Broadcasters Feel Retransmission Model Is Broken, Says DirecTV CEO

Changes to the retransmission consent process are likely in about a year, despite the FCC’s March 3 meeting where the agency will vote on a retrans rulemaking, said DirecTV CEO Mike White during the company’s Q4 earnings conference call. “Realistically, change comes slowly in this area in Washington, so while there is a hearing in March or they may talk about some things, I think you are a year away before you would see those things change.” DirecTV is part of the American Television Alliance, which seeks changes to retrans rules, and White discussed the issue in response to an analyst’s question.

"The retransmission issue is a really challenging problem,” White said. “On the one hand, I think the broadcasters feel that their business model is broken.” There are “some anomalies that were created by Congress and the FCC 20 years ago in the way the system works that isn’t working particularly well today when you look at the price increases that are being driven, which ultimately have to impact our customers,” he said. NAB didn’t return a request for comment.

The commission should work toward increasing transparency of the retrans negotiation process, said White. The best thing the agency can do is “add some transparency to this process,” he said. “It is a crazy process. There is no price discovery. There is no ability to know what the real market is, and so you can’t even ensure you're paying market, even if you're just trying to pay market. It is a screwy process.” DirecTV would be supportive if the FCC decided it would be involved in arbitration, “but I'm not sure realistically that is likely to happen,” White said. The company hopes it can continue to work with its broadcasting partners and the its main concern is for increases in its customers’ monthly bills, he said. DirecTV has about 80 retrans deals to get done this year and it will work to make sure it’s paying market value to TV stations, said White.

DirecTV added 667,000 net new subscribers in Q4, a 79 percent increase from a year earlier, for more than 28 million total, it said Wednesday. The growth was the company’s highest in a decade and helped cap off one of DirecTV’s “strongest years ever,” the company said. U.S. subscribers made up 289,000 of the gains, with DirecTV Latin America subscribers accounting for the rest. White said the subscriber gains were “broad-based,” coming from both urban and rural areas. Most of the new subscribers came from cable companies, which is to be expected because cable has such a large market share, said White.

Revenue rose 11 percent in Q4 to $6.6 billion from a year earlier and profit was $618 million, vs. a net loss a year earlier. DirecTV will continue to work toward increasing customers’ broadband connections through their set-top boxes, with a goal of connecting 40 percent of the company’s base by 2013, it said.

Analysts spoke positively of DirecTV’s quarterly results. “We've called them the industry’s metronome and a well-oiled machine,” Craig Moffett of Sanford Bernstein wrote investors. “We're running out of metaphors.” DirecTV’s subscriber growth has “sustained at an uncannily steady level,” he said. The company’s margins “are likely to be the more challenging metric going forward” as programming costs grow and subscriber pricing increases seem unlikely due to affordability concerns, said Moffett.