DIRECTV CEO rails against RSNs; lays out 2013 strategy

By Kyle Daly

Thursday, February 14, 2013 4:03 PM ET

Speaking on a Feb. 14 fourth-quarter 2012 earnings call, DIRECTV CEO Mike White had strong words for the "broken" business model behind regional sports networks, maintaining that DIRECTV will have no choice but to continue taking a hard look at what it charges customers in order to cover the rising costs of RSNs.

DIRECTV has been public about the contentiousness in its carriage negotiations with RSNs in the past, particularly as DIRECTV found itself in extended RSN negotiations with Time Warner Cable Inc.-owned RSNs. 

The cost of carrying RSNs was reportedly behind DIRECTV's decision to add a surcharge to the bills of premium package-purchasing customers in select markets — initially, at least, certain markets with more than one RSN.

On the Feb. 14 call, White reiterated his objection to the current system, telling analysts: "I believe the whole sports business model is broken. The only alternative we have, if we're going to carry sports channels in these few markets that are completely out of control and unaffordable, frankly, for the average consumer, is with some kind of a surcharge." He said pay TV markets with multiple RSNs cover about 20% of the country and that DIRECTV intends to extend the surcharge to all customers in those areas. He said initial broad rollouts of the surcharges will begin in the spring.

Yet the executive said even the surcharge DIRECTV has established "doesn't come close to covering the total cost of sports in [multi-RSN] markets." He said the company is looking at making prices more elastic, accordingly, though he noted DIRECTV will not be allowed to push things all the way to a la carte pricing.

Elsewhere on the call, White said the company sees Ultra HD as a "very exciting technology," albeit one that will not likely drive many decisions immediately given the prohibitive cost of Ultra HD TV sets to consumers and the limited footprint of the technology at present. Still, he said DIRECTV is "very interested in [watching] how fast it will expand with consumers, and [is] certainly taking that into consideration in our longer-term product plans."

White also spoke about DIRECTV's broader strategy for 2013 on the call, saying that the company's top goals in the U.S. going forward will be to significantly reduce churn while improving customer service. He also said the company intends to significantly expand TV Everywhere offerings and enact "responsible price increases" to prevent rising affiliate fees from damaging the company's bottom line.

In Latin America, meanwhile, White said economic trends, including the rising middle class, throughout the region look promising for DIRECTV, though he said the company aims to remain strategic in mitigating risks from things like shifting foreign exchange rates and rising labor costs. He said DIRECTV will focus on improving productivity and infrastructure in the region in order to drive further growth.

White said all things considered, he is "confident" DIRECTV will be able to double its Latin America subscriber base, revenues and profits within five years.