DirecTV Close to Breakeven

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As DirecTv Inc. prepares to celebrate its fourth
anniversary June 17, its president, Eddy Hartenstein, is already looking ahead to the next
four years. With 3.7 million subscribers on board, the nation's largest direct-broadcast
satellite company is close to reaching its breakeven point of 4 million subscribers. Just
days before DirecTv's birthday,
Multichannel News senior editor Monica Hogan spoke
with Hartenstein about the company's success to date in stealing cable customers and what
the future holds. An abbreviated transcript follows (you can see the entire
question-and-answer session in the June 15th hard copy of Multichannel News):

MCN: What are the biggest changes that you
see for the next four years?

Hartenstein: If you look back to four
years ago, DirecTv has certainly raised the bar for television and cable. Digital
terrestrial is the next biggest thing that is going to transform this industry.

MCN: Have you chosen a market yet where
you will test your plan to co-market digital set-top boxes with local broadcasters?

Hartenstein: No. We are probably another
two or three weeks away. The greatest uncertainty is when the new towers and digital
transmitters will be up. That is not a technology issue: It is just a scheduling issue and
a construction and rigging issue. Those folks are in very, very high demand right now.

MCN: What is the status of those plans,
beyond which market you will test?

Hartenstein: We are focusing not just on
the first market, but on what our whole strategy and approach is. We will define and
strike alliances with the broadcasters and the content providers. We'll have more on that
late this summer.

MCN: Are your high-definition-television
pay-per-view plans still on target for a fourth-quarter 1998 launch?

Hartenstein: Yes. The main factor is the
availability of the first receivers or television sets, and that is on track right now.

MCN: Will subscribers need larger dishes
to access those HDTV feeds?

Hartenstein: Yes, only because we are
going to put those feeds up on the [Galaxy] 3R [satellite]. For new subscribers, it is
almost a, 'Who cares?' It doesn't really matter, because you are putting up a new dish.

Any existing subscriber would need a
high-definition-capable IRD [integrated receiver-decoder]. They would probably move the
set-top box that they have now into a room where they are not going to have a
high-definition television set, and put the new IRD in, and then just plop in the other
antenna. The really hard part — stringing the cable from the antenna to inside the
house — nothing changes with that.

MCN: How soon do you expect the Digital
Satellite System platform to add premium-movie feeds to the HDTV mix?

Hartenstein: That is something that we
have been approached about by a number of the premium-movie providers already. We don't
yet know for sure what their plans are and when they'll be ready to deliver those
services, but certainly, we will be ready.

MCN: When you say "we," do you
mean DirecTv, as opposed to U.S. Satellite Broadcasting?

Hartenstein: I was speaking just for
DirecTv. I can't speak for USSB.

MCN: Is there anything that would preclude
DirecTv from signing Home Box Office to deliver HDTV feeds?

Hartenstein: I don't know that. Obviously,
HBO has its service on our [joint] platform through USSB. USSB should be capable of
delivering high-definition, as well. I don't know what their plans are.

You can guess that we've had some pretty detailed
discussions with Starz!, which is our premium-movie-service provider, but we haven't
finalized the plans just yet.

MCN: Do you think that Starz! would
deliver HDTV before HBO would?

Hartenstein: Gee, I don't know. Relative
to HBO, that is their issue. But Starz! is very aggressively looking at when they want to
be able to launch this. Everyone is watching to see when these sets will actually show up
in the stores and on the shelves. Within a few months, they will get into the real
mass-production of these. Like any brand-new product, there will probably be a higher
demand than supply right at the outset.

MCN: What is your strategy for offering
interactive and data services?

Hartenstein: It is basically to bring the
applications into the television and into the remote that controls the television. We will
bring ancillary data services that are germane and that are an integral part of the video
that you are seeing on the set, with a host of other things, such as tickers and the
enabling technologies to do Web-caching, onto the television set.

Our research shows overwhelmingly that this is where people
want it to be. What Hughes Electronics intends to do is to have the TV-centric
applications and end-user services come through DirecTv, and to have the PC-centric
applications and services bundled through DirecPC.

DirecTv and HNS, with its DirecPC, are going to approach
the product development and all of the engineering, technology and intellectual-property
things together, and then, in a coordinated way, take those two platforms, with both their
similarities and their feature-set differences, to market.

MCN: How soon do you expect to deploy some
of those services?

Hartenstein: Some of the very early
services will come late this year, then, in a mass-market fashion, by the first quarter or
second quarter of next year.

MCN: You've come off another very
successful month in May. How do you explain the continued sales pace?

Hartenstein: In a nutshell, we've
simplified the buying process and the explanation. We're giving people a $99 install and,
included in that, through cooperation with the dealers, we're hooking them up to a local
antenna for their local stations. That has done wonders.

The price point of the hardware being below $200 has
certainly helped. We have enabled the retailers to offer people a second box for under
$100. If you've got a two-television home, and you want this on both TV sets, we've
bundled this in a $300 price range.

We've continually added programming services, and we
haven't increased the price. The bottom line is that our subscribers keep getting greater
value for their money.

We are not going to sit back and take second seat to
anybody else.

MCN: Do you expect to continue making
inroads into the cabled markets?

Hartenstein: I think so. There has been a
gradual shift from four years ago, when we started, where probably two-thirds, or even
three-quarters, of our subscribers were coming from the noncabled areas. It migrated to
50-50 and, now, finally, to one-third [noncabled] and two-thirds [cabled], even
approaching one-quarter/three-quarters. And I don't see that trend changing. knowledge.

MCN: When you eventually retire or leave
DirecTv, what would do you want people most to remember about your work at the company?

Hartenstein: Just that I had the
opportunity to be here and be part of a greater industry that has seen such dramatic
changes. That, and I've had the chance to work with the caliber of people that I've been
fortunate enough to work with here at DirecTv.

MCN: What are the biggest changes that
you've seen since DirecTv's launch four years ago?

Hartenstein: I've got grayer hair, and
less of it. You can quote that.

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