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DirecTV Latin America Focusing To Introduce HD Services To Region

By Staff Writer | June 11, 2007

DirecTV Latin America (DTVLA) could launch high-definition (HD) services in Latin America as early as this year. The operator, which has more than 4 million subscribers across all the major markets in Latin America (including Mexico), is getting set to launch HD in the region.

"The first HD product will probably be later this year or early next year, specifically in Puerto Rico," said Bruce Churchill, president of DTVLA.

"That market is much more closely aligned with the U.S.," he said. "It will probably be late 2008 or early 2009 before we introduce HD into Mexico and Brazil and other parts of Latin America. It will depend on the availability of programming and demand. Latin America is lagging [behind] the U.S. Some of the countries are still deciding what their digital standards are going to be, which has an effect on the timing of their HD development. I think the amount of original programming which is produced locally in HD will be very limited for several years to come."

Churchill admitted that HD personal video recorders (PVRs) are very much now "on the roadmap" for the operator, who is able to leverage the benefits of DirecTV’s work in the United States.

"The introduction of the HD PVR for the Sky platforms, i.e., Mexico and Brazil, is probably likely to take place in the latter half of 2008 or early 2009. We are basically taking the U.S. HD PVR, making some minor adjustments and introducing it here. The pan-Americana platform is more similar to the U.S. platform from a technology standpoint, and that is why we will introduce it there first. Developing these new boxes is a frustratingly slow software development process. I wish they could do it all in a week," Churchill said.

Different Model

The pricing model is likely to be different in Latin America compared to the U.S., where the operator will not face such intense competition.

Churchill explained "we won’t be making the same subsidies as we do in the U.S. There will not be the same level of competition. There will be nobody else out there with HD. You are introducing it to specific high-end consumers. I doubt we will have the same economic model. We may well lease our equipment the way we have in the U.S. and Latin America, but there would still be some upfront fee for the service."

The operator already has launched PVR services in the region although Churchill said sales have been "modest" so far. He believed there will be a push video-on-demand (VoD) opportunity for the operator, and commented that "one of the things that we have done across the board, and we are not done yet, is to align the technology of DTVLA with DirecTV U.S. When we finally get to the HD DVR, it will be fully aligned. What that means is the capability we have in the U.S., which includes push VoD would also be available to us in Latin America. The U.S. is introducing a VoD product later this year, which links to the HD DVR, which actually gets content over a broadband connection. We could do something similar in Latin America if we felt the demand was there. It is tough to see whether that demand will be there."

As well as potentially launching push VoD services in the region, the operator is getting look to beef up its interactive services to customers.

"We will be launching the GameLounge service, just like the U.S., a gaming area," he said. "We are looking at a quasi- movie VoD service called Cartelera. We are looking to do some enhanced sports programming offerings along the lines with what the U.S. is doing, for example with the U.S Open and French Open tennis. We will also be introducing a modified version of Nascar HotPass to respond to the interest in Nascar in Latin America generated by Juan Pablo Montoya from Colombia."

Prepaid

There could also be some innovations in terms of a pricing strategy. Prepaid offerings could be extended.

"We have introduced a prepaid product in Venezuela that has been quite successful," Churchill explained. ",We will give it a little more time but we would probably look to introduce it into a couple more territories around the region. It is a lower [average revenue per user] product and we haven’t decided which territories. We are looking at Brazil, some of the other pan-Americana markets. For example, there are smaller markets, such as Bolivia and Paraguay, that we are not in today. We could go into those markets with a prepaid offering, so we don’t have to put in all the infrastructure to support a subscription business."

Alternative Platforms

The operator has strong market conditions at the moment, and does not operate in a fierce competitive environment.

"IPTV is not really on the map in Latin America," said Churchill, adding he was highly dubious on whether an IPTV threat will emerge in the region. "The telcos will face real challenges in terms of quality of the plant, and the level of investment that would be required to upgrade it, so that it could carry IPTV. The more natural partnership between us and telcos is more along the lines what you see in the U.S. with DirecTV and Verizon, BellSouth and Qwest. We have some agreements already in place in Latin America, but [these are] very early days. We have agreements in Brazil with Brasil Telecom and Telemar. We have a couple of agreements in Chile, Colombia (Orbital and OTB), Telecom Argentina and Puerto Rico Telecom in Puerto Rico. All of them have been done this calendar year."

Likewise, the operator is not expecting any great involvement in the mobile market. Churchill said "I don’t expect us to be involved in any significant movement here over the next two [to] three years. Having said that, telephony in Latin America is much more of mobile-based business than a fixed line business. It is logical to say that mobile broadcasting maybe more easily adapted in that market compared to say the U.S. I think there is a logic that says if you are a subscriber to DirecTV, you could be interested a premium pay-TV service delivered to your mobile, that would be provided by us in partnership with a mobile phone company."

Prospects

The operator is in a strong position in the region. Apart from Mexico, where Grupo Televisa is the main shareholder in the platform, DirecTV is pretty much in charge of its own destiny. Becoming the majority shareholder in the Mexican operations is unlikely. Churchill said "I would like it too. Mexico has great financial metrics and margins. But, realistically, Grupo Televisa shares my view and I can’t imagine they will be wanting to give any of it up."

However, the operator is making strong progress in many markets and Churchill expected that to continue. "We remain quite bullish about the region. We believe pay-TV penetration is low in the region. It is only 20 percent regionwide. In Brazil, it is less than 10 percent. We think pay-TV penetration will continue to increase," says Churchill.

Analyst View

Maria Velez de Berliner, president, Latin Intelligence Corp. said that the market dynamics are very much in DTVLA’s favor. She said "disposable income and entertainment content, particularly the soaps and sports, will remain key components of growth. However, the increasing income inequality in the region calls for careful market segmentation to serve the able-to-pay subscribers, which, in turn, will drive content development and distribution. The entrance of Telefonica and Brasil Telecom (BrT) into 4-play using Sky Brasil platform will increase DTVLA penetration, and revenue."

Velez de Berliner says the operator is in an "enviable position within the region."

She added "its merger with Sky Brasil in 2006 gives it significant competitive advantage, particularly as it finishes the migration of its subscribers to Sky’s platform. Their results in Chile, Argentina, and Colombia will grow. Sky Brasil and DTVLA will present strong competition to Telmex as it expands into markets such as Colombia, Peru, and Argentina."

12 Months’ Time

In terms of where it hopes to be in 12 months time, Churchill explained that "excluding Mexico, at the end of 2007, the platforms in Brazil and pan-Americana, we would hope to have 3.1 million subscribers. By 2009, I would hope to have over 4 million subscribers. On top of that, you would have to add Mexico, which should grow at 10 percent a year, which would mean Mexico would be approaching 2 million by the end of 2009.

He concluded that "there are some pockets where you can see some particular strength. I think Colombia is a market which is very interesting, but not on a lot of people’s radar screen. We are already seeing some significant growth there. Argentina was in doldrums a few years ago and has come back. Overall, the macro-economic environment in these territories is quite favorable."

— Mark Holmes Contact, Robert Mercer, DirecTV, e-mail, [email protected] Maria Velez de Berliner, Latin Intelligence Corporation, e-mail, [email protected]