CBS CEO Leslie Moonves says he’s not losing sleep over Aereo. But DirecTV could bring some restless nights with the amount of money it could ultimately deny broadcasters.
The satellite operator’s CFO Patrick Doyle said this week DirecTV has a fully legal way to avoid paying carriage costs for local stations. Broadcasters – including the Big Four networks -- are banking on those retransmission consent payments to provide a robust dual-revenue stream. DirecTV accounts for a lot of their cash with its 20 million subscribers.
To be sure, what could be a majorly disruptive initiative is in the early stages and may go nowhere. Doyle indicated it is still a significant if -- not a when at DirecTV.
And he may simply be posturing while looking to persuade broadcasters to curb their retrans fee increases.
But seemingly out of nowhere, he said at an investor event that DirecTV is taking initial steps to roll out set-top-boxes with an antenna that picks up over-the-air signals. That could save DirecTV a fortune in what is becoming a fast-growing expense.
“Now we’re spending a fair amount of time on the technology side of taking an over-the-air signal, integrating it in our set-top boxes and not paying a retrans cost … the future cost you’re going to pay in retrans is a big enough number … now it’s starting to make sense,” Doyle said. “We’ll spend more time on it. We’ll probably test in some markets an over-the-air integrated tuner set-up and make sure that the customer experience is there.”
DirecTV widely offered a built-in antenna in its boxes before it began delivering local stations to nearly all markets. With that, it moved in a different direction to avoid the associated costs.
But that was before retrans payments started to balloon, which has changed the financial calculus. So, now it might make sense to absorb the one-time costs of installing the antenna-equipped boxes to save recurring retrans fees over time.
“We know how to do this and … there’s no legality issue,” Doyle said. “You’d just be taking an off-air signal.”
He didn’t provide much in the way of specifics, including a timetable. Multichannel News quoted DirecTV representative Darris Gringeri saying the company is “just exploring any options that could help get programming costs under control.”
Doyle did say installations would start with new customers since a truck would already be showing up at their doors. It would be a while before enough DirecTV homes have the antennas to significantly reduce retrans payments.
Also, not all homes can get over-the-air reception, so DirecTV wouldn’t be able to save on costs for all 20 million subscribers. But suffice it to say, it wouldn’t be in an exploratory mode if the bulk of its homes could be equipped.
An added benefit would be DirecTV extricating itself from contentious carriage negotiations with broadcasters that result in local stations going dark.
But there could be some major downsides. As consumers increasingly hunger to watch content on-demand, the Big Four networks would no doubt prevent DirecTV from offering shows in that fashion. There may be other issues as far as making content available through digital streaming, which customers increasingly desire, too.
Competitors such as Comcast, which market those services heavily, might gain an advantage and peel customers away from DirecTV.
Big Media conglomerates such as Disney could threaten not to offer ESPN if DirecTV doesn’t pay for its local ABC stations. But ESPN gets a lot of viewerwship from the DirecTV subscriber base.
Moonves and News Corp. COO Chase Carey have suggested that if Aereo ultimately is able to avoid retrans payments, that could prompt them to move networks to cable distribution. Such a move in DirecTV homes could ultimately cost the satellite operator a lot more than retrans payments.
Executives at cable and satellite operators are often asked how they might skirt carriage fees like Aereo, which streams stations live online. Time Warner Cable (TWC) CEO Glenn Britt has indicated there is potential.
Interestingly, he was asked in January 2012 about TWC pursuing a similar approach to DirecTV by installing antennas to pick up over-the-air signals and making stations available within the cable package that way.
“Interesting question, and it's a very complex legal issue, actually,” Britt said. “There's nothing stopping consumers from having an antenna. But whether we provide that and if it's part of our cable system, as a legal matter, is a very complicated thing. It is something we look at a great deal.”
The companies with the Big Four have sued Aereo charging it is stealing their signals, costing them retrans cash and advertising dollars. Aereo is now available in New York and Boston and coming to Atlanta next month.
It’s a private company and doesn’t release subscriber figures, but as Moonves indicated, it’s a safe bet it will be a good while before – if – it ever costs broadcasters significant revenues. The litigation could shut it down, though that appears increasingly unlikely now that it has won a pair of rulings in federal court in New York.
Moonves and other Big Media executives will continue to be asked about trouble Aereo could bring. Now, they might face questions about DirecTV, too.