Job One for Austin: Forget How to Spell 'Merger'

Last summer, DirecTV Inc. president Roxanne Austin took on her new role in the midst of significant company turmoil. Once the darling of the multichannel-TV industry, DirecTV's sales started to stall last year, and General Motors Corp. made no secret of the fact it wanted to sell the direct-broadcast satellite provider's parent, Hughes Electronics Corp. At the time, News Corp. chairman Rupert Murdoch was seen as the most likely suitor, but EchoStar Communications Corp. chairman Charlie Ergen made a winning bid for the company, and the proposed merger between Hughes and EchoStar was announced late last October. Since she started her tenure as president and chief operating officer late last June, Austin has helped steer DirecTV back towards growth and won
accolades from Wall Street. In anticipation of celebrating her one-year anniversary as president next month, Austin recently spoke with
Multichannel News marketing editor Monica Hogan about managing change in a highly competitive environment and helping DirecTV's employees keep their focus in the midst of ongoing uncertainty. An edited transcript follows:

MCN: Was your first year as president of DirecTV everything you thought it would be?

Roxanne Austin:
And more — Lots of joy to go around. It's been an incredible experience. We have a tremendous group of employees at DirecTV, really bright and dedicated to the business's growth.

We had to do a lot of things to change our business — change our business model, change the way we approach our relationship with retail, change our programming packages, focus on our cost structure, reduce our churn and improve our customer service.

The good news is, these folks really care about this business. They're very bright people. We never could have accomplished what we've accomplished in such a short period of time without that. That's been a tremendously positive experience for me.

The other things DirecTV has going for it — we have a great brand, and we've got a great service. When you've got a great brand and you've got a great service, and you've got great employees, you can address and tackle the tough issues we had to tackle.

We did it aggressively; we did it faster than anybody thought we could do it. We had three incredibly successful quarters in a row.

MCN: How big a factor has the merger been in the way you run the business day-to-day?

It's actually been zero. My job when I got here was to forget that I could even spell the word merger, and to focus on the business, and changing the business, and getting it back on a positive track.

By law, I have to remain a competitor with EchoStar, so therefore, we can't share competitively sensitive information.

My focus has been on DirecTV and making it better, so that whether there is a merger — or if, for some reason, the government were to deny the merger — DirecTV is a better business either way. I don't make any decisions based on what may or may not happen with the merger. That's not been the way I've run the business.

MCN: How do you keep your employees focused on the job at hand, knowing they might not have a job by the end of the year?

That's always tough. I had a specialty in mergers and acquisitions, so I'm probably uniquely qualified in this regard.

It's hard any time anybody goes through a period of uncertainty. I draw upon my own experience at Deloitte & Touche, right in advance of the merger. I was a short period of time away from making partner when the merger was announced. My very first reaction — as is the very first reaction anyone feels — was, 'What does this mean to me? Does this mean I'm not going to make partner? Does this mean I'm not going to accomplish my goals?'

I very quickly came to the realization that if I focused on that, I wouldn't become partner, because I wouldn't accomplish anything in that period of time.

So I focused my energy on what I could control, and that's been my message to my employees: 'Focus on what we can control. And what we can control is the performance of DirecTV.'

Whether you decide to be a part of the merger, or you go on to somewhere else in your business career, you will have accomplished something tangible. You will be able to demonstrate that you can make tremendous change in a period of tremendous uncertainty. What better thing to have in your career? I view this as an opportunity. I know a lot of people don't see it that way.

We've got a team of people here, who — in the face of economic downturn, in the face of an announced merger — totally changed their business. It's a testament to the dedication and the pride of the DirecTV people.

MCN: Are you concerned that you might lose some of your top people due to the uncertainty surrounding the merger?

Of course, you always worry about it. We actually haven't; we've been very fortunate. On balance, we haven't lost any key people. We have stayed focused on our business, and I hope we will continue to be able to do so.

It will be harder the closer we get to the merger date.

MCN: What do you see as satellite's biggest competitive advantages over cable?

The ubiquitous nature of satellite, of course. With DirecTV, we have the ability to have a nationwide service. Cable is regional, but with satellite we reach virtually all the roughly 100 million television households in the United States. That is unique. We have a national message, a national focus and national pricing, and all those things are very attractive and certainly an advantage.

MCN: Is there room for a new DBS player if a competitor [such as SES Americom Inc., Cablevision Systems Corp. or Pegasus Communications Corp.] were to go ahead with their proposed satellite launches?

That's their business case to worry about; not mine. We think we're an incredibly strong competitor. There's always going to be competition. We welcome competition. We'll always compete.

MCN: Is there much subscriber growth left in DBS?

Absolutely. Let me tell you why: The market for us is the 50 million television households that have not made a digital decision today. There are roughly 50 million homes that are analog cable.

Our largest growth rates are seen in the largest cities — New York, Chicago, Miami. That's where we're seeing our strongest growth rates. We're taking subscribers from cable. That's our market.

We're 100 percent digital. If you compare that with digital cable, where the local channels and a number of the other channels are still analog, there's really not a comparison.

We're going to go after our share of the 50 million people who have not made a digital decision, and we're going to go after them aggressively.

MCN: So DBS isn't approaching a plateau in growth?

No, I don't see it. We've seen our strongest first quarter ever in terms of gross adds this year. This is the first quarter where we had a full cable replacement in 41 markets, because we had all the local channels in those 41 markets. Having a full cable replacement had a big impact.

MCN: What were your initial priorities at DirecTV?

I had four immediate priorities. The first was to meet or exceed our financial and operational commitments. Our last three quarters show we've been very focused on that, and have accomplished that.

The second priority was to maximize financial return at DirecTV, by significantly reducing our operating costs and aggressively attacking our cost structure. In that regard, we had a significant reduction in force last fall, and dramatically reduced our overall G&A [general and administrative] budget. We're prioritizing and focusing those dollars on one thing: bringing in and retaining quality, committed and profitable customers.

The third thing that we were focused on was customer service and reducing churn. Our churn in June last year hit a high point of 2 percent [per month]. We brought that down to 1.6 percent, and we're continuing to focus on bringing that even lower.

Customer service is one area where we've increased our investment. We wanted to lower our churn. That pays tremendous dividends for us. By every tenth of a percent that we lower churn in a quarter, that's 30,000 fewer customers we have to bring on just to replace churn before we add a new one.

We reduced churn four-tenths of a percent, so that's 120,000 fewer customers we have to bring on just to replace churn.

The fourth priority was to revive customer growth, but to do it in a profitable way. In the second quarter of last year, we only added 175,000 net new subscribers; our churn rate was out of control.

We did revive our growth, but we did it in a profitable way. First of all, we now require all new customers to have an annual commitment. When you're spending $525 on a customer, you want to get a return on that investment. We're going to ask our customers to also make an investment in us.

The other growth area we focused on was to make sure our retail incentives are based on bringing in a quality customer.

MCN: Has it been more difficult maintaining partnerships with retailers?

Business people are business people, and you've got to meet both your objectives. The only way is to create a common benefit. If a customer churns out, our retailers lose a portion of their commission. It was in their best interest and our best interest to focus on bringing in quality, committed customers.

MCN: Has the merger news trickled down to the consumer level? Have you seen resistance from consumers to purchasing new DBS equipment?

Not at all. We've been very clear — any customer who buys either DirecTV or EchoStar, if, in order to receive their current services, needs new equipment for any reason from either platform — that would be done at no cost. It's made neutral to the customer. The customer shouldn't care.

MCN: How comfortable are you that the current security smart-card swap-out will address the company's piracy problems?

I do not believe you ever stop fighting the battle against piracy; you have to constantly be doing that. The card swap is the next step in our battle on piracy.

As we announced, we're taking total control of our conditional-access system internally, and we will continue to develop technology to aggressively fight piracy.

We're doing very aggressive enforcement actions. We are going after people who steal our signals, even end users, for the first time.

MCN: How important is it for DBS companies to be able to bundle broadband Internet access with their video services?

Some of our subscribers want a bundled offering; I don't think it is the key, determining factor. People are looking at the best available video option; they're looking at the best available to them interactive option and the best available telephony option, and they're picking the best in class of each of those.

Some of our subscribers have chosen DirecTV DSL as the best in class; some have made other decisions. I don't think it has a dramatic impact on what's happening with respect to our subscriber take rate.

I don't think customers are totally focused on the bundled alternative. You wouldn't have the record growth that we've had if people were that concerned about the bundle. In my opinion, bundles have been slightly overrated.

MCN: How did you get involved in the satellite industry?

I was a partner with Deloitte & Touche before I came to Hughes, and I had a specialty in mergers and acquisitions, and in aerospace and defense. I worked on various projects over the course of that career that really drew me to technology in general, and specifically, I really enjoyed satellite technology.

I came to work at Hughes back in 1993 in a financial role, and had the opportunity to hold all the key financial roles at Hughes — the controller, the treasurer and, ultimately, the CFO. My personal interests were satellites, technology and service, and DirecTV was a perfect and exciting mix of those.

MCN: Were you an early believer in satellite technology?

Absolutely. In my prior role, my job was to allocate resources at the Hughes level, and certainly DirecTV got a significant portion of the Hughes resources allocated to it to help it grow. I had the opportunity to help support the business in my former financial life, particularly as CFO.

Then my desire was — and certainly it was [DirecTV CEO] Eddy's [Hartenstein] desire as well — for me to come lead this business at some point.

Luckily I had the opportunity that he and [Hughes chairman] Jack Shaw asked me to come lead DirecTV, and to focus on taking what had been an extremely successful start-up that had reached an inflection point, and take it to the next level.

MCN: What are your plans for life after DirecTV?

I love this business, so I'd like to stay in it for a while. I love technology in general, so I hope I'll have the opportunity to always participate in it in some way.

MCN: If you were to leave the company for some reason, merger- or non-merger related, what would you miss most about the job?

It's a really dynamic, very challenging environment, just from a competitive standpoint, with the cable competitors out there as strong as they are. I enjoy the challenge of it and how dynamic and changing the whole space is. And I love the technology.

MCN: Has Charlie Ergen talked with you about the possibility of joining a merged company?

No comment.

MCN: Do you expect many DirecTV employees would land jobs at a merged company?

I certainly hope that the merger takes the best of the best. We certainly have some terrific people at DirecTV, and I'm sure there are terrific people as well at EchoStar.

Good people will always have an opportunity. Since we have such a terrific group of people here, I think there will be lots of opportunities created for the merger.