DirecTV Inc. executives are confident their company will continue to roll up triple-digit monthly buy-rate numbers despite a substantial $1 increase in pay-per-view movie prices.
But the studios that supply those movies have some concerns.
DirecTV's PPV-movie increase to $3.99 beginning Sept. 1 is the first ever for the direct-broadcast satellite service. The hike coincides with a hefty $2-per-month rise in its core programming-package price. DirecTV has offered the new package prices to new subscribers since May.
DirecTV initially used its $2.99 PPV-price point, along with its 50-channel PPV service, to lure heavy PPV-movie buyers away from cable. As a result, the DBS provider consistently generated triple-digit buy-rates, easily outperforming cable operators.
Despite that success, Direc-TV's PPV-movie business was a loss-leader. The studios still demanded returns of nearly $2 from each PPV-movie buy, leaving little for DirecTV to pocket.
"I'm surprised DirecTV didn't increase its prices sooner," one PPV executive said. "They were leaving a lot of money on the table."
DirecTV executives denied that a lack of PPV profitability played a factor in its decision to raise prices. Senior vice president of programming Stephanie Campbell did say that cable's push into digital PPV and competition from other movie-based applications, such as DVDs, forced the company to re-evaluate the PPV business.
"It's not the same environment as it was six years ago," she said. "I think that with the advent of digital cable and the development of DVDs, access to movies is different, and we had to adjust to a different time. We're no longer the only [digital] game in town."
A more pressing issue for DirecTV is whether the extra $1 will have an adverse effect on PPV buys. Campbell believes the convenience and choice its PPV service offers subscribers will continue to be a major selling point. "I think it's been a major part of our ability to get and maintain subscribers, and it will continue to be," she added.
But at least one studio executive is concerned buys will drop with the increase in price. "We do expect a small drop-off in buy-rates, so it does have an impact on the studios, despite the fact that our splits haven't changed," the executive said.
Other industry observers cited DirecTV's recent multiyear marketing alliance with Blockbuster Inc. as its motivation to increase prices.
The deal will allow the video store to put its brand name on DirecTV's pay-per-view service. In return, Blockbuster will sell DirecTV dishes through its 5,000 video-rental stores.
"With Blockbuster part of its PPV mix, they face the possibility of further erosion to their already-slim PPV margin," one cable-industry executive said. "In order to stay whole, they will have consumers subsidize the cost through the price increase."
But Campbell vehemently denied that the Blockbuster deal had any influence on DirecTV's PPV-pricing decisions. DirecTV and Blockbuster are still discussing how to implement their new partnership, which still doesn't have a launch date, she added.