Despite serious reservations about razor-thin profit margins, DirecTV is exploring options for rolling out its own over-the-top (OTT) video service sometime in the near future.
DirecTV Group Inc. (NYSE: DTV) CEO Mike White conceded as much late last week. Speaking on the company's fourth-quarter earnings call, White indicated that DirecTV is studying the idea in the wake of the launch of Sling TV by the company's main rival, Dish Network LLC (Nasdaq: DISH). Dish formally introduced Sling TV, a drastically slimmed-down, 20-channel package retailing for $20 a month, earlier this month. (See Sling TV Flips Switch, Adds AMC.)
"We're looking at the question," he told financial analysts on the Thursday afternoon call. "We need the ability to go OTT… There's no doubt there will be customers who would be better served with smaller bundles."
In fact, DirecTV has tested the OTT concept with its popular NFL Sunday Ticket offering, which now has more than 2 million paying subscribers for the regular premium service. While the test was "very small and immaterial in numbers," he said it "went quite well" and will lead to further discussions with the NFL for the next pro football season. He sees it as a particularly promising idea for university students and apartment dwellers.
In addition to a pure-play OTT service like Dish's Sling TV, White said DirecTV is studying the idea of a "broadband-plus" service with AT&T Inc. (NYSE: T) once its pending acquisition by the large carrier is approved by US federal regulators, as is expected. He said no decisions have been made yet.
However, that doesn't mean White is terribly excited about the prospect of DirecTV, the nation's second biggest pay-TV provider with more than 20 million subscribers, going over the top in any kind of big way. Calling it "a complicated area," he said he worries about a pure-play OTT service making little profit and cannibalizing DirecTV's full-bodied satellite TV packages.
"It's not clear to me that it's a particularly profitable idea," he said. "The margins are pretty slim, and the barriers to entry are none."
White brushed off the recent moves by such major programmers as Home Box Office Inc. (HBO) , CBS Corp. (NYSE: CBS), World Wrestling Entertainment, Nickelodeon and Showtime Networks Inc. to launch their own OTT services outside the traditional pay-TV packages. He warned that such moves could backfire for those networks by undermining their carriage deals with pay-TV providers like DirecTV as well as their advertising business models.
"I frankly think World Wrestling didn't take the right approach," he said. "I'm all for greater choice for consumers. But what won't work is to go a la carte at a price point that's attractive."
White made his comments as DirecTV reported strong fourth-quarter results. The satellite TV provider enjoyed its highest quarterly subscriber growth in years, netting 149,000 customers to boost its total sub count to nearly 20.4 million. For the full year, though, the company added just 99,000 subscribers, down from 169,000 in 2013.
DirecTV officials credited the robust quarterly results to improved customer service, a successful new ad campaign and its lowest customer churn rates in 16 years. They also attributed part of the gains to several programming disputes endured by rival Dish, which led to some consumers switching satellite providers. But, under questioning by analysts, White later downplayed the effect of the disputes, arguing that they "probably had a very tiny impact on net adds."
— Alan Breznick, Cable/Video Practice Leader, Light Reading