DIRECTV 2012 Annual Report Download - page 41

DIRECTV
Emerging digital media competition could materially adversely affect us. Furthermore, due to the economy and other factors, we may be unable to pass
programming cost increases on to our subscribers. Alternatively, to attempt to
Our business is focused on video, and we face emerging competition from mitigate the effect of price increases, we may refuse to carry certain channels, which
other providers of digital media, some of which have greater financial, marketing could adversely affect subscriber growth or result in higher churn.
and other resources than we do. In particular, programming offered over the
Internet has become more prevalent as the speed and quality of broadband In addition, a limited number of cable-affiliated programmers have in the past
networks have improved. Online video distributors and providers such as Hulu, denied us access to their programming. As discussed below, the FCC’s prohibition
Roku, Netflix, Apple, Amazon, Blockbuster and Google, as well as gaming consoles on most exclusive distribution arrangements involving cable operators and cable-
such as Microsoft’s Xbox, Sony’s PS3 and Nintendo’s Wii, are aggressively working affiliated programmers expired last year, replaced by a case-by-case complaint
to become alternative providers of video services. Such services and the growing procedure in which the burden rests with the complainant. Our ability to compete
availability of online content, coupled with an expanding market for connected successfully will depend on our ability to continue to obtain desirable programming
devices and Internet-connected televisions, as well as wireless and other emerging and deliver it to our subscribers at competitive prices. We may not be able to renew
mobile technologies that provide for the distribution and viewing of video these agreements on favorable terms, or at all, or these agreements may be canceled
programming, pose a competitive challenge to traditional MVPDs, as a number of prior to expiration of their original terms. If we are unable to renew any of these
consumers may decide to drop or reduce their traditional MVPD subscription agreements or the other parties cancel the agreements, we may not be able to
package. Some of these services charge a nominal fee or no fee for access to their obtain substitute programming, or what we obtain may not be comparable in
content, which could adversely affect our business. quality or cost to our existing programming.
Significant changes in consumer behavior with regard to how they obtain If we are unable to obtain rights to programming or to pass additional costs
video entertainment and information in response to this emerging digital media on, the potential loss of subscribers and the need to absorb some or all of the
competition could materially adversely affect our revenues and earnings or otherwise additional costs could have a material adverse effect on our earnings or cash flow.
disrupt our business.
Increased subscriber churn or subscriber upgrade and retention costs could
We depend on others to produce programming and programming costs are materially adversely affect our financial performance.
increasing. Subscriber service cancellations, or churn, have a significant financial impact
Almost all of our programming is provided by unaffiliated third parties. on the results of operations of any subscription television provider, as does the cost
Typically our programming agreements are multiple-year agreements and contain of upgrading and retaining subscribers. Any increase in our upgrade and retention
annual price increases. Upon renewal of expiring contracts, programming suppliers costs for our existing subscribers or increased programming costs may adversely
have historically increased the rates they charge us for programming. Often these affect our financial performance or cause us to increase our subscription rates,
increases are greater than the rate of inflation. We expect this practice to continue which could increase churn. Churn may also increase due to factors beyond our
and the negotiations over such increases to become more difficult and disruptive. control, including churn by subscribers who are unable to pay their monthly
Programming expenses will continue to be our largest single expense item in the subscription fees, a slowing economy, significant signal theft, consumer fraud, a
foreseeable future. Our industry has continued to experience an increase in the cost maturing subscriber base and competitive offers. Any of the risks described in this
of programming, especially sports programming. Continued increases in Annual Report that could potentially have a material adverse impact on our costs or
programming costs, including retransmission costs for broadcast programming, will service quality or that could result in higher prices for our subscribers could cause
cause us to increase the rates that we charge our subscribers, which could in turn, an increase in churn and consequently have a material adverse effect on our
especially in a difficult economic environment, cause subscribers to terminate their earnings and financial performance.
subscriptions or potential new subscribers to refrain from subscribing to our service.
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