Less than a week after Rupert Murdoch finally secured his deal to get control of DirecTV, the DBS service's parent Hughes Electronics posted surprisingly strong results for the first quarter. The News Corp. Chairman said that, after he takes control of Hughes, he plans to keep DirecTV's management essentially intact, including Roxanne Austin, president and COO of the unit. Austin spoke with BROADCASTING & CABLE Deputy Editor John M. Higgins about the future of DirecTV's operations. An edited transcript:
Murdoch says DirecTV's management is going to stay on. Barely a soul outside the companies believes that. Are you really going to be there after January?
Yes. I think you have to look at our performance. We've had a dramatic financial turnaround: a 171% increase in cash flow, a 16% increase in revenues, $61 in average revenue per unit, 275,000 new subscribers. We're performing.
I was surprised that, on the earnings call, Hughes's Jack Shaw felt that he had to specifically defend you, saying that you had "the full support of myself, [DirecTV Chairman and CEO] Eddy Hartenstein and [Hughes parent] General Motors."
He wasn't defending me. There was some erroneous press rumble that he thought was ridiculous. That was his personal choice. I didn't feel any need for him to do it.
And the rumble was that it would be unusual for you to stay after News Corp. took control.
After the fabulous improvement in the business after only 18 months. The first 12 months, we increased revenue 60%, operating cash flow 148%, free cash flow by 100%. In the first quarter, we had the fabulous results you saw Monday. I'll put that up against any results anywhere.
How do you manage through the next nine months? There has already been so much ownership disarray with your parent company shopping you for more than two years.
That is such BS. Look, what we have done at this company in the past 18 months is focus on profitable growth. We decided we weren't going to focus on every subscriber; we were going to focus on profitable subscribers.
What was DirecTV doing before?
DirecTV was pursuing growth for growth's sake. Clearly, the marketplace was viewing, at that time, subscriber growth. Every business should be valued on its ability to generate cash.
But Murdoch and [News Corp. President and COO] Peter Chernin specifically say there are things they want to change, most notably customer churn.
We have the lowest churn rate in the United States, but I'm hoping there are wonderful ideas we can utilize from their experience from BSkyB that can bring that even lower. If there are opportunities through global sourcing, maybe we can bring the cost of our product down. The boxes, for example. I can think of lots of things we can do together.
Murdoch bid for DirecTV only after the feds refused to bless your merger with EchoStar. What did you learn from the months of looking at EchoStar up close?
We had already started the process of working with some of our legacy contracts that were coming up for renewal. The EchoStar process offered some wonderful benchmarking. It was understanding what the market was, what our competitor was paying. We are going to continue to drive our cost structure lower.
What did EchoStar learn it can use?
I wish somebody could tell me. On the cost side, they didn't learn anything.
Because it already operates more cheaply than DirecTV does?
That's a word for it. We will not choose to operate as cheaply as they do in some areas. We believe in paying our personnel at market, not below market. We didn't share programming costs.
How is the fight against cable shaping up?
Cable doesn't have much to talk about on their video side. They just had the worst year in their history. We grew 1 million subs last year. People say "only a million subs." Can you think of a cable operator out there that wouldn't kill to have 1 million subs? Approximately 40% of our new subscribers are coming from digital cable. That's three times the rate from a year ago. Cable's just not delivering on the digital promise. Look at their churn rate.
So cable has to rely on bundling with high-speed Internet service, which you can't really do.
I'd be talking about bundling, too, if my video business were in so much trouble.