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Lean, Mean Sat TV

With News Corp. now firmly in charge, look for big changes in the way DirecTV operates in 2004. That means a leaner management and a tough negotiating stance with cable networks when it comes to licensing.

Chase Carey, the News Corp. veteran running the show, has set a series of goals in the next 12 months designed to get the pay satellite-TV service growing faster.

In an interview with BROADCASTING & CABLE, Carey sent out an unmistakable signal that, like big cable MSOs, he's out to slow the rise in programming costs.

"We're the second biggest distributor in the U.S. and the biggest distributor on a worldwide basis," he said. "We should have the economics of scale that come with that to create a level of efficiency and focus that is a competitive advantage."

In fact, only Comcast is bigger than DirecTV, which has 12 million subscribers. Within four to eight years, though, Carey wants DirecTV in 20 million homes, which would make it just slightly smaller than cable's biggest gun.

News Corp.'s $6.6 billion deal to buy control of DirecTV parent Hughes Electronics passed regulatory muster on Friday, Dec. 19, and News Corp. completed the purchase over the following weekend, officially positioning Carey as CEO of Hughes.

Upon completion of the transaction, News Corp. transferred its stake in Hughes to subsidiary Fox Entertainment Group. Mitch Stern, the former head of the Fox Station group and Twentieth Television, is set to manage the satellite service as CEO of DirecTV, reporting to Carey.

He succeeds Eddie Hartenstein, who drops all operating duties for the corporate position of vice chairman at Hughes.

Job one is to get those 8 million new subscribers. To get there, Carey acknowledges, a number of shorter-term goals have to be achieved first, such as:

  • Standardizing set top boxes across the company's subscriber base.
  • Expanding service to 130 markets, from 60 now.
  • Adapting the interactive technology of News Corp.'s European satellite operation, BSkyB, starting with news and sports programming.
  • Standardizing DirecTV's electronic program guide by midyear.
  • Significantly overhauling the customer-service operation.

Maximizing cost-efficiencies is also high on Carey's priority list, although that's more of an ongoing concern than a goal with a specific timetable.

"DirecTV has operated under a somewhat cumbersome construct," Carey said, "with Hughes as a corporate parent and General Motors above it as a corporate parent."

That setup has bred a certain level of bureaucracy that is antithetical to the way that News Corp. companies typically operate. "We need to develop a leaner and more agile entity focused on operations," said Carey. "News Corp. is a company that historically has been driven by operating executives."

DirecTV has already made some head-count reductions, he noted. To the extent that there are more, "I think a lot of it is based on effective, fast decision-making and a clear delineation of operating responsibilities."

Translation: If you're part of DirecTV's mid-level pencil-pushing bureaucracy, be worried.

Carey is circumspect on marketing specifics, but basic math tells him the nation is "pretty much penetrated. There aren't that many new homes to get, so mostly you're competing with existing distributors and you have to compete against both" cable and satellite operators.

He believes that DirecTV can add between 1 million and 2 million subs a year, so it could take four to eight years to reach 20 million subscribers.

An obvious question, and one that Carey artfully dodges, is whether DirecTV will start a price war to gain market share. "We'll compete on value. Price is a component of value. If you provide a great experience with great service at a fair price, that's a great value."

Currently, he noted, DirecTV is giving away satellite dishes and three boxes. How long that will last is unclear. "That's something that's determined in a competitive marketplace at a point in time."

One area in which DirecTV expects to "lead" the market is with personal-video-recorder technology. Already, he said, DirecTV has a PVR in the market that allows viewers to view one channel while recording another. EchoStar, he pointed out, doesn't have that capability.

Whether or not TiVo remains a long-term partner in the PVR business remains to be seen. A News Corp.-affiliated company, NDS, is also in the PVR business.

"TiVo has unique features and a strong brand in the marketplace," Carey observed. "We look to build on that relationship. But, at the same time, we need to look at the breadth of options in the PVR space. NDS has a PVR, and there are others. We need to be a leader. At the end of the day, we will choose a path we believe enables us to be that leader."

On the interactive front, DirecTV subscribers will be choosing their own camera angles for sports replays and sorting through reams of statistics and other data on their favorite players fairly soon. They'll also be participating in a variety of news polls and be able to check weather and traffic. Transactional and other services will also be introduced throughout the coming year, he said.

"Clearly a place where we'll tap into BSkyB is interactivity," he said, calling it the "most advanced interactive service in the world."

But the company plans to add many interactive features outside of news and sports throughout the coming year, said Carey.

As for speculation about a possible merger of DirecTV and News Corp. satellite services in Latin America, Carey admits it makes sense on paper but many local issues have to be addressed before it happens.

Hughes also owns PanAmSat, which leases satellite space to other users, and may be a business News Corp. wants to sell. But Carey said that's an open question he's in no hurry to answer.