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DirecTV May Drop Smaller, Less Popular Networks to Keep Programming Costs in Check

Executives from the satellite TV firm also discuss pricing hopes for premium VOD films and other issues affecting content providers.

NEW YORK -- DirecTV executives said Thursday that they will look to fight continued program fee increases, in part by dropping smaller, less popular channels as the company recently did with Comcast's G4 network.

At the company's investor day here, executives from the satellite TV giant also gave insights into their thoughts on other key issues affecting content providers and network owners, such as possible a la carte pricing, an emerging premium VOD release window for movies and the much-discussed future of retransmission consent payments to broadcasters.

In a presentation, executive vp of content strategy and development Derek Chang said distributors like DirecTV continue to face program fee increases, which in the case of sports often run in the double-digit percentage range. Plus, they have noticed a clear shift of leverage to content owners, which are often part of major conglomerates these days. But distributors don't have "a bottomless pool of money," he emphasized. As a result, DirecTV will look long and hard at its program lineup and will in certain cases not renew carriage deals with channels that are "not necessary or not worth" their cost.

G4, for example, was "not widely viewed" and has so far "not been missed," Chang argued. DirecTV CEO Mike White later told reporters that his team felt program expenses for Comcast networks were growing so much that something had to give, and DirecTV decided to drop G4. "I told [Comcast CEO] Brian Roberts that total payments to Comcast will grow at an unsustainable rate next year," he said.

White also said on the sidelines of the investor event that he expects hard decisions on regional sports networks over the next year that could lead to some channels being dropped or offered only on an a la carte basis in 2012 and beyond, especially in such expensive markets as New York. DirecTV executives mentioned that satellite TV competitor Dish Network has not carried key regional sports networks that it has deemed too expensive and seems to be doing fine.

Discussing an emerging premium VOD film window, White and Chang echoed others in the industry by predicting first tests in early 2011. The key issues distributors, studios and theater operators are still discussing are the timing of such releases, their pricing and the revenue cut for theater chains concerned about a possible infringement on the theatrical window. With many entertainment executives having mentioned a possible cost of $20-$30 for such premium VOD titles, White said $20 could be interesting to consumers, but most would likely see $30 as too expensive. "There is an opportunity at $19.99," he said. The $30 price, however, would prove not to be a big idea, he said.

Chang signaled to the Wall Street crowd Thursday that changes to current retrans rules are necessary, arguing that broadcasters shouldn't get federal benefits and rights since they have introduced a second revenue stream in the form of retrans payments, which causes higher costs and disadvantages to distributors. "The system is broken," he said about current regulation. Senator John Kerry has been working on a draft bill that he plans to introduce to legislators before year's end and that would update the current rules governing retrans disputes. 

Asked about premium TV channels, such as HBO, and whether financially strained consumers will continue to want to pay for them, White said he sees them as "an important part of our business," and DirecTV is "enthusiastic" about them. "We have had the best year ever out of our premium channels," he said without providing specifics.

White on Thursday also said DirecTV will test a lower-priced program package next year for financially strained rural customers.