Never Mind Cord Cutters And Dish — DirecTV Raises Rates

Cord cutting / cutting the cord

Cord-cutting technology was out in force at CES this week, and main rival Dish Network (NSDQ: DISH) just announced a “company relaunch” that includes, among other offerings, a souped-up DVR capable of recording up to six shows at once.

But that isn’t going to stop DirecTV (NYSE: DTV) from increasing the rates it charges subscribers in 2012.

DirecTV started notifying its nearly 20 million subscribers during this billing cycle that it will be charging more for its programming services starting Feb. 9. (I expect my notification to come with my January statement. Although in early December, I did talk a DirecTV rep into lowering my bill from $87 a month to $57 without a downgrade of service. I will admit I did drop Dish Network’s name a few times.)

Most packages will increase by $3 to $5 a month, with DVR rates jumping by $1 to $8. It’s not alone in the pay TV space — several cable operators are announcing the usual beginning-of-year price increase themselves — but DirecTV usually would prefer not to be part of that crowd.

So why is DirecTV raising its prices at a time of slow economic recovery, stagnant employment and proliferation by cord-cutting services like Netflix (NSDQ: NFLX) and Hulu, not to mention stepped-up competition from Dish Network, which has pledged not to increase its prices until 2013?

Said a DirecTV rep: “DirecTV will implement a nominal price adjustment that on average will increase the customer’s monthly bill approximately 4 percent beginning Feb. 9, 2012. The new pricing reflects the increasing cost of programming and the significant investments we’ve made to enhance our customers’ viewing experience.” The notice to consumers attributes the entire increase to higher programming costs.

Including the rate increase it owes News Corp. (NSDQ: NWS) for Fox Networks after yet another bitter carriage dispute, the satellite operator says program licensing costs across the board increased around 10 percent going into 2012. DirecTV also rolled out several service upgrades late last year, a new user interface among them.

In November, the satellite carrier reported a 4 percent increase in subscribers to 19.76 million and a 13.6 percent bump in revenue to $6.84 million.

Despite this strong performance, however, Bernstein Research issued a bearish report on DirecTV Wednesday.

Unlike its competing cable operators in the U.S., who can offset declining margins on video programming with gains in the higher-margin broadband business, DirecTV faces an “unappetizing choice,” Bernstein said: either accept the declining margins, or raise prices.

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