DIRECTV 2011 Annual Report Download - page 43

DIRECTV
In the United States, various telcos and broadband service providers have We depend on others to produce programming and programming costs are
deployed fiber optic lines directly to customers’ homes or neighborhoods to deliver increasing.
video services, which compete with the DIRECTV service. It is uncertain whether Almost all of our programming is provided by unaffiliated third parties.
we will be able to increase our satellite capacity, offer a significant level of new Typically our programming agreements are multiple-year agreements and contain
services in existing markets in which we compete or expand to additional markets annual price increases. Upon renewal of expiring contracts, programming suppliers
as may be necessary to compete effectively. Some of these various telcos and have historically increased the rates they charge us for programming. Often these
broadband service providers also sell the DIRECTV service as part of a bundle with increases are greater than the rate of inflation. We expect this practice to continue
their voice and data services. A new broadly-deployed network with the capability and the negotiations over such increases to become more difficult and disruptive.
of providing video, voice and data services could present a significant competitive Programming expenses will continue to be our largest single expense item in the
challenge and, in the case of the telcos currently selling the DIRECTV service, foreseeable future. Our industry has continued to experience an increase in the cost
could result in such companies focusing less effort and resources selling the of programming, especially sports programming. Increases in programming costs,
DIRECTV service or declining to sell it at all. We may be unable to develop other including retransmission costs for broadcast programming, could cause us to
distribution methods to make up for lost sales through the telcos. increase the rates that we charge our subscribers, which could in turn, especially in
As a result of these and other factors, we may not be able to continue to a difficult economic environment, cause subscribers to terminate their subscriptions
expand our subscriber base or compete effectively against cable television or other or potential new subscribers to refrain from subscribing to our service. Furthermore,
MVPD operators in the future. due to the economy and other factors, we may be unable to pass programming cost
increases on to our subscribers. Alternatively, to attempt to mitigate the effect of
Emerging digital media competition could materially adversely affect us. price increases, we may refuse to carry certain channels, which could adversely affect
Our business is focused on video, and we face emerging competition from subscriber growth or result in higher churn.
other providers of digital media, some of which have greater financial, marketing In addition, a limited number of cable-affiliated programmers have in the past
and other resources than we do. In particular, programming offered over the denied us access to their programming. Our ability to compete successfully will
Internet has become more prevalent as the speed and quality of broadband depend on our ability to continue to obtain desirable programming and deliver it
networks have improved. Online video distributors and providers such as Hulu, to our subscribers at competitive prices. We may not be able to renew these
Roku, Netflix, Apple, Amazon, Blockbuster and Google, as well as gaming consoles agreements on favorable terms, or at all, or these agreements may be canceled prior
such as Microsoft’s Xbox, Sony’s PS3 and Nintendo’s Wii, are aggressively working to expiration of their original terms. If we are unable to renew any of these
to become alternative providers of video services. Such services and the growing agreements or the other parties cancel the agreements, we may not be able to
availability of online content, coupled with an expanding market for connected obtain substitute programming, or what we obtain may not be comparable in
devices and Internet-connected televisions, as well as wireless and other emerging quality or cost to our existing programming.
mobile technologies that provide for the distribution and viewing of video If we are unable to obtain rights to programming or to pass additional costs
programming, pose a competitive challenge to traditional MVPDs, as a number of on, the potential loss of subscribers and the need to absorb some or all of the
consumers may decide to drop or reduce their traditional MVPD subscription additional costs could have a material adverse effect on our earnings or cash flow.
package. Some of these services charge a nominal fee or no fee for access to their
content, which could adversely affect our business. Increased subscriber churn or subscriber upgrade and retention costs could
Significant changes in consumer behavior with regard to how they obtain materially adversely affect our financial performance.
video entertainment and information in response to this emerging digital media Subscriber service cancellations, or churn, have a significant financial impact
competition could materially adversely affect our revenues and earnings or otherwise on the results of operations of any subscription television provider, as does the cost
disrupt our business. of upgrading and retaining subscribers. Any increase in our upgrade and retention
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