DirecTV CEO Says He Continues to Worry About Rising Programming Costs
Televised sports rights remain a challenge in terms of rising programming costs across the board for DirecTV, CEO Michael White said on an earnings call Tuesday. DirecTV has looked at several options as it relates to regional sports networks, he said. The first choice was to have an entertainment programming package of cable channels without the sports programming, he said.
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Such packages would “make it more affordable for customers,” White said. DirecTV is part of a group of pay-TV companies that also includes Dish and others that want the FCC to change retransmission consent rules for broadcasters, and also it’s expressed concern about rising sports programming costs. Such costs “are forcing all distributors to take a look at low-rated channels, no matter who offers those channels,” White said of decisions to carry such networks.
DirecTV’s Q1 revenue grew about 12 percent to $7.05 billion from the year-ago quarter. That was fueled in part by subscriber growth in Latin America, said White. Latin America “has become our biggest growth engine,” he said Tuesday. Gross subscriber additions there exceeded those of the U.S. business, and passed the million-subscriber mark, he said. The company reduced promotional discounts to new U.S. customers by $5 a month in February, he said: The move is “expected to reduce customer credit and increase ARPU over the balance of this year."
The U.S. business added 81,000 new subscribers and monthly churn dropped six basis points to 1.44 percent, DirecTV said. “With lower churn, we still have some tremendous opportunities to enhance our customer experience with DirecTV,” White said.
Programming expenses were lower than expected, offset by higher general and administrative expenses, Evercore Partners analysts wrote investors. “Irrational competition from cable multiple system operators and telcos could erode pricing and drive subscriber losses. The results show the U.S. business is slowing, said Bernstein Research’s Craig Moffett. Programming expense per subscriber grew 7.6 percent, he said. “Cable operators are tightening the noose, letting video margins contract as they support margins with their more profitable broadband business instead.” The Latin American business continues to outperform, but it isn’t generating “or won’t generate, attractive long term returns,” Moffett said.
"We anticipate higher levels of competitive intensity in the pay TV market,” Citigroup analysts wrote investors. “Unlike rivals, DTV doesn’t have obvious ways to mitigate rising competitive pressures since it generates virtually all of its revenues from subscription pay TV services.” Internet TV may pose risks, they said: While these emerging services haven’t yet resulted in a decline in pay-TV subscribers, “it may pose a long-term risk to the entire pay TV industry.”