DirecTV pushes premium brand, even in weak economy

[justlgi]

The strategy to build a premium brand was adopted by DirecTV Chief Executive Chase Carey in conjunction with Chief Marketing Officer Paul Guyardo early in 2006. They decided to raise credit requirements for people signing up to the service and to focus on the best-paying customers.

"The competition tries to sell television as a commodity therefore the only thing they have to talk about is price," Guyardo told Reuters in an interview. "We have put our stake in the ground as a premium service," he added.

http://www.reuters.com/article/marketsNews/idUSN2228127220080724?pageNumber=1&virtualBrandChannel=0&sp=true

[MIAMI1683]

http://www.reuters.com/article/marketsNews/idUSN2228127220080724?pageNumber=1&virtualBrandChannel=0&sp=true

You know the funny thing is. It is all about perception. I still use them cause they have the best equipment, and service. I know I pay more. Thanks for reminding me :D .

[Mertzen]

Not so sure. With the latest [ and much more expensive ] NFL ST / Premier offer for new customers our local sales have dropped. I think the majority of customers still want it cheap

[bonscott87]

Nothing new here, they have been talking about it during the last few quarterly investor calls. And last quarter they signed up more new subs then anyone else. Dish, who goes after anyone with a pulse, nearly *lost* subs in the quarter. By going after the "premium" customers they are actually insulated from the weak economy because those customers are more able to withstand it and stay.

Besides, to this day DirecTV is still cheaper then my cable option and has a ton more channels.

[gregjones]

Not so sure. With the latest [ and much more expensive ] NFL ST / Premier offer for new customers our local sales have dropped. I think the majority of customers still want it cheap

This is more about DirecTV's choice customers versus customer choice. The vast majority of customers will prefer cheap when quality is the same. Some will prefer cheap when quality suffers. The point is that DirecTV is pushing themselves as a better value because of quality instead of a better value because of price.

They are trying to get the greatest return per customer, which means lowering overhead per customer. This means they want customers that will not cancel, will not pay late and with a high spend per account. You gain margin by raising prices and/or lowering costs. They seem to have taken the stand at lowering costs by having customers less likely to cost them money. Overall, not a bad play.

[DarinC]

Besides, to this day DirecTV is still cheaper then my cable option and has a ton more channels.

That's true for me too (but not by nearly as much as it used to be). But as far as satellite goes, they seem to be the more expensive option. A few months ago my parents lost their TV provider... they had something through their phone company, and that option "went away". What they had was a pretty good service for a very good price, and they didn't want/need more than that. So despite the fact that both myself and my sister's family are on DirecTV, I suggested they get Dish. It seems a little better suited for someone with limited needs.

[CompiledMonkey]

It's definitely more expensive here but it's well worth it for the HD content, sports offering, and overall enjoyment of the service. I have more faith in D* to provide better content and quality. Their business is TV and only TV. It's not like Comcast or Verizon who spreads thin over a host of various services.

[skyviewmark1]

My Dish Network Sales have increased heftily since the NFL Sunday Ticket Promotion Started.. My DirecTV sales are in the cellar.. While this may be popular for a few people, most people just don't want it. They want cheap programming and more discounts. Come on DirecTV.. Throw us a bone and give us something else to sell..

[scrybigtv]

As I've stated previously, I switched to D* because my previous provider lost the MLB EI package. I've been pleased with the D* experience so far, but it is somewhat disconcerting that D* is apparently focusing its attention on the so-called high-end users. It makes me a little uncomfortable, since I consider myself an average member of the middle class. While I enjoy the better things in life – and D* certainly does, in many aspects, provide a better service than most of its competitors – I'm in no way insulated from the skyrocketing costs of fuel, groceries, and other goods and services that threaten to make the American Dream unattainable to many hard-working Americans.

I have always been able to provide a comfortable existence for my family. But I certainly don't consider myself among the upper crust of society, and I would hope that doesn't make me expendable to my satellite provider.

[gregjones]

This makes me wonder what percentage of DirecTV subscriptions are initiated by a phone call or website visit to DirecTV vs other retailers. I wonder if there is a migration of users from one method to the other.

[Stuart Sweet]

Even in a down economy, there are still people who want better service at a higher price. The mistake would be trying to compete at the bottom of the market where there's no money to be made and basic cable (locals only) has the advantage.

[BattleZone]

So despite the fact that both myself and my sister's family are on DirecTV, I suggested they get Dish. It seems a little better suited for someone with limited needs.

Dish's model, where there are no up-front lease fees, but you are limited to 1 (2-room) DVR and only 4 TVs, is definitely geared to the people who are looking for the lowest price over all other considerations. Very, very few Dish customers move beyond 4 TVs because the costs of doing so is so high, and they almost always refuse to pay.

The bottom line is that Dish overall tends to attract the less financially secure customers, and those customers are quick to leave Dish for something else that's a couple of bucks cheaper, even if the service gives them less (Uverse, for example).

DirecTV's plan is much better for the long-term. By purposely casting themselves as a premium provider, and raising credit rating limits (to waive the $200 activation fee), they largely eliminate the class of customer that is responsible for most of their problems and most of their churn rate, while attracting more of the higher-end, bigger-spending customers who are better insulated from economic downturns. And they create a desire for their brand, because premium brands tend to be desired even by those who can't afford them, and people who can afford them will pay the price without much complaining.

As long as DirecTV continues to use a good chunk of their revenue to improve quality and capacity, they've got a winning plan.

Now if they could just get the installation division in order...

[Azalo]

I know I am not a preffered customer, I subscribe to the cheapest package and I would switch to Dish or Comcast in a minute when my contract is up if the price is right. I initially switched to D* in 06 because I recently had bought an HDTV and D* was promising over a 100 HD channels soon, well those channels never came until after over a year with them and by then I realized that the HD I enjoy the most is the OTA variety (sports, Lost, etc). I've never noticed any difference in pq between Dish, D* and Cox-HD in Virginia.

[Ken S]

There are generally higher margins at the top end of a market and I'm sure that's the DirecTV goal. The problem starts to occur when you're a reseller and you are selling the same item as the other guys at a higher price. As DirecTV's competitors all start to rollout more complete HD package the product becomes a commodity and price will be the differentiator.

Couple that with the telcos and cable companies being able to bundle phone/internet service and DirecTV is going to face a real challenge.

Don't get me wrong...they picked the right time to capitalize on their advantage, but as that advantage fades they have to hope the other guys bring their prices up to match (likely in this industry). Even then the "stigma" of being the high-priced brand can hurt.

The biggest thing for DirecTV rolling into 2010 will be Sunday Ticket...and don't expect that the NFL won't know that. I would expect the next round of negotiations to be a bloodbath...and one where the cost of winning may actually result in a loss. It'll be fun to watch.

[Herdfan]

Even in a down economy, there are still people who want better service at a higher price.

Plus even in a down economy, people still want/need entertainment and satellite can provide a very good ROI. For $60 you can get a month of programming vs a night at the movies.

[BlueSnake]

It's no secret that in a down economy people spend more for home entertainment because they are spending less on travel. With the price of gas people are staying at home more and spending more on home entertainment.

There have been numerous articles about this online. Gamestop is doing extremely well during this downturn in the economy.

I am sure DirecTV is very aware of these financial dynamics currently at work in the market.

[Azalo]

It's no secret that in a down economy people spend more for home entertainment because they are spending less on travel. With the price of gas people are staying at home more and spending more on home entertainment.

There have been numerous articles about this online. Gamestop is doing extremely well during this downturn in the economy.

I am sure DirecTV is very aware of these financial dynamics currently at work in the market.


Thats true but I suspect that many people look into where there money is going more closely. I found that I could do w/o ESPN, switch to the family package and sign up for Blockbuster online. For the same 20 that ESPN is essentially costing me I can get 10-15 movies a month maybe more if I really wanted to.

[DarinC]

The bottom line is that Dish overall tends to attract the less financially secure customers...

I'm sure there's a significant chunk of the market that simply isn't "in" to television enough to warrant paying a lot for it, regardless of their financial security. Honestly, I don't even know why I have all this. If my TV service went away tomorrow, it really wouldn't affect me (internet is another story, however). In fact, I lived with a bad multiswitch that only gave me half the transponders for about 6 months, and one of my TiVos had a dead hard drive for even longer. I simply never turned the stuff on often enough for it to be a high priority to get fixed. In fact, it would probably still be like that if someone hadn't moved in with me that enjoys TV more than I do. :)

[Brian Hanasky]

Even in a down economy, there are still people who want better service at a higher price. The mistake would be trying to compete at the bottom of the market where there's no money to be made and basic cable (locals only) has the advantage.

My opinion re: paying 100+ per month for Directv in a bad economy is that if I can't drive as much, can't go out to eat that much, can't buy as much stuff, and can't go to as many events as I used to at least I can't have all the TV I wan't at home.

To some people that may be a twisted way to look at it but it fits in my head. :grin:

[bertman64]

With Blockbuster online I get 3 mailed to me with unlimited in-store exchanges for 34.99 plus tax per month. By trading twice a week you could average 48 movies in a month but at least enough to get it down to 1.00 each if you don't mind driving and trading them so much! They are usually 6 months ahead of movie channels so I cut off my movie channels which were costing me 50.00 per month but I miss boxing and other stuff on HBO and Showtime so not sure how long I'll keep them off.

[dcowboy7]

The biggest thing for DirecTV rolling into 2010 will be Sunday Ticket...and don't expect that the NFL won't know that. I would expect the next round of negotiations to be a bloodbath...and one where the cost of winning may actually result in a loss.

i think its close to being a directv loss leader already....no one has ever gotten all the actual sub #'s to calculate it so who knows.

[DarinC]

i think its close to being a directv loss leader already....no one has ever gotten all the actual sub #'s to calculate it so who knows.

I thought it was already considered a loss leader years ago.

[bonscott87]

As I've stated previously, I switched to D* because my previous provider lost the MLB EI package. I've been pleased with the D* experience so far, but it is somewhat disconcerting that D* is apparently focusing its attention on the so-called high-end users. It makes me a little uncomfortable, since I consider myself an average member of the middle class. While I enjoy the better things in life – and D* certainly does, in many aspects, provide a better service than most of its competitors – I'm in no way insulated from the skyrocketing costs of fuel, groceries, and other goods and services that threaten to make the American Dream unattainable to many hard-working Americans.

I have always been able to provide a comfortable existence for my family. But I certainly don't consider myself among the upper crust of society, and I would hope that doesn't make me expendable to my satellite provider.

Thing is you *are* a "high end" user to DirecTV. First you have Extra Innings. That alone puts you in the high end user bracket. Second you probably pay your bill on time. Sadly this also makes you a high end user that DirecTV covets.

Simply what DirecTV has done is place more credit restrictions on who they will sell their service for. If you have bad credit with a questionable payment history you may have to pay $200 up front just to sign up and get that back over the term of your contract.

See, what happens with Dish and cable is that anybody with a pulse signs up. SAC (subscriber acquisition costs) is up over $600 which means it costs them $600 just to make you their customer. And then you pay late or not pay at all and they just lost the SAC plus your unpaid bills. Happens more and more in a crappy economy. But since you pay your bills on time you are a high end customer because they aren't going to get screwed on accepting you as a customer. And the fact that you pay for a high end sports package is even more a bonus.

So yes, you are "high end". :D

[scrybigtv]

Thing is you *are* a "high end" user to DirecTV. First you have Extra Innings. That alone puts you in the high end user bracket. Second you probably pay your bill on time. Sadly this also makes you a high end user that DirecTV covets.

Simply what DirecTV has done is place more credit restrictions on who they will sell their service for. If you have bad credit with a questionable payment history you may have to pay $200 up front just to sign up and get that back over the term of your contract.

See, what happens with Dish and cable is that anybody with a pulse signs up. SAC (subscriber acquisition costs) is up over $600 which means it costs them $600 just to make you their customer. And then you pay late or not pay at all and they just lost the SAC plus your unpaid bills. Happens more and more in a crappy economy. But since you pay your bills on time you are a high end customer because they aren't going to get screwed on accepting you as a customer. And the fact that you pay for a high end sports package is even more a bonus.

So yes, you are "high end". :D

Thanks, bs87; you just gave my ego a much-needed boost.

[Upstream]

There are generally higher margins at the top end of a market and I'm sure that's the DirecTV goal. The problem starts to occur when you're a reseller and you are selling the same item as the other guys at a higher price. As DirecTV's competitors all start to rollout more complete HD package the product becomes a commodity and price will be the differentiator.

Couple that with the telcos and cable companies being able to bundle phone/internet service and DirecTV is going to face a real challenge.

Don't get me wrong...they picked the right time to capitalize on their advantage, but as that advantage fades they have to hope the other guys bring their prices up to match (likely in this industry). Even then the "stigma" of being the high-priced brand can hurt.

The biggest thing for DirecTV rolling into 2010 will be Sunday Ticket...and don't expect that the NFL won't know that. I would expect the next round of negotiations to be a bloodbath...and one where the cost of winning may actually result in a loss. It'll be fun to watch.


Ken -- Good analysis. DirecTV's advantages right now are the breadth of their HD offerings and their sports packages. Cable/Telcos have an advantage in being able to bundle phone and internet.

The Reuters article mentions DirecTV's higher average video revenue as a strength. If I were DirecTV I would be concerned that the video revenue is only 5% higher than Comcast, knowing that Comcast is discounting video in internet/phone bundles, and also knowing that Comcast's average is depressed due to franchise requirements to provide lifeline video.


If I were DirecTV, I would also be concerned about ability to leverage my advantages. DirecTV has a huge advantage right now with HD and sports, and it should be a few years before Cable is able to catch up and before Fios has a large enough footprint to matter. DirecTV has locked a lot of customers into two year commitments by getting them to add HD receivers and DVR. And yet DirecTV's voluntary churn rate (as reported last quarter) has barely moved. Even with DirecTV's advantages and longer commitments, customers are choosing to quit DirecTV as fast as they have for years.

[gfrang]

With us we like Directv and the programing but there is few channels that we watch and its like 82 bucks a month.I just wish they had more program options but i have a antenna and a blu ray player so i always look to other options.Cable would not be a consideration.Maybe Blockbuster, ota with tr50 and or fta.But chances are we will be with Directv to death do us part. :confused:

[Jestr40]

My opinion re: paying 100+ per month for Directv in a bad economy is that if I can't drive as much, can't go out to eat that much, can't buy as much stuff, and can't go to as many events as I used to at least I can't have all the TV I wan't at home.

To some people that may be a twisted way to look at it but it fits in my head. :grin:

This is exactley where the "at home" entertainment industry is headed. If you have heard the new commercials on ESPN Radiio for Vizio tv's, they are promoting spending your money for a huge TV and quality programming and stay at home to watch the game or whatever. In ONE trip to an NFL game you could buy 4 or 5 months of PREMIUM programing on almost any provider, and save gas.

[Ken S]

I think we're about five years out from some pretty serious changes in the home entertainment industry. In some ways the picture for some of these guys is similar to what AOL faced in the late 90s....here comes broadband...we gotta figure out how to make money from it. They didn't and AOL has gone from the "premium" brand to a sad shadow of a company.

All sorts of things may happen including more of the studios/networks just going direct and bypassing the distributors. You gotta know that someone at HBO is saying we're charging DirecTV $7/sub and they're getting $14...let's go direct over the net.

The middleman always has to fight getting squeezed out.

Anyway, it will be fun to watch and in the end we can pretty much only bank on one thing...none of it is going to make it any cheaper for the consumer in the long run.


Ken -- Good analysis. DirecTV's advantages right now are the breadth of their HD offerings and their sports packages. Cable/Telcos have an advantage in being able to bundle phone and internet.

The Reuters article mentions DirecTV's higher average video revenue as a strength. If I were DirecTV I would be concerned that the video revenue is only 5% higher than Comcast, knowing that Comcast is discounting video in internet/phone bundles, and also knowing that Comcast's average is depressed due to franchise requirements to provide lifeline video.


If I were DirecTV, I would also be concerned about ability to leverage my advantages. DirecTV has a huge advantage right now with HD and sports, and it should be a few years before Cable is able to catch up and before Fios has a large enough footprint to matter. DirecTV has locked a lot of customers into two year commitments by getting them to add HD receivers and DVR. And yet DirecTV's voluntary churn rate (as reported last quarter) has barely moved. Even with DirecTV's advantages and longer commitments, customers are choosing to quit DirecTV as fast as they have for years.

[rudeney]

It’s not surprising at all that D* would concentrate on a “premium” market. In fact, it makes perfect sense. Even in today’s economically challenged environment, there are plenty of consumers that are only mildly annoyed by higher prices. These are the customers that don’t even bat an eye to pay tens of thousands of dollars on home entertainment and hundreds a month for service. The only catch is that these consumers can have very high expectations when dealing with customer service issues. D* does have a bit to learn in that area. These customers expect premium service for their premium prices and if they don’t get it, they won’t hesitate to take their economically-insulated dollars elsewhere.

[saleen351]

I don't think going after premium customers is going to work, no one is insulated from this economy and more and more I get angry at all the channels I pay for yet don't even have in my favs.. I think they underestimated how bad the economy would get.

We need a tv revolution or a price decrease!

[jimb726]

I don't think going after premium customers is going to work, no one is insulated from this economy and more and more I get angry at all the channels I pay for yet don't even have in my favs.. I think they underestimated how bad the economy would get.

We need a tv revolution or a price decrease!

But your logic is flawed in the repect that while you may not feel that the value is there, I do. I have no desire to see a-la carte pricing or any of the other schemes folks claim will reduce my bill. I know this, if it gets too expensive, I will cut back. I have already dropped my premium movie channels and a month ago i dropped the extra pack. I still pay them 100 a month after extra recievers and PPV, but until things turn around I dont see me getting back to the 130/month. All that said, I cannot take my family out to dinner at a decent restaurant for what a month of programming costs me. I would much rather eat at home than lose my tv programming.

[Jhon69]

I don't think going after premium customers is going to work, no one is insulated from this economy and more and more I get angry at all the channels I pay for yet don't even have in my favs.. I think they underestimated how bad the economy would get.

We need a tv revolution or a price decrease!


Until you call up DirecTV and find a bored CSR because nobody's calling to sign up.I can't see that what you ask will become a reality.;)

[saleen351]

But your logic is flawed in the repect that while you may not feel that the value is there, I do. I have no desire to see a-la carte pricing or any of the other schemes folks claim will reduce my bill. I know this, if it gets too expensive, I will cut back. I have already dropped my premium movie channels and a month ago i dropped the extra pack. I still pay them 100 a month after extra recievers and PPV, but until things turn around I dont see me getting back to the 130/month. All that said, I cannot take my family out to dinner at a decent restaurant for what a month of programming costs me. I would much rather eat at home than lose my tv programming.

Did I ask for ala carte? No. They can cut back on the channels in the packages and reduce the prices yet keeping the most popular channels. Sure, some will get left out in the cold because it's impossible to please everyone, but they know what we watch. I dropped my premiums a long time ago, found netflix to be a much better value plus it's coming to xbox live soon.

Not sure what restaurants you go to, but a decent place for a family of 4 shouldn't cost 130 bucks. 32 bucks a head?? Even a family of 6. That is being disingenuous.

[dcowboy7]

wow a 2 month old thread....sweet.

[dodge boy]

Not sure what restaurants you go to, but a decent place for a family of 4 shouldn't cost 130 bucks. 32 bucks a head?? Even a family of 6. That is being disingenuous.

Yep me and my girlfriend hit Olive Garden, or O' Charlies, or Red Lobster weekly and rarely spend over $90.00 with drinks and a tip......

[bonscott87]

I don't think going after premium customers is going to work, no one is insulated from this economy and more and more I get angry at all the channels I pay for yet don't even have in my favs.. I think they underestimated how bad the economy would get.

We need a tv revolution or a price decrease!

Funny. Guess you didn't listen to the latest financial conference call where this strategy was once again proven correct as the bad economy has had little effect on DirecTV and they keep on growing. ;)

As they mentioned and what has been mentioned here before...TV is the last thing people give up. They give up driving, going out to movies, going out to shows. They don't give up TV. They may lower down their package but they don't give it up. However Dish, since they go for anyone with a pulse, have a lot of people dropping Dish service because they really can't afford it. While DirecTV customers may drop to a cheaper package, but they don't drop DirecTV completely.

[BattleZone]

DirecTV is absolutely correct with their strategy in my market (SF Bay Area/Northern California). DirecTV is backed up 4 weeks for installs, and continues to add customers.

Dish, on the other hand, has never been slower. Installers are lucky to get a couple of jobs a week, and a lot of new customers cancel before their install even happens because they just want cheap TV, and don't care if they get it from Dish or someone else.

The folks with DirecTV *want* DirecTV, and keep it.

IMO, this is really because DirecTV has *always* done a much better job marketing itself, and in particular, has positioned itself as a premium, DESIRABLE service.

Dish's marketing has always been lousy, and they've always targeted the low end of the market, but now with so much competition at the bottom, they are being slaughtered, at least in markets that are more financially secure.

How do I know? I'm a Dish subcontractor, and former DirecTV contractor...

[Mertzen]

Yep me and my girlfriend hit Olive Garden, or O' Charlies, or Red Lobster weekly and rarely spend over $90.00 with drinks and a tip......

We're talking about decent restaurants here.:nono2:

[Jhon69]

We're talking about decent restaurants here.:nono2:


Denneys!?.;) :D

Oh ya! don't forget the senior discounts!!.;)

[Jhon69]

wow a 2 month old thread....sweet.


Gotta give em credit for not starting a new one(thread)!.:goodjob: :sure:

[Herdfan]

Not sure what restaurants you go to, but a decent place for a family of 4 shouldn't cost 130 bucks.

No doubt. My wife, daughter and I can eat at Ruth's Chris for that.

The three of us get out of Outback for under $60, Applebees for under $45.

[bonscott87]

LOL. We go to much better local places and eat under $20 for 2 easy.

[Stuart Sweet]

:backtotop please.