DIRECTV Earnings Call Insights: Sunday Ticket Pricing, Entertainment Package

On Tuesday, DIRECTV (NASDAQ:DTV) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Sunday Ticket Pricing

Doug Mitchelson – Deutsche Bank: Mike and Pat, can you talk a bit about the change in the Sunday Ticket pricing this year with regards I guess to three areas; what did you see in the marketplace that drove the decision to lower the pricing; what level of conversions of prior year promotional subs is necessary or should we be looking for, for you to consider to change to be successful and lastly does this shift in pricing at all change the value of the service for DIRECTV as we all think about renewal process for of the NFL?

Bruce B. Churchill – EVP and President, DIRECTV Latin America: Thanks, Doug. We’ve talked about this before and we talked about a bit last summer and obviously we’re now coming up on renewal period where we’re going to get a chance to see how well our new strategy around Sunday Ticket is working. When we looked at this thing, we were particularly focused on how do we get to a long-term pricing strategy for this business that’s sustainable with consumers and at the same time, we have a one-time opportunity to take advantage of, if you will million free trials we did about last summer. So, we don’t need very many of those million free trials. I think if you look at this history with the old approach you might have gotten I don’t know 100,000 at most that would have kind of (re-upped). I honestly I think by doing this segmented offer where there is a basic package and there is an enhanced package we’ve both trying to make the product more appropriate both for existing customers, so there’s something in it for existing customers, while we continue our promotional strategy of free Sunday Ticket with the purchase of DIRECTV (NASDAQ:DTV) in Q3. So I expect we’ll have another strong promotion in the quarter around new customers, but we think we’ve got a terrific platform that is now, it gives us a three-year runway. And then I want to be clear as we looked at the pricing decision, we’re not looking at a one-year thing. We’re going to trying to figure out what gives us confidence that we can build a value offer for customers over the next three years and maximize the number of existing customers that will renew and keep the product. So, it really is kind of a one-time opportunity for us to step up the renewals and we’ve always said, I think going back to the use of it in the promotion, last year that the key thing for this product is we’ve got to grow the base. We got to grow the base number of customers that will pay for the product given that the costs of the product are increasing. Our view is, use it as a lost leader and we’ll go from there. So, I think it’s too soon to say, but I’m very excited about our third quarter promotion. It gives me a lot of confidence that that we should have a good take on that in the third quarter, but I’m equally excited about our opportunity for renewals and we’ll see how that goes. We’re kind of coming up, but it’s a little early to kind of give you any report out on that.

A Closer Look: DirecTV Earnings Cheat Sheet>>

Doug Mitchelson – Deutsche Bank: I was trying to get you with the last part of the last question is the investors worried at all that the value of the NFL service to the Company is different from what the NFL might think the value of the service is?

Michael White – Chairman, President and CEO: I think so. I mean I think the NFL sees the value of its product as very strong across the board. I think in terms of the role it plays at DIRECTV (NASDAQ:DTV) , it’s both driving gross adds for us. It’s a unique differentiator at DIRECTV (NASDAQ:DTV). So, I don’t see anything. I mean I’ve had a talk recently with Roger Goodell. I think we had a good partnership with the NFL and we both feel good about the role that that product plays with the current approach that we’re taking.

Patrick T. Doyle – EVP and CFO: Yeah. I think that as Mike said. I think if you go back a year, the subscribers that took the NFL offer was a little bit over 300,000. In total, we ended up this year as – and some people didn’t get the whole season but about 1.5 million customers experienced the NFL Sunday Ticket as part of our offer, and so again, as Mike said, we’re looking for ways, I think we feel like we’ve got the passionate NFL customers that are on our platform. We’re trying to find a way to kind of appeal to those people that are interested maybe not as passionate and that’s why we kind of also came up with this kind of two tier package to try to maybe encourage that customer to take it now that they’ve experienced it for a season.

Michael White – Chairman, President and CEO: Look, if you look out there with any programming that we’re looking at, as things are available through more channels, games move to Thursday night, whatever, I think we’d love to keep it exclusive and very, very narrow, but the fact of the matter is and I’m sure Roger would be the first to point this out to me, we had record gross adds in the third quarter last year. So we still have tremendous demand for that product. All of our consumer research says our customers still love the product, and it’s a great part of our DIRECTV (NASDAQ:DTV) brand.

Entertainment Package

Benjamin Swinburne – Morgan Stanley: I wanted to ask about the entertainment package, Mike, for you guys to move a bit away from sports is a little bit of a departure from the historical DIRECTV (NASDAQ:DTV) positioning and I think we all understand why. But can you guys shed a little bit of light on the impact it might have had in the quarter on either ARPU or programming cost because actually (ARPU) growth looked a little bit below what we had feared for Q1 and I don’t know if that’s going to ramp through the rest of the year, but more broadly how you’re thinking about tiering maybe at the lower end of the market from a price point perspective than as you move through the rest of this year.

Michael White – Chairman, President and CEO: First of all, in terms of its impact on any of our metrics, it’s immaterial. I mean we just started in February selling the product. It really is tiny in the grand scheme of kind of our total metrics today. Having said that, the take rates are pretty much right in line with what we expected, Ben. I mean they’re probably high-teens, I would say, maybe a touch more, but not much; I mean right in that line, and we’re seeing a number of existing customers that have an interest in the product. So, I think, look, this is a tough economy for the bottom half of America, and I think we’re all going to have to continue to think about ways to make the pay television business more affordable for the average American household. It’s something I am very concerned about. So, I am pleased with the product’s take so far. It’s one of those you don’t want it to be too small or too big; it’s just about right, just like goldilocks, and it’s just about right, right now in terms of where it’s landed. I think it’s an important addition to our portfolio. To your point, look, we’re a national service. We aren’t some niche service that only serves kind of high-end homes and sports only. So, while sports is an integral part of our brand for sure, there are a lot of consumers out there who would rather not be paying for those expensive (ultrasounds), and I think it’s up to us to serve those customers. So, we see it as an important offering going forward, and we’re pleased with it so far. But, gosh, in terms of the size, it’s just immaterial in terms of any of the metrics. It had nothing to do with our programming cost performance in the quarter.

Benjamin Swinburne – Morgan Stanley: Okay. Any comment on programming cost the rest of the year? Do you expect the rate to go up from here as you move through? I think you guys had guided to high singles this year?

Michael White – Chairman, President and CEO: We came in at about 8 and I would expect we’re going to be in about that ballpark for the full year. We do have one extra game in Q3, so that may impact Q3 but net-net I would say we’re tracking right in line with our programming cost expectations. It’s very difficult. It’s forcing all distributors to have to take a very hard look at low-rated channels, no matter who offers those channels, and look for ways to economize for our customers who are having trouble affording all of this content, but we’re right in line with expectations on programming costs I would say.

Patrick T. Doyle – EVP and CFO: Ben, just to make sure everybody understood that the NFL when their schedule came out, usually they have a regular season game that falls (over) into January. This year with the calendar the way it is will have an additional game in September. So we’ll report both additional programming cost and additional revenue related to an extra game in the calendar year.