In 2000, Carey expected to become head of Sky Global Networks, Murdoch's short-lived plan to combine his combining his satellite operations in Britain, Italy, and Latin America with a newly acquired U.S. satellite company. That idea flopped when Murdoch lost his U.S. prey, DirecTV, to Echostar's (DISH ) Charlie Ergen. But Murdoch last year made a successful $6.8 billion bid to buy a 34% controlling stake in Hughes Electronics, DirecTV's parent, and on Dec. 22, Carey was named DirecTV CEO. That puts him in charge of the nation's largest satellite operator, with 12 million subscribers and counting.
Carey sat down with Ronald Grover BusinessWeek's Los Angeles bureau chief, at Hughes' offices in El Segundo, Calif., on Dec. 17 to discuss his plans for DirecTV and how it will compete with cable operators. Edited excerpts of their conversation follow:
Q: The cable industry says it's ready for you, that their combination of video, phone, and data makes a very competitive alternative to satellite, which doesn't offer phone service and provides very expensive data service.
A: Cable loves to have their spin, and they've had their spin for many years. They learned from John Malone many years ago, when he predicted a 500-channel universe a decade before they figured out how to deliver it.
We think the most important drivers for us will be local stations -- we're going to add 70 new markets in the next 12 months -- and the DVR [digital video recorder]. We think the DVR is a transforming device, and we have a leadership position. You look at the cable industry, and it was all about video on demand until that didn't work.... Now, they're singing the DVR's praises.
Q: What is DirecTV's game plan for taking on cable?
A: The idea is to make television the best experience that we can.... If you look at the pieces that tie together to create a television experience -- interactivity, an [expanded, sophisticated] electronic program guide -- we have a leadership position in them around the world, and we're looking to build on those capabilities.
Q: How many subscribers do you think you can add?
A: We're in a transitional phase, and I don't want to be in a position of offering guidance. But from the News Corp. perspective, we have talked about a business where we should be hitting a million new subscribers a year. And if we add the product enhancements, I think we can get there.
Q: A big part of the plan is to offer local TV stations in all 210 markets, right? When does that happen?
A: Our goal is to be in all those markets by 2008.
Q: There has been talk about DirecTV giving away DVRs. Is that going to happen?
A: Everyone is trying to figure out their strategy on DVRs. But right now [the DirecTV price] is $99.
Q: What kind of special programming do you envision DirecTV delivering, using the DVR, that will differentiate it from other cable or satellite providers?
A: One of them is an electronic program guide. You get more choices and more ways to find all the programs and services. With the DVR, you can store clips for shows -- I can envision a guide where you have a prime-time schedule, and you have 30-second previews for every episode of what's on prime time.
The second area is interactivity -- first with sports and news. [At BSkyB in Britain], Sky is the leader. You can jump to get the latest on the bin Laden story, or you can pick up different camera angles at sporting events. If you come in at halftime, you get a five-minute package of what you missed. What I would love to do is
betting on games.Q: When the Federal Communications Commission approved your merger, you voluntarily agreed to sell your services, such as interactivity, to cable operators. Will that hinder your ability to lure subscribers away from them?
A: The challenge for them will be working out the business terms. These services cost money, and the cable companies have to figure out how these fit into their vision of a business.
From my perspective, what's important is that we're a year ahead of everyone else. By the time they figure how to download our version of clips or how to create these features, we'll have the next group of enhancements.
Q: Cable says one big advantage they have is that they can deliver Internet services much more easily than satellite. How do you deal with that?
A: In today's marketplace, satellite broadband is not at a cost that's competitive. But the best thing for us is that DSL is clearly the alternative to cable.... And we would love a price war -- to have a bunch of players saying we have to give broadband away.
Our job is to continue to develop a level of television experience that creates a much greater level of loyalty. I don't think that the cable vision of a single bill [combining cable, Internet, and phone service] is a big deal.
Q: At BSkyB, your company forced Viacom to reduce the rates the satellite service paid to carry MTV, which Viacom produces. Will you renegotiate prices downward for program suppliers to DirecTV?
A: Our programming costs are a real challenge -- as they are for the entire distribution industry. We have to bring those costs in line with the world that we're living in. And I would say that to Fox as well.... There are clearly going to be difficult discussions with everyone.
Q: What happens when Fox comes to you in two years looking to raise the price for Fox News to what you pay for CNN? Fox is doing better than CNN in the ratings, so a price hike wouldn't necessarily be out of line.
A: The value of News Corp. being a 34% shareholder in DirecTV will be in making DirecTV a great success. If you turn it into a vehicle for Fox or News Corp., it will undermine DirecTV's energy and leadership.
Q: The rumor is that Rupert Murdoch will use DirecTV to help News Corp. build its content business.
A: Rupert has always built his businesses on the belief that you create long-term asset value. He will end up saying the right way to be a real success is to make DirecTV a great success. And if you make DirecTV a great success, it will open up great opportunities for News Corp.
