Q. I am interested in DIRECTV’s new offer for new customers. It’s $35 a month for more than 150 channels. But I read that the deal requires me to sign a two-year contract and if I leave before the two years are up, I have to pay big. Why do TV services require these contracts? The new streaming services like Sling TV don’t do this. Seems like the contracts would discourage people from signing up. — John, Cincinnati, Ohio.
John, DIRECTV, like other companies, both in and outside the TV business, use two-year agreements to keep customers from service-hopping. Without them, DIRECTV’s subscribers might switch to Dish or their local cable provider every time something bad happens, such as a channel blackout during a programmer fee fight or an increase to one’s bill.
The two-year contract, which can’t be broken unless the DIRECTV subscriber agrees to pay roughly $20 a month for the remainder of the agreement, serves as a virtual handcuff.
Of course, not every DIRECTV subscriber has a two-year agreement. DIRECTV only requires them if the customer accepts a promotional offer, such as a cheaper monthly bill as you referred to, or free installation of an advanced HD DVR that might offer 4K programming. But many subscribers agree to the two-year deals because the offers can seem irresistible.
Again, this gives DIRECTV (and other pay TV ops) greater flexibility and confidence when negotiating programming agreements, or announcing monthly price increases.
For instance, let’s say DIRECTV is negotiating a new carriage agreement with ESPN, but the sports network is demanding a fee higher than the satcaster wants to pay. If the talks breakdown, and ESPN pulls its signal from DIRECTV, many sports fans might be tempted to switch to another service. But if they are still locked into a two-year contract, they will think twice before paying what could be hundreds of dollars in termination fees.
Another reason why DIRECTV requires two-year agreements? Moolah! Yes, some subscribers are forced to break their two-year deals prematurely for all kinds of reasons, particularly economic. DIRECTV collects a tidy sum every year from termination fees.
We don’t know exactly how many DIRECTV subscribers have two-year agreements, but considering how aggressive DIRECTV is with promotional offers, it’s likely to be a significant number.
I have counseled here not to sign a two-year agreement, even if a promotional deal seems particularly sweet. In my view, the two-year agreement serves the company more than the customer.
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— Phillip Swann