The pay-TV industry is considered a mature market in the US. With penetration levels above 80%1 and a challenging competitive environment, pay-TV providers face increasing challenges to sustain growth rates and defend margins. Moreover, new disruptive entrants, such as Netflix, are capturing market share as they offer subscribers higher flexibility and lower monthly charges.
In this context, DIRECTV was able to revamp a stagnant industry by focusing its growth efforts in the Latin American region. However, in order to achieve this turnaround, DIRECTV had to re-design its business model, and tailor it to Latin America’s market and demographic profile. DIRECTV’s business model in Latin America is to increase pay-TV penetration (as levels are around half of those in the US2). In particular, in order to serve large lower-income segments, in 2007 DIRECTV developed a pre-paid solution for customers without a stable source of income nor access to the financial system3. In a nutshell, the service works similarly to pre-paid mobile phones, in the sense that customers can recharge the service at their discretion.
Since then, DIRECTV Latin America has been growing at an annual rate of over 20%, and pre-paid currently represents approximately 50% of the company’s subscriber base in the region4.
For this new service, DIRECTV implemented a series of changes to its operating model:
Product: DIRECTV designed a kit that includes everything a customer needs to auto-install the product at home. This includes an antenna, a decoder with remote control, a compass (to align the antenna to the satellite) and an installation manual. In contrast to the regular service, the client owns the pre-paid equipment.
Pricing: No contract, pay as you go. The service automatically disconnects once the balance of the customer’s pre-payment expires. It also allows the customer to select among different content packages, as well as purchase pay per view movies.
Distribution and recharge network: DIRECTV pre-paid kit can be purchased in retail stores such as supermarkets and electronic stores. In addition, rechargeable cards are available in a wide range of locations, including convenience stores, drugstores, lottery agencies, pharmacies and mobile phone vendors. Customers can also recharge the service by calling DIRECTV’s call center.
Marketing: DIRECTV launched a wide marketing effort throughout the region, customizing ads to each country’s profile. Marketing channels include print, TV, magazines, radio, billboards and web.
Customer support: DIRECTV created a series of Youtube tutorials explaining step-by-step the installation process. Additionally, a customer service line attends inquiries related to the service and setup.
In conclusion, the introduction of an innovative pre-paid service allowed DIRECTV to capture an under-served and fast-growing segment, driving higher pay-TV penetration in the region and outpacing its competitors in terms of growth. Lastly, lower internet penetration and higher focus on news and live sports protect this segment from disruptive new entrants’ threats.
- US pay-TV penetration data (September 2015): http://www.cedmagazine.com/news/2015/09/study-us-pay-tv-penetration-drops-83
- DIRECTV Investor Day presentation (December 2013): http://s1.q4cdn.com/453653659/files/doc_presentations/investor_day/DIRECTV_InvestorDay_Dec_12_2013_Print.pdf
- DIRECTV Annual Report (2007): http://s1.q4cdn.com/453653659/files/doc_financials/annual/Directv_Group_2007_AR.pdf
- DIRECTV Annual Reports and company interviews
- Company’s website: http://www.directv.com/
- Local news on pre-paid service launch: http://www.elobservador.com.uy/directv-ahora-puede-ser-prepago-n254148; https://www.fayerwayer.com/2008/05/directv-chile-lanza-directv-prepago/
- Tutorials videos available on youtube.com
- DIRECTV Investor Day presentation (March 2012): http://s1.q4cdn.com/453653659/files/doc_presentations/Investor_Day_2012_Final_Print_Standard_Quality.pdf