DIRECTV: Why It Requires 2-Year Contracts

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Q. I read your story about how DIRECTV isn’t giving price cuts to current subscribers because many of them are in two year contracts. My question is why do people sign two year contracts? Does DIRECTV require them? If so, with all the TV services available now, why would anyone sign a contract for TV? — Shana, Baton Rouge, Louisiana. 

Shana, DIRECTV does not require a new customer to sign a two-year contract. But it certainly does a lot to persuade you to sign one.

Let me explain.

DIRECTV offers several bonuses if you agree to sign a two-year contract, such as free NFL Sunday Ticket, free NBA League Pass, free HBO for three months, and a significantly lower price for your programming package. For example, if you subscribed today to DIRECTV’s Choice plan (185 channels), your monthly price would be $59.99 if you signed the contract compared to $115 a month if you did not.

That’s quite an incentive to sign, wouldn’t you say?

DIRECTV, like other companies, both in and outside the TV business, use these benefit-laden 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.

In fact, 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.

That’s why DIRECTV includes so many perks in your plan if you sign the two-year agreement. It’s worth it to them.

But is it really worth it to you, the consumer?

I say not a few reasons.

One, in the fine print of your agreement, DIRECTV reveals that your Choice $59 a month package will go to $115 a month in month 13 of your two-year agreement. So while you’ll pay roughly $720 in year one, you’ll pay $1380 in year two, bringing your overall bill over the two years to $2100. That’s an average of $87.50 a month.

Many existing subscribers who have had DIRECTV for years now pay around $90-100 a month for Choice (not including equipment and other fees). So DIRECTV really isn’t losing money on this deal.

But are you?

YouTubeTV, Hulu Live and the other live streaming services now offer dozens of channels for as little as $50 a month. The number of channels isn’t quite 185, but the majority of your favorites (if not all of them) are in the lineup. Why pay around $90 a month just so you can have a larger number of channels?

Some people say this is still a good deal because the Sunday Ticket is included, and you get a few premium channels such as HBO, for three months. But there’s another reason why you might want to avoid the two-year agreement.

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, you might be tempted to switch to another service. But if you are still locked into a two-year contract, you will think twice before paying what could be hundreds of dollars in termination fees.

This scenario is occurring more frequently these days as pay TV operators try to trim programming costs.

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 believe the two-year agreement serves the company more than the customer. I can understand why someone would go for it, but I would caution to think very, very carefully before doing so.

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