Thursday, August 1, 2013

DirecTV CEO Mike White Sounds Off on Consolidation, Sunday Ticket, and Programming Costs

August 1, 2013, 5:41 p.m. ET

DirecTV Earnings: Profit Slips on U.S. Subscriber Losses

Company's CEO Favors Consolidation in Pay-TV Sector as Programming Costs Rise


DirecTV Group Inc. DTV -2.02% Chief Executive Mike White added his voice to those calling for consolidation in pay television, saying it should happen because the "balance between content providers and distributors is out of whack."
Mr. White's comments follow similar statements recently by Charter CommunicationsInc. CHTR +1.77% CEO Tom Rutledge and John Malone, the chairman of Charter's biggest shareholder, Liberty Media Corp. LMCA +0.22% Mr. White made his comments on a conference call after the satellite-TV operator reported a 7.2% drop in second-quarters earnings on worsening U.S. subscriber losses. 
While indicating his continued interest in a merger with satellite-TV rival Dish NetworkCorp., DISH +0.81% Mr. White suggested a deal isn't likely in the near future. "It always takes two to dance, and frankly the kind of options that you would normally think about are committed on other ideas and strategy, at least at the moment, as best I can tell."

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Dish has bought up spectrum in an effort to enter the wireless industry, and pursued a bid for Sprint Nextel Corp. unsuccessfully. In contrast, DirecTV has focused more on developing an online video strategy.
Mr. White confirmed reports that DirecTV recently made a bid for Hulu, the online video site owned by several major media companies, describing its offer as an "aggressive and attractive bid." Mr. White said he was "disappointed" by the owners' decision not to sell the site and that DirecTV subsequently "had to take a step back and look at other ideas that will probably be more targeted." He said the company is looking at some subscription video on demand ideas but declined to elaborate.
Net subscriber losses in DirecTV's large U.S. business totaled 84,000 for the second quarter, compared with 52,000 a year earlier. The company added a net 165,000 subscribers in Latin America, down from the 645,000 subscribers added a year earlier.
DirecTV executives attributed the decline in U.S. to a refocused strategy to attract higher-quality video customers who will be less likely to leave.
In the quarter, DirecTV's programming and other costs rose 9%. Mr. White said that costs from broadcasters and sports networks are increasing at a rate that isn't "sustainable for any length of time beyond the next couple of years." He said DirecTV customers this year are complaining more about rate increases than in previous years. "Something's going to have to give," Mr. White said.
He also said DirecTV is talking with the National Football League about renewing its NFL Sunday Ticket programming package, and said he believes Sunday Ticket "will stay with us for the long haul." The package, which DirecTV has long had exclusively, allows sports fans to watch out-of-market NFL games.
DirecTV on Thursday reported a second-quarter profit of $660 million, or $1.18 a share, versus $711 million, or $1.09 a share, a year ago. The latest period included a $59 million charge tied to the deconsolidation of a sports network, while the year-ago quarter included a $64 million charge for a loss on the early retirement of debt.
Revenue increased 6.6% to $7.7 billion.
The company attributed the revenue rise primarily to higher average revenue per user at its U.S. business. It said the increase was partly offset by lower average revenue per user in Latin America, primarily due to unfavorable exchange rates.
Operating margin narrowed to 17.5% from 19.5%. Total operating costs and expenses rose 9.2% to $6.35 billion.
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