DirecTV Finds Its Voice

With the addition of VoIP and data, satellite TV leader will test triple play in multiple dwelling units.
August 30, 2006

DirecTV, the largest satellite TV service distributor in the United States, on Wednesday added Internet voice to its portfolio of services to become the first satellite player to offer the vaunted triple play of voice, Internet access, and pay-TV.

The triple play will be offered by DirecPath, a joint venture of DirecTV and Hicks Holdings LLC, a private investment firm.

Launched in May, DirecPath will provide bundled services including TV, data, security services, and now VoIP to multiple dwelling units (MDUs), gated communities, apartment complexes, and high-rise condominiums in the U.S.

The voice services will be supplied by Vistula Communications, a New York-based supplier of hosted VoIP.

DirecPath will test its triple play services in MDUs in Florida.

Dueling Partnerships
DirecTV, which is 37 percent owned by News Corp., has more than 15 million pay-tv subscribers. More than 1 million of those subscribers come as part of reseller arrangements DirecTV has with Verizon Communications and BellSouth.

Both Verizon and BellSouth offer triple or quadruple play bundles that include DirecTV video services.

DirecPath’s triple-play test run may not be a precursor of a larger offering beyond the MDU market, said Bruce Leichtman, president and principal analyst of Leichtman Research.

“DirecTV is not just looking for subscriber growth,” he said. “They have been down that road and what they got was a lot of bad or low-value subscribers, and what happens when you do that is you have to constantly make up for subscribers who fall out of the funnel.”

When News Corp. bought DirecTV, Mr. Leichtman said, the company embarked on a subscriber growth strategy that failed.

Shares of News Corp. rose $0.02 to $19.88 in recent trading.

Saturated Video Market
“The video market is saturated with 85 percent of the market already subscribing to either cable or satellite TV, so the fact that either is getting any growth is impressive,” said Mr. Leichtman.

“The cable industry added about 100,000 subscribers over the first half of the year, but that is skewed because a lot of the growth is coming from New York,” he added. “The growth in the rest of the country has been flat.”

But the cable industry has been doing very well in the voice market. The cable industry has about 7 million voice subscribers, said Mr. Leichtman.

“Offering the triple play in the under-penetrated MDU segment makes sense for the satellite firms,” he said. “There are technical reasons why the MDUs remain under-penetrated, but offering the triple play widely in a saturated market is not as attractive.”

Offering the triple play widely through partnerships with phone companies makes more sense for the satellite firms, said Mr. Leichtman, rather than offering it themselves through DirecPath.

Mr. Leichtman estimates that customers in MDUs represent about 20 percent of the overall U.S. subscriber market, making it a potentially rich hunting ground for high-value subscribers.