The No. 1 satellite company warns broadcasters that their rush to raise retransmission consent fees could backfire. DirecTV‘s outlays to broadcast stations are up 50% this year, and that’s “not sustainable,” CEO Mike White told analysts today after reporting third-quarter earnings. If prices “continue to explode, then customers are going to demand other alternatives.” And DirecTV has done some R&D work to see whether it could offer broadcast TV the way Aereo does — using antennas to tap free over-the-air transmissions, without paying stations. “We’ve had antennas before so we’re pretty experienced on the whole subject,” White says. He adds that “we continue to explore it” although Aereo’s technology is “unique” and he has nothing “immanent or specific” planned. White is one of pay TV’s most outspoken critics of rising programming prices. DirecTV says that its price hikes this year resulted in slightly higher voluntary churn in the U.S. in Q3 if you factor out the impact of a dispute last year that resulted in Viacom’s channels going dark on the service for 10 days. Still, he declined to make a big effort to snag Time Warner Cable subscribers this summer during its 32-day fight with CBS. “What goes around comes around in these programming disputes.” White also feels a surprising solidarity with cable companies including Charter that want to consolidate, which presumably would make them more formidable competitors to satellite services such as DirecTV. “Having stronger distributors that would negotiate tough on content fees would be a good thing,” White says. “We would welcome that.”
Not so long ago, analysts looked to DirecTV‘s Latin American operations for encouraging signs about the company’s future while the U.S. business started to stall. But most of the upbeat surprises in Q3 were in the U.S. as DirecTV benefited from Time Warner Cable’s battle with CBS — and comparisons with last year when the No. 1 satellite company suffered from its own fight with Viacom. DirecTV’s net income of $699M is +23.7% vs the period last year on revenues of $7.88B, +6.3%. Analysts thought the top line would be a little lower, at $7.85B. Earnings at $1.28 a share were well ahead of forecasts for $1.02. The U.S. operation seemed to be on track with subscriptions up nearly 1% vs last year to 20.16M, ahead of expectations. Domestic revenues grew 7% to $6.17B due to price increases and higher pay-per-view sales — offset somewhat by promotional discounts. The average monthly revenue per sub increased 6.2% to $102.37. The operating profit margin also grew to 16% from 15.2% as cost controls helped to take the sting out of price increases for programming. The good news in Latin America includes the settlement of a dispute with Brazilian officials over performance rights fees that cost less than DirecTV anticipated. But for the most part the region fell short of investor expectations. Subscriptions were up 17.3% to 11.34M — some analysts were looking for about 11.45M. Revenues in the region were +5.4% to $1.66B with an operating margin of 15.8%, up from 14.0%.
Seems they’re considering just that — with Time Warner Cable weighing the possibility of buying the Barry Diller-backed streaming video company — Bloomberg reports today, citing unnamed sources. Aereo uses thousands of tiny antennas to pick up local TV signals that it streams to its subscribers without paying broadcasters a dime. If the cable and satellite companies followed through, it could create a nightmare for broadcasters. TV station owners likely will collect $3B this year from cable and satellite company retransmission consent payments, and the amount is expected to double during the next five years. By 2015 the payments could account for 24% of CBS’ cash flow, 11% of Fox’s, and 3% of Disney’s, Guggenheim Partners’ Michael Morris predicted this week. Much of that revenue could evaporate if cable and satellite companies replicated Aereo’s model. No wonder the major TV station owners have asked several courts, including the U.S. Supreme Court, to rule that the service infringes on their copyrights. (Aereo says it merely leases consumers the kind of equipment they could use to watch and stream TV at home for free.)
Liberty Media’s John Malone and other execs are pounding the drums for cable and satellite companies to merge — in part to help hold down their rising programming costs. You’d expect outlays to …
Judging by the tone of Michael White‘s comments to investors today, he’s souring on the thought of trying to merge the No. 1 satellite company with its chief rival Dish Network. At the beginning of August the DirecTV chief said that while it might take a lot of work to do a deal he’d “never say never.” But he just told the Goldman Sachs Communacopia Conference that “there’s no question it’s very challenging for any deal to get done” following the Justice Department’s decision last month to fight American Airlines’ plan to merge with US Airways. Some analysts thought that the companies might overcome government antitrust concerns by offering to use the airwave spectrum rights that Dish has amassed to build a national wireless broadband service. White says that conceptually “that would be a powerful argument,” but adds that “powerful doesn’t necessarily make the other [antitrust] issues go away.”
The conclusion in a report late today from Craig Moffett is a big change for the MoffettNathanson Research founder – and could weigh on both satellite distributors tomorrow. Moffett has been Wall Street’s leading evangelist for a DirecTV-Dish Network merger: In June he upgraded both companies, urging investors to buy their shares, in the belief that Dish Chairman Charlie Ergen would pursue a “spectacularly lucrative” deal with DirecTV after he failed to gain control of Sprint or an influential stake in wireless broadband company Clearwire. The idea swept through Wall Street, especially after the company chiefs said they wouldn’t rule it out.
But Moffett just conceded defeat. He downgraded both companies to “neutral” and lowered his price targets (by 7.4% to $63 for DirecTV and 8.5% to $43 for Dish). The reason: Ergen’s passion to create a wireless service “shows no sign of cooling.” He continues to amass rights to wireless airwave spectrum, and the more he buys “the less feasible it becomes for Dish to sell its trove.” Federal officials
The story of the legendary NYC rock club that spawned bands like Blondie, the Ramones, and the Talking Heads will debut September 5 on the satcaster’s VOD platform. CBGB, starring Alan Rickman, Donal Logue, Ashley Greene, Johnny Galecki and Bradley Whitford and many others, will air through October 2 on DirecTV Cinema. It opens October 11 in theaters. Here’s the release:
EL SEGUNDO, Calif., Aug. 29, 2013 – DIRECTV CINEMA® is giving customers exclusive access to experience the birth of American punk rock music with the film CBGB, directed by Randall Miller and starring Alan Rickman (Harry Potter franchise), Malin Akerman (Watchmen), Ashley Greene (Twilight franchise) and Rupert Grint (Harry Potterfranchise). The film will premiere on DIRECTV CINEMA Thursday, Sept. 5 and air through Oct. 2, prior to its theatrical release on October 11, 2013.
EXCLUSIVE: I’ve learned that DirecTV is close to picking up its third original series. I hear the satcaster is finalizing the deals for a 10-episode straight-to-series order to Navy St., an hourlong drama from Byron Balasco …
Investors are becoming so obsessed with the idea of a DirecTV-Dish Network merger that it seems to be just a matter of time before the companies succumb. Questions about the possibility kept popping up in Dish Network’s quarterly earnings call yesterday. Company watchers “seem to be fixated” on the subject, Brean Capital’s Todd Mitchell says. And execs don’t seem to mind. Last week DirecTV CEO Michael White said he’d “never say never.” And Evercore Partners’ Bryan Kraft says he has “never heard [Dish Network Chairman Charlie Ergen] speak as openly and positively regarding the possibility of a combination with DirecTV” as he did yesterday. The FCC blocked a satellite TV merger in 2002 on the grounds that it would leave many rural subscribers, who don’t have cable, with just one pay TV provider. But Ergen says that the business is “materially different” than it was then. Verizon FiOS and AT&T U-verse serve many markets. “And then of course, you have almost an unlimited number of people now on digital Internet getting into the business, whether it be from Netflix to Hulu to Amazon to everything else that you can do on the Internet,” Ergen says. “And that’s only going to grow.” Later he added that “there’s not any question that putting Dish and DirecTV together makes a lot of sense…. If you just wanted to create short-term value, that would be probably your No. 1 option.”
Listen to (and share) episode 45 of our audio podcast Deadline Big Media With David Lieberman. Deadline’s financial editor talks with host David Bloom about Under The Dome’s game-changing financial approach and what it means for TV; possible first steps toward a Dish/DirecTV tie-up; Facebook‘s sticky challenge as it considers sticking video ads in user news feeds; and media execs’ grudging acknowledgements that maybe this summer had too many tentpole films after all.
This was a lousy day for DirecTV after it reported lower-than-expected earnings, with especially weak results in Latin America. But CEO Michael White gave investors at least one reason to stick with the company: He signaled in a call with analysts that he’d be receptive to the idea of …