DirecTV Chief Says Consolidation Could Reduce Programming Costs

But Says Regulatory Environment ‘Challenging’

DirecTV chairman and CEO Mike White said that consolidating pay TV distribution – including a union between his company and No. 2 satellite TV provider Dish Network – would go a long way toward curbing rising programming rates, but added the current regulatory environment would never allow it to happen.

White, speaking at the Goldman Sachs Communacopia conference in New York Wednesday, cited recent big consolidation plays that were struck down by regulators – AT&T’s failed 2011 merger with T-Mobile and the proposed combination of American Airlines and US Airways – for anti-competitive reasons. White said the same regulatory mentality – an aversion to reducing the number of competitors in a sector – persists in the media business.

“There is no question that it is a very challenging regulatory environment for any deal to get done,” White said. “The challenge would be can you educate regulators that there are other considerations.”

White said usually when there is an imbalance between “upstairs supply and downstairs distribution, usually the way that gets solved is you have consolidation of some sort.” Without it, it is almost inevitable that consumers’ prices will rise in concert with the cost of that supply.  

“The fundamental concerns of most antitrust laws is to ensure that consumes are getting a fair deal,” White said, adding that if programming costs are ignored, “consumers’ bills are going to continue to rise faster than their income. I personally believe that some consolidation would be pro-consumer and pro-competition. But you have to take a holistic look at it and whether that would happen with this Justice Dept., I couldn’t say.”

DirecTV implemented a 4.5% price increase in 2013, in part to cover the rising costs of programming, and White said that without meaningful relief, it will likely have another rate hike in 2014.

 “Realistically, prices will have to go up again because content costs are going to up again,” White said. That is due to some one-time charges this year and the hope that it won’t have to expand its regional sports network surcharge in 2014, although White again left the door open.

“If there’s a dislocation in a given sports market, we’ll do it,” White said of RSN charges. “We’ll be careful about how much pricing we will take next year. It won’t be quite as much, but it will be meaningful.”

DirecTV’s content costs have soared – White estimated that retrans rates alone have risen 50% this year and by 600% since 2010. While DirecTV estimated that overall programming rates will rise in the high single digits this year and next, there are some ways to keep costs down.

One way is to push for longer term deals, something that White said the satellite giant has had some success with.

Digital rights are also an increasingly important part of the carriage conversation, White said, adding that DirecTV has about 40 networks and 70% of its content available on demand, with more to come next year.

And though DirecTV came up short in its pursuit of an online content vehicle – its bid for streaming video giant Hulu was rejected earlier this year – White said the company investigating a few targeted ideas in the over-the-top arena.

“We are interested in whether we can selectively play in that space and do it smartly,” White said.

He declined to elaborate.

The DirecTV chief also said that despite Dish Network’s efforts to build its own wireless broadband service, the No. 1 satellite TV service will not be traveling down the same road.

DirecTV had tested a wireless broadband offering with Verizon Wireless in 2010 in Pennsylvania – the “Cantenna trial’ – but scrapped the project when they couldn’t justify the cost. He added the economics don’t look any better today.

“We continue to look at it, but you’d have to have sufficient spectrum of the right quality and then you have to build it out,” White said. “Every time we model it out, it’s a $15-to- $20 billion bet for $50 a month for half of your customers is not a home run financial proposition.”