DirecTV Considers Dropping Channels And Offering An Internet Video Service

The No. 1 satellite company will look at set-top box data to “determine cost/value tradeoffs” different channels offer — and then “prune/drop less popular channels when necessary” — it said today in an Investor Day gathering. “Programming costs is the biggest issue affecting our industry,” DirecTV CFO Pat Doyle says. He hopes to hold the annual growth in U.S. programming costs to between 7% and 9% a year through 2016, roughly even with this year’s 9%. Execs are eager to persuade the Street that the company’s annual U.S. revenues will grow by “mid-single digit” rates through 2016 — possibly ahead of the consensus estimate of 4.4%. They also forecast “high single digits” annual cash flow growth, beating expectations for 6.6%.  New businesses could add $1B to the top line in a few years — and one could be an Internet video service. “We’re going to be opportunistic in looking at that space,” CEO Mike White says. It probably would be less ambitious than, say, Intel’s attempt to offer a full-fledged pay TV service on the Web. That “wouldn’t make sense” as broadband providers move to usage based pricing. Noting that a niche service might work, White added “we’ll have more to say about that later in the year.” Meanwhile, he has little interest in integrating Netflix into DirecTV’s set top box. Although it’s “not that hard to do,” it wouldn’t be in his interest to “undermine our pay-per-view movie business.” About 30% of DirecTV subs currently also subscribe to Netflix.

The meeting wouldn’t have been complete without a question about the possibility of a merger between DirecTV and Dish Network. White says that it would be difficult to craft a deal until Dish chairman Charlie Ergen figures out what he wants to do with the wireless spectrum rights he has been amassing. “You’d have to have a credible build-out plan for that spectrum.” A merger could help consumers if the combined company could fight rising programming costs, he says. But for about a third of the country the number of pay TV competitors would fall to two from three. “You still have to go sell that in Washington, DC and that’s still an open question.” Still, he adds, “we’re always open-minded.”