Why do you think DirecTV moved to leases?

[jym]

This lease with DirecTV is really bizzare. First you have pay up front just like you purchased it. Then you pay the same amount per month to use the hardware if you leased it or purchased it. Plus now DirecTV is now on the hook to fix it for the life of the product.

- What did DirecTV really gain with the lease?
- What did DirecTV really loose?
- Customer satisfaction. Customers, I think, prefer to purchase or pay
nothing up front.
- DirecTV has to fix or replace all of this equipment.

So I just don't get it. Is the lease so DirecTV can better control the hardware? At what price?

It just does not make any sense.


Emotionally I think the lease, with the up front cost, really leaves a bad taste in the mouth of the customer (perception). But in reality I think the lease is probably better for the customer. In the sense that they have hardware that will be fixed for free.

In business perception is reality. This, IMHO, is just bad business on DirecTV part.

[serenstarlight]

Lease is just a fancy word that means we want our equipment back. Dtv loses a lot of revenue each year providing equipment for free or a reduced cost when customers activate less than a year and disconnect their acount. What happens to the equipment? A percentage will end up on ebay being sold but the majority is collecting dust and/or being thrown out in the garbage. By attaching the name "lease" to the agreement, it symbolizes that we want our equipment back so we can recycle it. Besides where else are you going to use a $299 hddvr if you don't have directv? Are you going to use it with a pirated card?

[jfischer]

Are you sure that a leased receiver will be fixed by DirecTV? My parents just got a new HD-DVR from DirecTV, and in the book it says it has a 90-day warranty. If it dies in 6 months, who ends up fixing it?

[TyroneShoes]

PVRs have a shelf life of about 3 years, meaning on average, a 3-year old PVR has about as much value as a 3-year old cellphone. At that point, it is living on borrowed time.

As the godess herself has said, DBS often subsidizes the cost of equipment. So a $400 PVR probably has a value, from a manufacturing POV, of $600-800, maybe more, when new. But from a market value POV it's still only worth about what a 3-year old PC is worth, after 3 years, which is often less than what it would cost to ship and refurbish it.

I don't think the value of the equipment has much to do with the move to leasing, all though the false perception that 3-year old PVRs might have some value could be propped up by this.

I think it is all about the 2-year programming commitment. Not only do they model leasing after the car dealers, they model service contracts after the wireless carriers. There is a strong motivation to lock up your customers for as long and as tight as possible once you realize that competitors might present more attractive alternatives to your service, and that is exactly the paradigm shift we are seeing in DBS. Once the kings of PQ, variety, and choice, they have been eclipsed bigtime by cable and other vendors, especially as we move to HD. They are desperate to keep you from leaving, even if they have to finesse you into a program agreement.

[Phantom Gremlin]

The lock-in is probably the primary reason. However, there are probably also tax advantages to DirecTV in terms of how they account for leased equipment.

[Terry K]

Two other parts of the leasing model:

1. It effectively stops canadians from grey-marketing DTV
2. It helps stop piracy. By knowing WHERE your boxes are and getting them back, you combat piracy in a big way.

[TyroneShoes]

Two other parts of the leasing model:

1. It effectively stops canadians from grey-marketing DTV
2. It helps stop piracy. By knowing WHERE your boxes are and getting them back, you combat piracy in a big way.
"1.", I'll give you. But "2."? I don't see how leasing helps stop piracy. The biggest threat to piracy is cracked cards, which have all but disappeared. And I also don't see how leasing gives them the location of boxes any more accurately than if they were sold. And there is no reason to care where any box is, if it can't get programming. If they wanted to know where the box is all they have to do is caller-ID it when it calls the mothership. If it isn't calling, it probably isn't getting programming, either. Whether it is leased or owned doesn't affect any of that.

Plus, they don't really want them back. They only want you to think they want them back, which is the only reason they compel you to send them back, shortly before they bulldoze them. An old PVR is not worth the bother to them, but a continuing customer who thinks there is some responsibility for leased equipment whether it actually has any remaining value or not, is.

Tieing the equipment to the service agreement makes it seem more important, just like building a cellphone with the antenna sticking out the top falsely makes it seem like it will get better reception (it won't), and tieing the equipment to the service agreement makes folks more likely to look at jumping ship as something difficult or improper. It's all about shaping the customer's perception to get them to stay when the actual reality or truth isn't nearly as strong a motivator, and really has nothing to do with hardware value, which after the contract period, is close to nil.

And doesn't all or most of the money for all grey-market programming sold still go to DTV? If they can get everyone else to look the other way and pretend its inside the US, I think that's all they care about. Since it incurs zero added technical overhead, there is little motivation for them to not sell programming, regardless where it really might be going.

[ShiningBengal]

PVRs have a shelf life of about 3 years, meaning on average, a 3-year old PVR has about as much value as a 3-year old cellphone. At that point, it is living on borrowed time.

As the godess herself has said, DBS often subsidizes the cost of equipment. So a $400 PVR probably has a value, from a manufacturing POV, of $600-800, maybe more, when new. But from a market value POV it's still only worth about what a 3-year old PC is worth, after 3 years, which is often less than what it would cost to ship and refurbish it.

I don't think the value of the equipment has much to do with the move to leasing, all though the false perception that 3-year old PVRs might have some value could be propped up by this.

I think it is all about the 2-year programming commitment. Not only do they model leasing after the car dealers, they model service contracts after the wireless carriers. There is a strong motivation to lock up your customers for as long and as tight as possible once you realize that competitors might present more attractive alternatives to your service, and that is exactly the paradigm shift we are seeing in DBS. Once the kings of PQ, variety, and choice, they have been eclipsed bigtime by cable and other vendors, especially as we move to HD. They are desperate to keep you from leaving, even if they have to finesse you into a program agreement.


I don't think you meant "shelf life." That's a term used by businesses to factor in perishibility of product. You mean, perhaps, economic or useful life. I'm not sure why you think a PVR has no use after 3 years. I have two perfectly good Philips DSR6000's I purchased in August of 2001, so they are now in their 6th year. They work absolutely the same as they have since day one (except of course for the software update that enabled the dual tuners!). I have no doubt they will continue to function perfectly well, perhaps needing an HDD replacement at some point. I have a replacement HDD ready, imaged from the actual disk in the unit, for when that happens. I don't see why I shouldn't be able to use both of them for years to come. ;)

Leasing is really no different from purchasing on time. The only real difference is who holds title to a product. If there is a lien on a product, you are not free to sell it because the title is not clear. In both cases, you are paying for the use of a product whose value changes--usually decreasing--over time. If there is a "residual" value at the end of the contract, whether it is a lease or a purchase contract, you have equity in most cases.

Many leases, contrary to what a number of posters here have written, do require money down. For instance, if you lease a house, at least in this area of the country, you are likely to have to pay the first and last month's rent as well as a damage/security deposit. Additionally, car leases often stipulate a "capital reduction" payment up front so they can advertise a low lease payment...a legal, though deceptive sales tactic. Lease down payments reduce the monthly lease payments. You are really paying for the lease in advance.

I really don't see DTV as being "desperate" to keep its customers. Although their rate of subscription growth, as a percentage of existing subscribers is slowing, both Dish and DTV continue to increase market share.

Why would DirecTV send up 3 or 4 new birds in 2 years at a billion a shot if they are "desperate" to hold on to their customers? There is no technical reason that satellite cannot provide at least the same PQ as cable. After all, cable gets its signal from the same satellites that DirecTV and Dish get theirs from! Both satellite and cable have bandwidth issues. The number and resolution of the channel lineup vs bandwidth is the same issue for both technologies. Why would DTV walk away from its exclusive relationship with TiVo, which in my view offered a clear advantage over other DVR's, if it didn't feel secure in its hold on its market share?

FIOS may change this, but this is years from being available to more than a small fraction of available subscribers.

[TyroneShoes]

I don't think you meant "shelf life." That's a term used by businesses to factor in perishibility of product. You mean, perhaps, economic or useful life. I'm not sure why you think a PVR has no use after 3 years. I have two perfectly good Philips DSR6000's I purchased in August of 2001..I have a replacement HDD ready... I absolutely mean "shelf life", which I consider a perfectly-understandable reference to a product that at some point reduces in value to insignificance, from a particular POV.

Your example is purely anecdotal. It does not represent even a blip on DTV's radar in the grand scheme of what customers are willing to do. You, and I, are considered the "lunatic fringe", the 2% they can't expect to ever gain control over, because we do "crazy" stuff like actually breaking the seal. And 6-year old DVRs reflect about 2% of that 2% group. Generally speaking, no 6-year old PVR is really useful in the sense of it being a platform for DTV to get revenue. How much revenue do you think they are getting from your two 6-year old PVRs? That's right. And Tivo still gets $1.25 per month per sub, no matter how old a Dtivo is, not leaving much for the vendor once they pay the content providers.

...Leasing is really no different from purchasing on time. The only real difference is who holds title to a product. If there is a lien on a product, you are not free to sell it because the title is not clear. In both cases, you are paying for the use of a product whose value changes--usually decreasing--over time. If there is a "residual" value at the end of the contract, whether it is a lease or a purchase contract, you have equity in most cases.

Many leases, contrary to what a number of posters here have written, do require money down. For instance, if you lease a house, at least in this area of the country, you are likely to have to pay the first and last month's rent as well as a damage/security deposit. Additionally, car leases often stipulate a "capital reduction" payment up front so they can advertise a low lease payment...a legal, though deceptive sales tactic. Lease down payments reduce the monthly lease payments. You are really paying for the lease in advance...That's a good example of the leasing model, and even explains why they do what they do. Notice that little if any of those reasons apply to what DTV refers to as "leasing", which is leasing then in name only for their purposes.

...I really don't see DTV as being "desperate" to keep its customers. Although their rate of subscription growth, as a percentage of existing subscribers is slowing, both Dish and DTV continue to increase market share...Even seriously-deep-in-doodoo XM satellite radio has more growth per quarter than DTV. And 10 times as much if you view it by percentage of existing subs. They are desperate because there are a bunch of new sherrifs in town. Until a few years ago they dominated all competition. Now cable is a much better choice for any number of reasons, and there are new players vying for a piece of the pie that weren't even a gleam in anyone's eye pre-9/11.

...There is no technical reason that satellite cannot provide at least the same PQ as cable. After all, cable gets its signal from the same satellites that DirecTV and Dish get theirs from! Both satellite and cable have bandwidth issues. The number and resolution of the channel lineup vs bandwidth is the same issue for both technologies. Why would DTV walk away from its exclusive relationship with TiVo, which in my view offered a clear advantage over other DVR's, if it didn't feel secure in its hold on its market share?...I have to disagree, there are a number of technical advantages that cable has now that they did not have a few years ago. They moved from copper cascades to fiber, to digital modulation, and are moving toward VOD and switched delivery. Each of those developments is huge, all on its own, for cable, because each of them allows them to either increase PQ significantly, provide more streams, or both. They can bundle services, and can provide 2-way content and narrowly-targeted content in ways that DBS will not catch up to any time soon. And they have less bandwidth than cable at the dawn of HD subscriptions, which makes bandwidth suddenly a driving issue. Add it all up, and DBS comes out firmly behind the 8-ball...a seriously different landscape than what we had just 4 years ago.

...Why would DirecTV send up 3 or 4 new birds in 2 years at a billion a shot if they are "desperate" to hold on to their customers?...Ignoring the fact that you doubled the realistically estimated cost, that is EXACTLY why. Moving to Ka/M4 is how they even the playing field with cable, or at least will attempt to.

[dagap]

I thought it was an accounting thing to inflate the balance sheet.

[dmurphy]

I thought it was an accounting thing to inflate the balance sheet.

They are claiming all of the STB's (set-top-boxes) as capital infrastructure, and depreciating them on a 3-year schedule.

Definite tax advantages there ...

[HomieG]

I thought it was an accounting thing to inflate the balance sheet.

B-I-N-G-O.

[nrc]

Probably an accounting thing. With receiver sales every dime they spent giving away receivers to sign up subscribers was an expense that went against the balance sheet that year. Now they own the receivers and they can depreciate the cost across multiple years.

[Terry K]

What I meant by stopping piracy is they have better control over their access cards. Under the old DTV model, you could in theory get a unit at ANY major store (Kmart, Wal-Mart, Target, etc...)

How easy was it in theory to get a DTV unit to hack? C'mon, we can still get unregistered units at Wal-Mart, so the virgin cards are still technically out there.

With VOIP and number portability, its impossible to keep track of where any US issued phone number is anymore. Nothing stops me from getting an AK or HI phone number, or any number in the US or even Puerto Rico.

[kbohip]

I have two perfectly good Philips DSR6000's I purchased in August of 2001, so they are now in their 6th year. They work absolutely the same as they have since day one (except of course for the software update that enabled the dual tuners!). I have no doubt they will continue to function perfectly well, perhaps needing an HDD replacement at some point. I have a replacement HDD ready, imaged from the actual disk in the unit, for when that happens. I don't see why I shouldn't be able to use both of them for years to come. ;)



I'm amazed you have a 5 year old Directivo with the original hard drive in it still! I've never had any luck with the drives in these things. The drive in my first HD-Tivo went out in a mere 3 months for example. My Dad's old Sony SVR-2000 killed the drive in just under 2 years. Just last night I replaced (and upgraded to a 300gb) the drive in my sister's RCA DVR80. This one was just over a year old. I'd always heard the life of a drive in a Directivo averaged around 18 months.

As far as why Directv went to leasing? More money for them. What else? Leasing, whether it be a car, home, DVR, whatever, is always a bad deal for the consumer because at the end of the lease you're left with nothing. Since I own my HR10-250, I can sell it on Ebay when I want to get rid of it. Even if it's only worth $100 by then thats $100 more than I'd get if I'd leased it. If I want to keep it and use it somewhere else in the house I have that option too. Try that with a lease.

PS, I LOVE being in the lunatic fringe! :D

[jfischer]

I'm amazed you have a 5 year old Directivo with the original hard drive in it still!

I've got an early HDVR2 (non HD obviously) that's still chugging along on its original drive. Not sure when I bought it, but it's gotta be getting up there in years :)