Just as Alice cried “Curiouser and curiouser!” as she fell through the rabbit hole and entered Wonderland, so, too, it appears, is the pay-TV space entering a different reality.
Consider: Satellite pay-TV provider DirecTV (DTV) may be looking at installing antennas into set-top boxes to provide subscribers with over-the-air broadcast signals in an effort to sidestep retransmission fees.
DirecTV chief financial officer Patrick Doyle told the JP Morgan Technology, Media and Telecom conference in Boston, that the company was “spending a fair amount of time on the technology side, taking an over-the-air signal, integrating into our set-top boxes and not paying a retrans cost,” reported Multichannel News. “We’ll probably test in some markets an over-the-air integrated tuner set-up and make sure the customer experience is there,” Doyle told the group.
It won’t be the first time DirecTV has gone that route; early iterations of the service included an integrated antenna.
The move comes after a first quarter that saw sluggish subscriber growth—just 21,000 new customers were added—and a concerted effort by the operator to control costs. The company, which has 20.1 million subs, added 81,000 in the same quarter a year ago.
DirecTV CEO Mike White, during the company’s earnings call, said the operator reported better-than-expected earnings sue in large part to aggressive expense management. It will likely have to continue that strategy to meet second-quarter analyst expectations.
A major expense that can be controlled? Content, of course.
While all pay-TV operators have struggled with rising content costs, they’ve been able to mitigate the impact by offering subscribers broadband services at premium prices, something DirecTV isn’t able to do. DTV has seen average programming costs per subscriber increase 6% in the past year, and it’s getting tougher to pass those higher prices along to consumers.
SNL Kagan is forecasting that satellite TV providers DirecTV and DISH Networks (DISH) could see their retransmission expenses surpass $2 billion by 2018 (with the rest of the industry paying another $4 billion). So, it’s no surprise that DirecTV is looking for a way out.
Of course, both Fox and CBS, stung by an inability to beat Aereo—the startup offering to stream OTA content to consumers—in court, have insinuated that their next move could be to become cable channels themselves. That would make a DirecTV’s integrated-antenna strategy moot.
DirecTV has long been conducting a public battle to contain content costs, for the past two years warning that the increasing costs of sports, specifically, threatened the business. The company also has warned that it would begin to cull under-performing channels from their line up.
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