DirecTV Unhappy With Sports Narrowcasting

by David Goetzl, Sep 17, 2011, 11:11 AM

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Even with sports such a crucial part of its brand, DirecTV may be looking to trim costs by limiting the number of narrowcast sports networks it offers. CFO Patrick Doyle said DirecTV is looking to drive a harder bargain on rights fees for the burgeoning amount of networks focused on specific teams and leagues.

For his money, Doyle said rising content costs are "the No. 1 issue" for pay-TV distributors, even more than cord-cutting. Sports costs are spiraling up so fast, Doyle said the movement is more troublesome than the relatively new retrans-consent payments to carry local stations.

The trend of "kind of slicing and dicing" sports content to bring more channels is particularly frustrating, he added. Distributors may have expressed some blow-back recently by refusing to carry the ESPN-backed Longhorn Network, which is focused on University of Texas sports.

"I was glad to see that that really didn't get [wide] reception and the distribution," Doyle said last week at an investor event.

Verizon is the only large operator to agree to carry LHN. Doyle cited the coming Pac-12 channels and a regional sports network focused on the Los Angeles Lakers (owned by distributor Time Warner Cable) as further issues.

If the Big Ten Network were launched today, DirecTV may not be so willing to carry it. In 2006, it was the first distributor to sign a deal, but that was largely because of corporate synergy. At the time, News Corp. held a controlling stake in DirecTV and had a 49% share of BTN.

Doyle said the industry should "be much more disciplined in how we deal with content owners and their ability to just assume distribution." One area he cites to hold a harder line is programmers pursuing bundling strategies.

"We're negotiating harder on stuff that we consider marginal product, where a content owner might have some desirable content, along with stuff that we don't see as desirable," he said. "Those conversations are going differently."

Since it launched in 1994, DirecTV has made sports a cornerstone of its identity, largely through "NFL Sunday Ticket." Since it pays the NFL enormous rights (a reported $1 billion a year) to offer the package, the satellite operator doesn't make money on it directly, but it attracts higher-paying customers who are turning the deal into a net positive.

"We view that as almost part of our brand," Doyle said. "Lately, I would say we don't really make money on the "Sunday Ticket" itself, but we clearly make money on those customers. We keep track of them. They buy more services other than "NFL Sunday Ticket." They're high-end customers that buy all sports programming, so we don't have any doubt that its value accrues."

He indicated that type of high-powered exclusive content may be the last of its kind. Cable operators have railed against DirecTV having "Sunday Ticket" exclusively. At the same time, cable operators owning regional sports networks have not made some of them available to DirecTV. Comcast and Cox have been on both sides of the disputes.

"There's more resistance within the government and other places to not have content widely distributed ... I think you'll see less and less of that and not more of it," Doyle said.

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