White: OTT Success Depends on Unbundling Nets

DirecTV Chief Says Consumer Interest Wanes As Costs Rise
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DirecTV chairman and CEO Mike White said that while some of his competitors – read Dish Network – have ventured into the nascent world of over-the-top video service, the business has several pitfalls, including a disincentive to make the service “too good.”

“If you make it too good, you’re going to cannibalize the business,” White said at the MoffettNathanson Media & Communications Summit in New York Thursday. “It’s really in the content companies’ interest to not make it too good.”

White’s chat with moderator and MoffettNathanson principal and senior analyst Craig Moffett had some ground rules – the DirecTV chief would not discuss speculation that DirecTV was in advanced merger talks with AT&T. But he did manage to break any tension early on, quipping to Moffett that he had to turn off his cell phone “in case I get a call.”

But White did open up on several topics, including the threat or benefit of broadband service – he says it is both – and the opportunity of over-the-top video distribution.

Earlier this year, Dish Network, as part of its comprehensive carriage deal with The Walt Disney Co.,  obtained the rights to offer five Disney channels (ABC, ABC Family, ESPN, ESPN 2 and the Disney Channel) as part of a lower-cost over the top service aimed at single Millennials. The service, which is expected to be launched in the summer, could cost about $30 per month.

While DirecTV has its own over-the-top aspirations – White continued to hint that details may be coming in the next several months – he said that the success of an OTT service hinges on a distributor’s ability to unbundle channels from different networks. DirecTV and others have complained that by bundling – forcing distributors to carry less popular channels owned by a programmer in order to have the rights for more popular  networks – is one of the main drivers of out of control content costs.

“If I could just cherry-pick AMC, FX and not have to pay for Nickelodeon and not have to pay for all the other stuff, you might get there,” White said. “My bet is on every single one of those discussions, including Disney, they’ll be trying to bundle more stuff.”

That could seriously affect an OTT distributor’s ability to keep monthly charges down.

“By the time you get to $34.99 or $39.99 [per month], it isn’t really compelling enough,” White said. "All the consumer work we’ve done on OTT is there is a pretty sharp fall off in demand after $12 [per month].”

DirecTV’s own carriage deal with Disney ends this year and White said despite the Dish deal, he is looking to receive a fair deal.

“Clearly they are going to ask for a big increase [in rates], we expect that,” White said. “I’m not interested in a public fight. All we’re interested in is getting a fair deal relative to our size and scale.”

Asked if he would go insist on the same digital rights Dish received in its Disney deal, White said every distributor is after the same thing.

“Everyone is working on the same agenda,” White said.

The DirecTV chief added that the traditional pay TV business is maturing, but said that the slow growth of the past few years is more due to housing market issues. White said he sits on the board of directors of home appliance giant Whirlpool and was appalled at “how messed up the housing market is.”

White added that new housing formation is “awful” adding that by 2016 or 2017, “something is going to have to give.”

And when it does, the pay TV outlook is expected to change dramatically, he said.

“Any way you do the math, it’s pretty easy to assume that somewhere out there you’re going to have 1 million more households,” White said. “In which case I will take my 20% share and 200,000 net adds and all of a sudden I’m a growth business. But there is no question it ain’t happening right now. I’m not counting on it this year”

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