DirecTVs Donald Ready for Interaction

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In April, Odie Donald took the helm as president of DirecTV Inc. His appointment followed a lengthy search for a successor to DirecTV's first president, Eddy Hartenstein, who was promoted to global chairman of DirecTV parent Hughes Electronics Corp. in January. Donald has 25 years of telecommunications experience, including a six-year stint as president of BellSouth Mobility, where he encountered the issues of competition and customer retention that direct-broadcast satellite and cable providers face today.Donald spoke recently with Multichannel News marketing editor Monica Hogan about the new interactive-television services DirecTV plans to launch this year with Wink Communications Inc., TiVo Inc., America Online Inc. and Microsoft Corp. Donald said that this could be DirecTV's hottest fourth-quarter selling season ever, and that he plans to fight back against dish buyback programs from cable and a retail bounty program from rival EchoStar Communications Corp. An edited transcript follows:

MCN: How are you enjoying your role as DirecTV president?

OD:Oh, I love it. We've got a great group of people who are extremely hard working and very focused.

MCN: Are your retailers and customer-service agents in the field ready for the new interactive-television products that you plan to launch this year?

OD:We continue to refine our training and our processes. We've still got things to do, but the excitement in the field is just unbelievable. The retailers are extremely excited. We had many of our major retailers together over the past month or so. They could actually see, feel and touch the products through live demonstrations.

MCN: Which of the new services do you expect to launch first?

OD:Probably the first thing you'll see will be the DirecTV Interactive with Wink. We've got a download scheduled for early October, and we'll probably have 1 million homes with DirecTV Interactive by the fourth quarter.

Most of these things are going to be rolling out either early in the fourth quarter or in time for the holiday buying season. The DirecTV-TiVo combination receiver will roll out early in the fourth quarter. We've got a lot of customers and employees testing that as we speak, and that seems to be going quite well.

For DirecTV-AOL TV, we're targeting a holiday rollout for that combination receiver. And then for the DirecTV Ultimate TV, we're targeting a holiday rollout as well.

MCN: Do you have a sense yet of which of the new services will have the most consumer appeal?

OD:We've done a little bit of research and the one that customers seem to resonate with most readily-and maybe it's because it's fairly familiar to them because of all of the advertising that's been done already-is the DirecTV with TiVo combination receiver.

As we get out into the marketplace with more advertising and promotion and build awareness, I think the market for all of them will be quite strong.

MCN: Is it more problematic to launch an AOL TV service now that AOL is planning to merge with Time Warner Inc.?

OD:I come from an environment where I'm quite comfortable dealing with companies who are at the same time competitors, suppliers and customers. And I think we have a similar situation here. We can work through the organizational issues, especially when it's apparent that we're moving in the direction of what customers want.

MCN: Do you expect that AOL will have to sell its stake in [DirecTV parent] Hughes [Electronics Corp.] prior to its merger with Time Warner?

OD:We can't, as you can imagine, speculate on any enforcement action the government may or may not take concerning the AOL-Time Warner merger. It certainly does raise issues for DirecTV, since AOL will be both a partner and, at least in Time Warner markets, our biggest competitor. But we're hopeful that we'll be able to work through these challenges with AOL over the coming months.

In the meantime, we're moving forward to introduce this combination DirecTV-AOL TV receiver in time for the holiday season and our sister company, Hughes Network Systems, will roll out its nationwide two-way high-speed DirecPC satellite Internet service featuring AOL Plus in the fourth quarter.

MCN: Can you tell me a little bit more about that service?

OD:Basically, we have a one-way DirecPC product in the marketplace today, and I think we've got something like 50,000 customers nationwide. But

DirecPC will be introducing a nationwide two-way broadband product in the fourth quarter of this year. It's one of those things that many customers have been waiting for. It positions us well against the cable-modem products and DSL [digital subscriber line] products from the telcos. So we're excited about joint marketing possibilities with our sister company.

MCN: How aggressive will DirecTV be in signing up new subscribers in the fourth quarter?

OD:We're going to be very aggressive in the fourth quarter. That's obviously our biggest buying season, and we're looking forward to this being the biggest ever.

We're planning a very aggressive offer for the holiday season. All of our retail partners and all of our folks internally are fired up and ready to go. It's going to be big.

MCN: Will that include a free installation offer?

OD:The free installation is clearly what our customers have told us gets them excited the most.

MCN: There's been a widely distributed story which said that starting Oct. 15, you'll have that offer again.

OD:Obviously word's out on the street somewhere. That's, in effect, what the plan is. We haven't announced it [publicly]. We've been working the details with all of our distribution partners so that when that date rolls around, we're clicking on all cylinders.

MCN: What other marketing plans do you have in the works?

OD:We are looking at a lot of different options for next year. We're going to be very aggressive throughout 2001, and we're going to go into the year knowing what we're going to do throughout the year. Clearly, the competition's going to be trying to catch us.

MCN: Whom do you see as DirecTV's primary competitors?

OD:Our primary competition clearly is the cable industry. They've got dominant market share, so that's where we focus most of our attention, although we know there's an aggressive little upstart facing us from the rear. So we look backwards every now and then. But the real competitor is the cable companies.

MCN: Are you still on track to reach 10 million subscribers by the end of the year?

OD:We've always said we're going to be very close to that number. So that's still our target and if our aggressive efforts in the fourth quarter do what we expect them to, we're going to be right in that range.

MCN: How important are local channels in driving those numbers?

OD:Local channels have been extremely important to us. As you know, we're in 31 markets today and during the fourth quarter, we'll launch six others, so that we'll be in 37 markets representing nearly 60 million homes, or about 60 percent of the nation's television households.

Local channels have clearly been significant in terms of driving growth this year. In some markets, the take rate for local channels is greater than 60 percent. For new customers, the take rate is over 57 percent, and when you look overall, in all of our markets where we have local channels, we've got 42 percent of the customer base in those markets having subscribed to local channels.

MCN: Why did DirecTV introduce a bounty program for EchoStar [Communications Corp.'s Dish Network] subscribers?

OD:Let me just say first of all, bounty programs are not normally a part of the way we do business. But when a competitor aggressively uses those tactics and threatens to steal our customers, that competitor better understand that we will act quickly and vigorously to protect our customer base and our dealers who have a vested interest in maintaining their customers. We don't condone the practice of bounty programs. We don't think they resonate well with consumers.

We believe bounty programs are counterproductive and distract the satellite-TV industry from focusing on the real competitor, which, as I mentioned a few minutes ago, is the cable industry. So it's our hope that these bounty programs will cease and allow our industry to focus its efforts on acquiring new customers and competing with cable.

But I will reiterate that if any competitor comes after our customers with bounty programs, we will respond quickly and decisively.

MCN: Will you have a direct response to cable's dish buyback programs?

OD:We are looking at each of them on an individual basis. There are a lot of different variations out there. We will respond to each and every one of them, and I would say, generally speaking, we will respond in an even more aggressive manner.

MCN: Is this a little more complicated in that some of the programs are done on a market-by-market basis?

OD:I think that adds to the complexity. While our service is national and we are very effective in marketing and selling nationally, now we're adding local marketing and selling to the mix. And we will be very effective in competing on that basis as well.

MCN: What was your reaction to the news that EchoStar had hired a prominent antitrust lawyer [David Boies] to lead its civil suit against DirecTV?

OD:I can't comment on anything other than what we've said all along, that their complaint was seriously flawed. They basically alleged that

DirecTV has impaired Echo-Star's ability to compete effectively in the marketplace and that we've engaged in a variety of wrongful business practices and so on. We've also found it necessary to file a counterclaim against EchoStar, which includes numerous facets.

EchoStar, if you look at what it has done, it is attempting to narrowly define the market as satellite TV, while in the past it has stated consistently and publicly that its primary competitor is cable.

Secondly, EchoStar has elected to market its products and services directly to consumers in a way that competes with, rather than supports, the retail-distribution channel. So it looks to us that EchoStar's own conduct and statements undermine the case that it's filed.

But at any rate, our policy is not to comment on lawsuits, and that's about all I have to say.

We basically, though, believe their claims have no merit, and we'll prevail ultimately.

MCN: How important is it to your company that its top retail partners remain exclusive to DirecTV?

OD:I don't know that I would use the word exclusive, but I would say this: We believe in treating our retail partners also as customers and catering to their needs and being easy to do business with.

Putting our efforts on the service side for our retail partners is what ultimately bonds them to us. Not all parties in the industry have come to the realization that it's not just about commissions or compensation in trying to bond with retail partners. It's also a service mentality.

MCN: There's been some speculation that Radio-Shack Corp. might start carrying Dish Network equipment because it has also agreed to sell Gilat-to-Home hardware. Is there anything in your recent agreement with Radio-Shack that would preclude its also selling Dish?

OD:I really am not in a position to talk about terms and conditions. As I mentioned before, I don't know what kinds of discussions RadioShack or any other distribution partner may be having with other players in the industry.

But our position is that we're going to excel in catering to those distribution partners' needs. And hopefully, that will be the ultimate deciding factor in keeping them bonded to us.

MCN: Do you think these relationships with retailers will carry over to the digital-cable-at-retail era as well? Do you expect retailers to favor DirecTV over digital cable in the future?

OD:I think our retail partners are very smart. They understand that they are basically catering to the needs of their customers, their clientele. And I think as a practical matter, their interest is in satisfying their customers and giving their customers what they need and what they want. And as long as DirecTV maintains its superiority in terms of product and the entire marketing mix, that's what's going to be sold with the greatest frequency. As long as we continue to focus there, we will be the preferred brand on the shelf.

MCN: And do the new products that you're introducing fit in with that plan?

OD:They absolutely do, and that's part of the strategy that I'm talking about. You go all the way back to the very inception of DirecTV, where we clearly had a superior product in terms of picture and sound quality, very superior to anything else that was out there. Our effort is to continue that, to always be substantially better than anything else that's on the market. That's how we will ultimately win in the marketplace.

MCN: What did your subscriber acquisition costs average this year?

OD:We were around $490 for the first half of the year. We have put some more aggressive consumer offers in the marketplace the second half of the year. For the second half, we'll probably average about $525. Full-year, our subscriber acquisition cost is going to come in about $510. We think with our average monthly revenue running around $58.50, the subscriber economics are still very compelling and payback remains at only about 19 months.

We're being much more aggressive, but we think we can afford to be.

MCN: So are you comfortable you'll keep the customer for longer than 19 months?

OD:Oh sure. We believe that customer retention is critically important to us. We continue to have one of the lowest churn rates among multichannel TV services. In the second quarter, after having put up a churn rate of 1.7 percent in the first quarter, we came in at 1.5 percent per month for the second quarter. And 1.5 percent's our internal goal and we feel good about that. It's the best that we know of in the industry.

MCN: What's your reaction to the J.D. Power survey reports that were issued [earlier this month]?

OD:We're pleased that we continue to be identified as being well out ahead of the cable industry in terms of how we take care of customers. We're also seen as clearly exceeding customers' expectations. Cable is clearly where we focus our efforts in terms of competing. And I think the J.D. Power survey points out that we're way ahead of the cable industry, which suggests that we're going to be even more successful as we move forward.

We're putting a lot of emphasis on refocusing all of our efforts on the customer, putting the customer first in everything we do, from the sales process through the installation process and then through ongoing customer care activity. We're going to be a lot better as we go forward, and the gap between cable and ourselves will only widen over time.

MCN: Are you planning to launch a customer loyalty program?

OD:We are looking at various options as we speak. But the best thing that I think we can do is try and get all of our employees involved, and I would say that we're already seeing some successes in doing that. We've basically organized three major teams that are company-wide, which are focusing efforts on improving our service at the point of sale, throughout the installation process, and then through ongoing care activities. Those efforts are already starting to have substantial impact. We're seeing call volumes drop-which obviously has significant impact to us. And relative to installation, we've made some tremendous improvements to the point where now, when a customer calls in to our home services organization to get an installation job done, we're normally completing that installation within three days from the time the order was placed.

MCN: That's great. I
didn't know that you were able to do installations so quickly.

OD:We're really making progress and I think customers are going to notice that. We're well positioned versus cable now.

MCN: How long do you expect DirecTV to be able to continue on its own, as it is, before it is either sold or merged with another company-and does that idea concern you as someone who's recently signed on?

OD:Those rumors were swirling around even before I decided to join. But I decided that this was such a fantastic, once-in-a-lifetime opportunity that upon reflection, I decided it was too good to pass up. And so I'm here.

Those rumors continue to swirl. I don't waste any time thinking about them. My job is to continue working to improve DirecTV from a service-provisioning standpoint, from a sales-and-marketing standpoint, from managing relationships. And so what we're trying to do is build a much larger, better service company and one that delivers more value to shareholders. And so I think if we do that, the rest will take care of itself.

MCN: Is there anything else that you want our readers to know?

OD:I've been a customer of DirecTV for probably five years now, long before I ever dreamed of working here, and I thought it was just an outstanding product. In those days, I maintained cable to get my local channels and I had DirecTV for everything else. And when you flipped from cable to DirecTV, the difference was just unbelievable.

Now that I'm here, I appreciate DirecTV even more than I did as a customer, because I see such a dedicated group of people who are focused on making things better for the customer. We've got people working night and day on, 'How do we improve our product?' and, 'What can we do to give customers new things that they're wanting? 'And it makes me proud to be a part of a company that is motivated and dedicated to staying ahead of the competition for the benefit of the customer. I feel fortunate to be with such a great group of people, and I'm looking forward to moving ahead in the future.

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