DirecTV’s CEO Talks Tough On Rising Programming Fees

DirecTV (NASDAQ:DTV) has made it clear that it will not give in to demands for higher programming fees and will resort to blackouts, if necessary. ^[1]

The increase in programming fee is a broader trend that is affecting all pay-TV providers in the U.S., including Comcast (NASDAQ:CMCSA) and DirecTV’s rival Dish Network (NASDAQ:DISH). However, the current stance from DirecTV indicates that what Dish has been doing for the past two years is not something that will make the latter incompetent. Dish has been involved in several disputes over the increase in programming fees, resulting in several blackouts. This was something that we thought might agitate Dish’s subscribers leading to disconnects. However, it appears that even Dish’s rival has joined hands against the content owners. Given this scenario and Dish’s success with Blockbuster, its longer-term competitiveness is reinforced.

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The rising programming costs will impact DirecTV’s margin as well as the final price charged from subscribers. If the programming costs continue to increase, DirecTV will have to find a balance between absorbing the costs and passing them to customers.

Either way, the business will get affected with a slowdown in profit growth and the possibility of subscriber disconnects. The Internet is slowly evolving into a viable medium of entertainment and thus threatens the pay-TV industry, in a scenario where programming costs continue to increase and are heavily passed on to the customers.

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1. DirecTV CEO Says Blackouts May Be Necessary, But Not Pac-12 Network, MediaPost News, June 1 2012 [↩]