DirecTV is considering testing a new set-top that incorporates an antenna allowing customers to pull over-the-air broadcast signals, which could allow the satellite giant to avoid paying millions of dollars per year in retransmission consent fees.
Speaking at the JP Morgan Technology, Media and Telecom conference in Boston, DirecTV chief financial officer Patrick Doyle said the company had used the integrated antenna solution early in its history, before it began offering local broadcast channels via satellite. Once the satellite giant began offering local-into-local broadcast signals on a wide scale basis, the antenna solution didn’t make economic sense.
But now, with the advent of retransmission consent and the huge fees that some broadcasters charge, the economics have changed, he said.
“Now we’re 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,” Doyle said at the conference. “Now the NPV [net present value] of the future costs you’re going to pay in retrans is a big enough number … now it’s starting to make sense. We’ll spend more time on it. We’ll probably test in some markets an over-the-air integrated tuner set-up and make sure the customer experience is there.”
Retransmission consent costs have long been a thorn in the side of multichannel video programming distributors. According to SNL Kagan, retrans fees could top $6 billion annually by 2018, with satellite TV service providers paying an estimated $2 billion of that bill.
Doyle wouldn’t say when an integrated set-top would be available, and added that once it is rolled out, it initially will be only with new customers, eventually expanding to its existing base. DirecTV is the second largest MVPD in the country, with about 20 million subscribers.
In an e-mail message, DirecTV spokesman Darris Gringeri said no dates for testing are scheduled at this point and that the satellite giant has always had integrated tuners in some of its set-top boxes. He added that the company is "just exploring any options that could help get programming costs under control."
High programming costs were a hot topic at the conference. Earlier, Doyle said rising sports costs are forcing the satellite giant to scrutinize viewership with every channel, adding that absent federal involvement, it may take the failure of a large programming deal to break the chain of double digit annual rate increases.
Already DirecTV has balked at carrying the Pac 12 Network and Comcast’s Houston regional sports network, because it didn’t feel it had the viewership to justify the price. On the other hand, DirecTV does carry what some have claimed to be the priciest regional sports network in the country – Time Warner Cable SportsNet in Los Angeles – because it considers the network a must-have for its customers in that market.
Doyle added that if Washington doesn’t get involved, change will only come after the costs gets so high that a content owner can’t realize a return on its investment
He added the next test of that concept could come with the upcoming Los Angeles Dodgers RSN, expected to launch next year. Time Warner Cable spent an estimated $7 billion to $8 billion to be the charter distributor of the channel, as well as being its exclusive advertising and affiliate sales agent along with certain branding and programming rights.
“This is what happens when you get into this environment where there doesn’t seem to be any discipline on the rights side,” Doyle said. “We’re spending a lot of time, and we will continue to spend a lot of time, on how many of our customers watch a Dodgers game on any given night, how does it spread across the base, when we are presented with an offer, how does that cost match up with the value we see to our customers. You go back a few years ago, we weren’t doing that kind of analysis.”
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