DirecTV Opts for a Leasing Model

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Adopting a strategy used by cable operators, DirecTV Inc. in March will begin leasing its set-top boxes and digital video recorders to its customers instead of selling them.

The nation’s biggest direct-broadcast satellite provider this month notified its retailers that it was migrating to a lease program effective March 1.

Those dealers were told they would only be paid commissions for leasing DirecTV’s hardware to customers, not selling those receivers.

The change in strategy aims to ultimately help drive the roll out of advanced services like HDTV and interactive, which offer new revenue streams.

“Most of our multichannel competitors use this model [leasing],” said Jim Arnold, DirecTV’s senior vice president of sales and distribution. “It’s our version of it, and we think it’s very competitive with what they do.”

Down the road, DirecTV believes the leasing program will make it easier to get advanced set-top boxes more widely distributed. In most cases, new customers won’t face big out-of-pocket expenses, though it will still cost $299 after rebate to lease the provider’s HD-DVR set-top. Even so, DirecTV believes the lease program will make it easier for customers to obtain better boxes and, thus, make it easier for the company to offer new services, such as high-definition channels.

“Consumers have expressed concern over the years that, 'Gee, do I have to buy this equipment?,’ particularly as we get into the advanced products, and what happens if that product gets obsolete and they’re stuck with old equipment,” Arnold said.

In a way, DirecTV’s move toward leasing and not selling its set-tops to consumers is ironic. Cable’s long-standing modus operandi has been to lease its hardware to subscribers.

On the flip side, cable — long mindful of DBS’s big presence in consumer-electronics stores — at times has tested selling, rather than leasing, set-tops.

Currently, DirecTV substantially subsidizes the cost of its set-tops to retailers.

Initially, the switch to leasing won’t impact consumers too much. For example, right now subscribers with basic $39.99 service already get their first standard receiver for free.

And a current promotion for the DirecTV Plus DVR won’t change. Subscribers will have to pay $99 for it, but can mail in a $100 rebate form. With leasing, a customer will pay $5.99 per month for digital recording service, get a standard set-top for free, and pay $4.99 to lease a second receiver that includes a DVR.

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