New York -- DirecTV Inc. president Eddy Hartenstein said
last week that new local-channel and interactive-service offerings could help to boost
monthly revenues for the direct-broadcast satellite company above its current $58
per-subscriber level.
Speaking at a Merrill Lynch & Co. satellite conference
here last Wednesday, Hartenstein said DirecTV has seen early take rates for local channels
as high as 55 percent in some markets, including Denver, Atlanta and Washington, D.C.
DirecTV's retransmission negotiations with broadcasters
have gone "amicably," he said, and he expects the company to have all of its
consent agreements completed before the May 29 deadline. "You can't do this by
lobbing hand grenades over the transom," he added.
DirecTV charges $5.99 per month for a package of top local
network affiliates and a national PBS feed. The DBS provider offers local channels in 21
markets, and it expects to add three more within the next several weeks.
In all but two of those local-channel markets, existing
DirecTV subscribers can access the local channels through backwards-compatible hardware.
Most EchoStar Communications Corp. customers would need new
dishes to access local channels. While EchoStar offers free and discounted hardware
upgrades, the wait for the new equipment can run up to six weeks, EchoStar chairman
Charlie Ergen said on a recent on-air chat with subscribers.
Because new DirecTV services from America Online Inc., TiVo
Inc. and Wink Communications Inc. are not backwards-compatible, Hartenstein predicted that
take rates for those services would be lower than for the local channels.
Revenues per subscriber for the new services could range
from $7 to $15, he projected, adding that DirecTV would need to share revenues with its
partners. In addition to subscriptions, the new interactive services will also bring
income from advertising and electronic commerce.
DirecTV may see additional revenues through a new digital
tier it plans to launch this spring. Hartenstein said the new "Total Choice
Family" package would include one-dozen channels DirecTV does not carry yet.
DirecTV acquired 120,000 net new subscribers for its
high-power DBS service last month, and it converted another 80,000 from its medium-power
PrimeStar by DirecTV platform. The numbers represented a growth rate of 32 percent over
January 1999 additions, despite what Hartenstein called a "product-starved"
month for retailers.
The product-supply issue eased up in February, Hartenstein
said. DirecTV has alerted its manufacturers to expect heavy demand for equipment this
year.
At the end of January, DirecTV served 8.1 million
customers, including 1.2 million medium-power subscribers. The company projected that it
will end the year with between 9.5 million and 10 million customers.
Hartenstein said it's too early to analyze how much of the
recent subscriber growth can be attributed to the local-channel offers.
Mark Pagon, chairman of DirecTV reseller Pegasus
Communications Corp., said the company has not started to push local-channel packages
because of the recent DirecTV equipment shortage. "You don't want to stoke demand if
you can't satisfy it," he added.
Still, in the three metropolitan New York counties that
Pegasus serves, the company has seen take rates for local channels as high as 65 percent
among existing subscribers, and Pagon predicted that they could hit 80 percent following
more aggressive advertising.
And with new customers, he put the take rate at 100 percent
in markets where local channels are available over DirecTV. "We'll sell it as a
package," Pagon added.
Hartenstein and Hughes Electronics Corp. chairman Michael
Smith declined to say last week which candidates they're looking at to fill Hartenstein's
role as DirecTV's president following his recent promotion to corporate senior executive
vice president at Hughes. They would only say they're looking both inside and outside of
the company.
Pagon suggested that the appointment could have a huge
impact on the DBS marketplace. "The relationship between Charlie [Ergen] and Eddy
[Hartenstein] is irrationally polarized," he added, "and that influences the
whole industry."
He warned that the new DirecTV president would need to be
comfortable facing lawsuits from its partners -- the National Rural Telecommunications
Cooperative and Pegasus -- as well as from its competitor, EchoStar.
EchoStar filed suit early this month against DirecTV,
claiming that DirecTV has made false statements about EchoStar and that it forces its
retailers to boycott Dish Network products, among other monopolistic practices.
"Anybody who knows me [and my staff] knows we've never
made false or misleading statements about EchoStar," Hartenstein said, "and the
fact is that we've been on the receiving side of a lot of misleading statements from
EchoStar."
Hartenstein said EchoStar "has every opportunity to
negotiate competitive agreements" with retailers and manufacturers. He called
EchoStar's lack of greater retail distribution a natural outgrowth of its
vertical-integration strategy, "which undermines retailers and manufacturers."
Pagon said Pegasus does not insist on exclusivity with its
retailers. "I think it's a poor model to try to get exclusive contracts with
retailers," he said, adding that such obligations pose a worst-case scenario for
retailers.
"Exclusive contractual obligations wed you to another
organization," Pagon said. "They're essentially deciding your fate."
In other news from DirecTV, the company announced a new
in-flight television service on JetBlue Airways last Thursday. Starting next month,
passengers will be able to access 24 live channels of DirecTV programming with a $5
credit-card swipe.
DirecTV vice president of business development and
strategic planning Terry Ferguson said that because the service doesn't interfere with the
electronic frequencies pilots use, passengers can watch DirecTV even while they're on the
runway.
"We see this as a marketing opportunity,"
Ferguson added. "It's a real opportunity for folks to experience DirecTV. It's a good
sampling of our programming."
