at anywhere-and-anytime video opportunities for our customers, movies in particular are a big opportunity for DirecTV.

MW: All of the above. As media consumption has fragmented over the last 10 years, there are going to be a number of areas that consumers will want to access. We are already going to be streaming [the NFL] Sunday Ticket [out-of-market package] on an iPad for subscribers that take that package this fall. [We’re] looking at ways that we can expand [content] that’s available by either authenticating deals that we’ve done, and we’re trialing some things with a couple of our programming partners. I think that will evolve as well.

MCN: You mentioned authentication. How are you moving along on that front?
MW: I’ve spent time with all of our program partners and each of them has a slightly different take on it, but I think everyone recognizes that we want to provide more convenience to our consumers in the way they can consume the content, but we want to ensure that we don’t undermine the business model that creates the economics for us to create great content and, frankly, for us to be able to distribute it. And so it’s finding the balance between those two.

I certainly don’t believe that in this day and age you can restrict a consumer to only watching 60 Minutes at 7 o’clock on Sunday night. You need to think differently, and frankly that’s why we’re investing in twice the capacity to record in our DVRs than our competition has. We’re going to continue to raise the bar around just what you can DVR through Direct TV and how you access that alone, in addition to other vehicles like authentication.

I think everyone is playing with a variety of different models. And we want to be active partners with our programmers as we do it.

MCN: How are the programmers reacting to this? Are they willing to step up to the table on authentication, or are they trying to hold back some programming for their own use online?
MW: I don’t think you can generalize. What I can tell you is that we’ve had very constructive discussions with a number of our programming partners about ways to authenticate through multiple vehicles. As I said, right now we’ve got some trials going with Turner on TBS and TNT. com, as well as with CBS.com.

We’re having conversations with all of our programming partners about having a multidimensional strategy for serving the needs of our consumers when and where they want to consume the content without undermining the basic economic model that is, as I said, is really what has enabled us in this country to have far and away the most channels with the most variety and the best content far and away in the world. Most other countries, you’re lucky if you get 30 channels.

MCN: Is authentication a big component of carriage negotiations as they go forward? I know with the cable operators it seems to be.
MW: I can certainly tell you from our standpoint, all of our discussions have an element of discussing the digital rights and authentication as an element in our conversations with our partners.

MCN: On your first-quarter conference call, you talked about new products that could potentially increase subscriber growth and average revenue per unit, as well as reduce churn. Can you elaborate?
MW: You’ve seen the launch of multiroom viewing; we’re very excited about that. We’re seeing terrific take rates continuing on our advanced products. Later this summer, we’re relaunching DirecTV Cinema; we’re very excited about that.

Historically, we had a very limited offering in terms of the number of pay-per-view movies that we could offer our customers. We’re about to explode the variety that we can offer our customers later on this summer by a factor of 10 or more. We’re going to go from less than 20 [movies] to 400-plus. As we evolve towards connecting the box to the Internet, it enables us to go to thousands and thousands.

I think the other big opportunity for us is advertising. Interactive and locally addressable advertising we think is a big opportunity for us.

MCN: So, no plans for a broadband offering?
MW: We certainly think that providing broadband to our customers through some kind of bundle is an important strategy for us, but we’ve been doing it by partnering up with a number of diff erent telcos. Frankly, we have enough telco partnerships that we should be able to reach 90% of the entire U.S. with broadband bundles. And we’re going to continue to look for ways to do that more smoothly and to provide even more robust bundled offerings. I see us more as the aggregator working with other partners on broadband than us literally providing the wires or the network.

MCN: One thing I wanted to touch on is the changing relationship with Liberty Media. Basically what is your relationship with Liberty right now?
MW: We do not have a business relationship of any kind with Liberty. Once the spinoff was completed last fall, Liberty as an entity has no ownership stake with us. I know [Liberty Global CEO] Mike Fries and have a good relationship with Mike and I know Liberty Media CEO Greg Maff ei quite well. [But] there’s no commercial relationship.

My relationship personally, as well as our relationship as a company, is with [Liberty Media chairman] John Malone. John and his family own [about] 3.5% of the company. He’s a significant shareholder; he’s also a valued adviser. He was on the search committee that hired me; he’s been a terrific mentor and friend to me personally.

I was with John last week in Sun Valley [at the Allen & Co. conference] and had a few minutes with him and continued to tap John’s advice and counsel. He’s a significant shareholder and he’s a friend and a mentor.

MCN: When Liberty restructured its relationship with DirecTV in 2009, there was a lot of speculation that there was going to be a sale. That hasn’t come to fruition, but is there any scenario where a sale of DirecTV would be feasible?
MW: I never comment on rumors. I can only tell you, our focus is on putting a strategy together for the future of this company. I don’t think selling your company is a strategy, candidly. But we’re very excited about our opportunities that we see with our company and what we think we can do on our own.

But, like any CEO, I work for the shareholders and the board of directors and that’s where that is. But certainly from my standpoint, my focus is on how do I deliver the same kind of progress strategically and fi nancially that I inherited? This company has had a terrific run over the last five years or so, and it’s certainly my job to help adapt to the new environment that I see out there, the changes that we all read about, whether it’s over-the-top, whether it’s digital media or whether it’s programming costs or whether it’s competition and a stressed consumer, and ensure that we can continue to be as successful in the next five years as we were in the last five years.

MCN: How important is your relationship with the telcos? Is that changing as they are trying to do their own separate television offerings?
MW: I think our relationship — and I’ve personally spent a significant amount of time with all of our telco partners, not just the two large ones — that we have an excellent relationship with all of our telco partners, that we are eager to expand our telco partnerships beyond the existing partners that we have, and [we] hope to have some things to say about that in the weeks ahead.

But it’s again one of those unique aspects about our business where you have these, I guess people call them “frenemies,” where you cooperate in certain areas and you compete in others. And that’s part of the ecosystem that we all live in.

MCN: In the past, DirecTV’s marketing message has been focused more around product superiority — most HD channels, best sports, etc. But lately, price competiveness has been creeping into the message with more discounting and an emphasis on lower cost. Is this a reflection of the times or a shift in how you’re selling to consumers?
MW: No, I think it’s certainly a reflection of the times we’re in and the industry. And we absolutely are going to continue to emphasize in our advertising the distinct advantages that we bring to the consumer from a technology standpoint.

I think you’ll see that both in our multiroom viewing campaign, which is on air right now, as well as in our relaunch of movies later this year. Make no mistake about it, our strength is innovation and differentiation of our product and we intend to continue to do that. I think what you have certainly seen is that in an industry that has become far more competitive in the last 18 months and in which at times we get singled out, that we need to compete and we intend to compete. And in an economy where the consumer is still pretty fragile and has become more price-sensitive, certainly, we need to kind of recognize that our consumers are more price-sensitive.