Austin: 'We're All In This Together'

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DirecTV Inc. president Roxanne Austin sided with cable operators last week on the thorny issue of programming costs increases, but stopped short of saying that the direct-broadcast satellite powerhouse would go as far as dropping popular channels.

The programming-cost issue gained momentum when Cox Communications Inc. CEO Jim Robbins recently lashed out at sports programmers ESPN and Fox Sports Net for high rate increases, hinting Cox would drop the networks if it didn't receive relief.

Lowering programming costs are a priority, Austin said in an interview last week, after DirecTV parent Hughes Electronics Corp. reported strong third-quarter results, managing to throw a dig at the cable industry in the same breath.

Drive, She Said

"We've got to continue to drive the cost of programming down," Austin said. "You cannot continue to do what cable has done to its customers, raise rates at six to eight percent every year for the last five or six years. At the end of the day, there is some point the customer is going to say, 'Forget it.' I think we've got to step back and start with the consumer and work backward."

Austin said DirecTV has considered dropping networks in the past, but that would only come as a last resort.

She also backed away from the notion that DirecTV could benefit from cable operators that drop popular sports networks by keeping them as part of its own DBS package, instead calling for a united front in the industry.

"We're all in this together," Austin said. "We need to focus on as an industry coming together to try to lower these rates.

"It doesn't make sense to continue to let cost of programming spiral upward at rates that are multiple to the rate of inflation. We've got to stop it and we've all got to take a hard stand there."

Austin said that DirecTV's overall programming costs have risen about 7% this year.

Another big issue for DirecTV is EchoStar Communications Corp.'s recent bid for bankrupt Loral Space & Communications Ltd.'s satellite assets. If EchoStar's bid is accepted by the bankruptcy court, it could end up with ownership of at least two satellites used by DirecTV and could delay the construction of another satellite by the No. 1 DBS service provider.

Austin said she couldn't comment much on the EchoStar bid, but added DirecTV is not overly concerned. "I don't think that is going to be an issue," Austin said, adding she expects the court to rule on the matter later this week.

Despite those issues, Hughes had a strong third quarter, with revenue climbing 17% to $2.57 billion and operating profit before depreciation and amortization, also known as cash flow, up 33% to $359 million.

DirecTV's revenue rose 20% to $1.9 billion, and the service added 326,000 net new subscribers. Cash flow increased 15% to $235 million.

Average revenue per subscriber rose by more than $4.50 to $63.70, mainly due to a price increase and more customers taking additional set-tops.

Churn Dips

Subscriber churn for the period was about 1.6% per month, slightly below than the 1.7% monthly churn in the previous year, but in line with estimates. DirecTV said it is on track to reach its goal of 1.5% monthly churn for the full year.

Subscriber-acquisition costs rose to $590 per customer from $555, consistent with guidance, and driven mainly by increased marketing efforts.

DirecTV said that SAC costs are expected to climb further in the fourth quarter — to $630 per subscriber — also as a result of increased promotional efforts.

DirecTV kicked off a major promotion this month, offering a TiVo-enabled digital video recorder and satellite receiver for $99. Although the effort was scheduled to launch Oct. 18, Austin said that some retailers have begun offering the promotion already, adding that response has been strong.

"It has resonated very well," Austin said in an interview, declining to give specifics.

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