We don't know if this crime pays unless we know how many new customers the illegal calls generated for DirecTV.

MAYBE crime pays?

Anyone else not surprised that Murdoch owns DirectTV?

And on whether we know whether the calls worked. Well if they called over a million people, it's safe to assume that they thought it was profitable.

This whole "television" thing is a fad. It'll blow over.

Tripp: Agreed. But at a rough guess, figure there were 14 million illegal calls over 485 days. That's about 30,000 illegal calls per day. And figure that 1% of them are converted into customers. That's 300 new customers per day. And figure that a new customer is worth an average of $2,000 over five years. That's $600,000 in revenue from a single day's haul of customers.

Conversely, the fine for that single day's haul was $11,000. Pretty good return on investment, no?

Free Market baby.

The companies who gamed California gas prices were fined, what, a couple hundred thousand dollars? Probably less.

Makes you proud to be an American capitalist.

Kevin,

I thought 1% success was good for normal sales and telemarketing was below that but I sure don't know enough to dispute your figures.

Personally I detest telemarketers and think the do-not-call list was one of the best pieces of legislation to come out of the last five years.

Hopefully of they catch DirecTV again they will up the fine.

Meanwhile, despit being on the no-call list, I'm getting indirectly harrassed by an outfit called True Logic Financial Corporation (Rip-off Report) whose area code together with the 1st four digits of the phone number are the same as my 7-digit number, with the result that I get hundreds and hundreds of people calling me from their user ID, in addition to the occasional message saying something along the lines of "iI you call me one more time, I'll call he cops you son of a bitch." Whom do I sue about this?

It'd be an even better ROI if they'd engaged in talks with the FCC right away. Break the law and fess up as you're doing it -- no fine!

Where I live, DirectTV is partnered with the phone company, so that the phone company can call you using the existing customer exception to the Do Not Call list. Savvy bastards.

I would expect that the true relevance of the fine is whether it exceeded DirecTV's profits on those new subscribers, not the revenue.

.2% converted into customers? Is that a number pulled from thin air? Remember that these are people that took the time to actually sign up for the Do Not Call list, and are therefore less likely to be prone to telemarketers and their shenanigans. LHB

The important thing here is that the FCC actually did something and they probably stopped calling or will get hit again and much deeper I bet.

I would put this crime in the same clas of crimes as swearing. Plus, that 5 million in taxes we don't have to fork out.

Number of total calls made, amount of business generated, estimated income, etc. - all irrelevant. The maximum fine is $11,000 per illegal call. Multiply that by 1.4 million complaints of illegal calls and you get $15,400,000,000. That's fifteen billion, 400 million dollars. Sounds about right.

Where I live, DirectTV is partnered with the phone company, so that the phone company can call you using the existing customer exception to the Do Not Call list. Savvy bastards.
Posted by: frobisher on December 13, 2005 at 3:26 PM | PERMALINK

That loophole was put in there by Republicans, who oppose all regulation of business. Republicans hate regulations, because it makes it harder for them to steal. Republican Culture of Corruption.

How much revenue do they get from each new customer?

Why is Kevin looking at REVENUE per customer, rather than PROFIT per customer? The latter is the most relevant here, not the former.

Revenue vs. Profit. Maybe $50 average bill per month for gross revenue of $2,500.00 over 5 years. But not all of this is profit. At 20% profit (pulled out of the air-probably high) this would be $500.00 per and using your number of 300 customers per day you get $15,000 in profit vs. an $11,000 fine. Also an average customer won't last 5 years IMHO. More churn than that.

Does it come as any suprise that those who signed up for the federal do-not-call list ended up here?

... at a rough guess, figure there were 14 million illegal calls over 485 days. That's about 30,000 illegal calls per day. And figure that 1% of them are converted into customers. That's 300 new customers per day. And figure that a new customer is worth an average of $2,000 over five years. That's $600,000 in revenue from a single day's haul of customers.

Question in my mind is, who sold the list?

I'd say you're seriously underestimating, Kevin. I sincerely doubt that 1 in 10 receivers of illegal calls complained, I'd be surprised if it was less than double that amount. Accepting your .2% customer rate, and that makes 56,000 new customers.

My guess is that $1,000 revenue over 5 years is very low. The minimum monthly package is around $20 and I doubt most people go to the trouble of signing with a satellite TV provider to get the most basic package. I'd assume the average customer is about $40/month, allowing for 80% retention (again, a very lowball figure), that comes to $21.5 million per year!

A good deal for DirecTV, but they knew that going in.

Of course crime pays , as long as you are rich enough and the crime is big enough.

And, of course, you support the GOP.

You've only calculated gross revenues, not net profits--which come after interest, taxes, expenses, labor, etc. . . . I think in the end the fine will probably eat away any profits they made from their illegal actions. Either wya, I betcha they are not happy with the fine.

Of course, that's the kind of logic that's ignored by folks who decry high damages awards in lawsuits...

Corporations don't pay taxes anymore, but even so, I'm with Sean-Paul. The legal overhead alone on this thing had to run into the many millions. They still probably made out, but the FTC is likely to keep them under scrutiny. That's not going to be much fun.

I think the 1.4 million number refers to all complaints, not just complaints about DirecTV calls. The ABC article is not especially clear on this point but the FTC's 2003-2004 report says they received just under 600,000 total complaints from Oct 2003 through Sept 2004 (the first year the complaint line was up).

http://www.ftc.gov/reports/donotcall/051004dncfy0304.pdf

The CNN story I think is just wrong when it cites Majores on the 1.4 million number. An AP story on Yahoo says:

"The complaint alleged that DirecTV and the various telemarketing firms violated do-not-call rules beginning in October 2003, the month the registry debuted. FTC did not have a tally of how many calls were made to households on the list.

"Suffice it to say, it was in the thousands," Majoras said.

This story also cites the 1.4 million number as all complaints from households on the do not call list.

OK - rather than playing with made-up numbers, we should use real numbers. From DirecTV's last 10-K (for fiscal 2004), their churn was 1.6% (that is, each month they lose 1.6% of their existing customers) and their ARPU (average monthly revenue per subscriber) was about $67.

As I calculate it, that means each subscriber is worth approximately $2500 in revenue over a five-year period, assuming that churn and ARPU are flat over that time.

Again, though, this is REVENUE not profit.

The FTC's 2003-2004 report says they received just under 600,000 total complaints from Oct 2003 through Sept 2004.

At least half of which were from me. Just kidding. Sort of. I always take the 10 seconds to report the bastards, most of whom are spamming my fax line.

One group was so persistent, despite my pleas to leeeeeeeeeeeeave meeeeeeeee aloooooooone, that I printed out my FTC complaint form and faxed it to them. That worked nicely.

Again everyone we can't really calculate the payback. But we know that it paid off - or else Direct TV would have stopped after a couple thousand calls. If they made 1.4 million that tells you right there - it worked.

But Kevin's very conservative estimates do show that they almost assuredly made more profit than the fine.

On the revenue vs. profit issue. This gets tricky since these businesses tend to have low marginal costs. Once you have it set up, it doesn't cost you much more to add subscribers. So the profit is probably a pretty high percentage of the revenue.

And let's not forget that clearly they knew that they were cheating. You don't make 1.4 million calls by accident. Ahh, Murdoch, wonderful to have you over here.

Here's another number from the 2004 10-K: DirecTV's average subscriber acquisition cost (that is, the amount of money is costs DirecTV to acquire each new customer) is $643. Assuming the 28,000 new customers acquired by the illegal calling (Kevin's assumption, not mine), the FTC fine ALONE is $190 per new subscriber.

I really think that a 30% increase in average subscriber acquisition cost would make the new subscribers from the illegal calls unprofitable.

Lis Riba, high fines on corporations serve the purpose well. Extending the idea to high damages causes problems, because the amount required to deter a large corporation from bad behavior is an absolutely insane amount to award to an individual plaintiff. If punitive damages were treated as fines and went to the government, rather than going to the plaintiff, the system would make more sense and be less like a lottery.

Exactly, John - how many of those "complaints" never even got a single DirecTV call?

Oh, those dastardly consumers, taking time out of their busy days just to keep an honest business down!

You really are an idiot, Charlie.

KCinDC -
I've always thought the same thing, though maybe not the gov't. Perhaps to an independent third party, like a charity, or in the case of DirectTV, to PBS/public television.

Charlie has ceased to have higher brain function. He just looks at a story, and says "in which way can I be the most obtuse possible" and then takes that position.

Please go away. The Al-bot is less annoying and a lot less smug.

to PBS/public television.

What an interesting notion. Break consumer laws, and give your revenue to your competitors. Hmmm.... I'll have to have my cabinet look at that, when I take office in 2008.

No, craigie !!!

That's the same principle as what the Byrd Amendment was/is, and now we can't get rid of it ...

Al has a point (you know what they say about broken clocks being right twice a day).

The question is not whether it was profitable, but whether it deters. If a corporation can spend $X legally or illegally, but gets a 5 percent return on investment on legal spending but only a 1 percent ROI on illegal spending, then what will it choose?

The issue isn't profitability per se but rather opportunity-cost.

Of course, I might add, I'd think the principle would be more appreciated by common folks like us if it applied equally to natural persons as to megacorporations.

Imagine if politicians started asking, "well, rather than locking up pot-heads until Doomsday, what if we just fined them so that the marginal disutility of punishment just barely exceeded the marginal utility of doing drugs?"

This is why we need to send Congress to remedial Economics classes.

I'm not sure about Kevin's take up rate numbers. But I don't think profit will be much different than reveneue for Direct TV, their marginal cost of setting up a new customer is very low, maybe $100 per-they get those dishes in fast After that all the marginal costs are next to zero.

But we knew that already, didn't we?

Yes.

we didn't find wmds in iraq

1.4 million x $1,000 per ought to be a better fine.
But still, that's 1,400,000 x 1,000 => 1,400,000,000
... over 1 billion dollars.

That ought to send a clear message to Rupert.

However, we'll never see that while he has golf outings with Scalia and Cheney or tennis dates with Condi or Scooter, etc.

Is wirefly the obverse-Al? As opposed to the inverse-Al, who makes sense?

Revenue != profit.

With satellites, boxes, billing software, etc. etc. etc. cable and satellite TV is a low margin business. Let's assume they're making 10% margin on their customers. If so, that $5 million bucks on 28,000 customers is going to really push out that break even point.

Kilroy

The question is not whether it was profitable, but whether it deters. If a corporation can spend $X legally or illegally, but gets a 5 percent return on investment on legal spending but only a 1 percent ROI on illegal spending, then what will it choose?

The issue isn't profitability per se but rather opportunity-cost.

Realistically, a company will probably face declining ROI on each subsequent dollar of legal spending, so eventually will reach a point, so long as illegal spending is profitable at all, where the most profitable place to spend the next dollar is illegal.

Which is why, if you really want to stop an illegal activity with rational economic incentives, you need to assure that the expected net profit is negative on the illegal activity. And not the net profit if you get caught, the expected net taking into account the chance that you might beat the rap.

We need someone in the cable industry who can give us the skinny. My former electrician, relative of a local cable mogul, might have fit the bill. Unfortunately, we severed relations after he made some horrendous racist remarks while standing in my kitchen, I reamed him for it and he refused to back down.

He was a very good electrician, too, but no way you can let that crap ride.

In the new world order, if it pays it isn't a crime.

In fairness to DirecTV, Kevin, you should do a present value on those cash flows over 5 years.

[ducks]

Sorry, just had my Finance final yesterday, couldn't resist.

Of course, rather than speculating on the profit magin, you can always look at the 10K and get the exact number. In 2004, their operating profit margin excluding depreciation and amortization was 6%, in 2003 it was 12.4% and in 2002 it was 9.3%. Grandted, this isn't the marginal cost of a new customer, but it's a better estimate than a wild assed guess.

Assuming a 6% profit margin, the profit from Kevin's undiscounted cash flow are $1.28 million. So the net loss is $4.06 million dollars.

Wait a second! Look at the ABC story: the 1.4 million number isn't the number of complaints about DirectTV, its the TOTAL number of complaints about all offenders the FTC has received. All the above calculations about
DirectTV's profit are wrong.

OBF:
How is it a loophole that companies can call their own customers? Shouldn't companies be able to call their current customers with support, new offerings, etc. If you don't like them calling, you can put yourself on their DNC list or take your business elsewhere.

What's more the CNN story Kevin links to has now made an explicit correction admitting its mistake in ascribing the 1.4 million to DirectTV alone.

Shouldn't companies be able to call their current customers with support, new offerings, etc

Ideally, no.

If I want something, I'll go looking for it. If youv'e got something so earthshattering that I must have it, I'll find out about it.

Shouldn't companies be able to call their current customers with support, new offerings, etc. If you don't like them calling, you can put yourself on their DNC list or take your business elsewhere.

That's a lovely theory. In practice, it usually takes four or five requests to get myself onto companies' own DNC lists. By that time, they've lost me as a customer forever.

What's more the CNN story Kevin links to has now made an explicit correction admitting its mistake in ascribing the 1.4 million to DirectTV alone.

Kevin Drum: NEVER MIND!!!!

Not only don't we know how many new customers the illegal calls generated for DirecTV, we don't know how many people generated 1.4 million complaints.

I have been called by DirecTV numerous times, despite being on the no-call list. Each time, it's a different DirecTV "reseller" who tells me that the list is supplied to them by DirecTV. I didn't file a complaint because I hadn't gotten around to it - just threatened to.

The ones I want to kill are those fax spammers with their demon dialers that call my office line (not a fax) at all hours of the day and night, and also my home phone (also not a fax). Nothing sucks more than being awakened by a fax tone in your ear -- and then they call back 5 minutes later, just as you're getting back to sleep. I've occasionally routed them over to my fax box when I know the second call is going to happen, just to see who it is. It's a number that shows as "out of area" on my caller id and as "0139" on my voice mail, and is always some scam with "to be removed from this Opt-In database....".

Yeah, right -- your Republican majority at work. As you may remember, they have delayed (several times) the start of the requirement that someone must have a signed consent in order to fax you. "Too onerous.... disruptive of business....", as if any legitimate business was ever done by fax spammers.

Under GOP feudalism, collusion with big business has even rendered regulations as a profit source. Remember when the wireless companies were screaming bloody murder at having to offer consumers the ability to keep their mobile numbers even when transferring service to another company? My carrier instituted a $1.75/month regulatory programs fee to cover the cost of fulfilling this new requirement. At the time this carrier had about 20 million subscribers. That amounted to $35 million dollars per month of instant revenue, $420 million/year. Can anyone honestly say with a straight face that it cost the company anywher near $420 million a year to implement this sevice?
(BTW, years later and the charge is still in place.)

It's almost a better return than campaign donations.

Yeah, right -- your Republican majority at work. As you may remember, they have delayed (several times) the start of the requirement that someone must have a signed consent in order to fax you. "Too onerous.... disruptive of business....", as if any legitimate business was ever done by fax spammers.

Plenty of legitimate business is done by way of fax in which the requirement of signed consent prior to faxing would delay and make extraordinarily more costly (the most costly part, for many large institutions, would be maintain the vast piles of signed consent papers for everyone they fax, and verifying the existence of such a signed paper before faxing.)

Kevin, ot, Has there been trouble with the site? Over the past three dats or so, I've had several periods when I couldn't get the page to open.

Ducktape,
A signed consent to fax you? I hate fax spammers with the fire of a thousand suns, but that would be a huge pain in the ass for non-business users. Recently, I had to fax my doctor orders to fax my school my immunization record (I am in school in IN, my doctor is in CA). If I need signed consent, a process that was a minor pain in the butt, would have turned into a royal pain and taken about two weeks longer. Especially when you consider, the school would have to send the consent to my doctor and my doctor would have to send consent to me.

shortstop,
It depends on the company. My company was quite good about doing scrubs on the internal DNC lists, while others may not be. But as you said, they lost you as a customer if they were bad at it and then could no longer legally call you. In fact, if you tell them to put you on the DNC list and they call you, it's still illegal. Threatening to press charges is a surefire way to never be called again.

Kevin, why do take a swipe at all fed workers to start this thread?

Pretty sad, especially since you do a lot of sitting in your line of work.

Jerk.

It depends on the company. My company was quite good about doing scrubs on the internal DNC lists, while others may not be. But as you said, they lost you as a customer if they were bad at it and then could no longer legally call you.

Yes, they can no longer legally call me once 18 months have passed since the last time we did business. A year and a half is a long time to take the dinnertime calls of someone you've already written off as a vendor or service provider.

In fact, if you tell them to put you on the DNC list and they call you, it's still illegal. Threatening to press charges is a surefire way to never be called again.

That's theory again, Mo. I'm an old hand at this. Threatening to press charges is a surefire way to get the telemarketer to make excuses about how "it takes a while" to get removed from their list, or to wail about being a reseller who hasn't been given the correct lists. Occasionally it also inspires someone to actually stop calling.

Kevin, why do take a swipe at all fed workers to start this thread?

A fair complaint about a line of Kevin's which I'm sure he didn't mean to be interpreted that way. I think he was referring to the widening Bush Admin practice of instructing more and more federal agencies not to do the jobs which their experienced employees are well trained to do - viz., telling the foreign media survey folks at State not to put their foreign media surveys online; arbitrarily overruling the expert lawyers at Justice who said DeLay's Texas redistricting plan violated the VRA; arbitrarily blocking the FDA experts' recommendation that RU486 be sold over the counter; and so forth.

A better way to phrase it might be: a federal agency has been detected being allowed to do its job.

Plenty of legitimate business is done by way of fax in which the requirement of signed consent prior to faxing would delay and make extraordinarily more costly (the most costly part, for many large institutions, would be maintain the vast piles of signed consent papers for everyone they fax, and verifying the existence of such a signed paper before faxing.)
Posted by: cmdicely on December 13, 2005 at 7:38 PM | PERMALINK

Poor babies.

I feel no pity for them.

OBF:
How is it a loophole that companies can call their own customers? Shouldn't companies be able to call their current customers with support, new offerings, etc. If you don't like them calling, you can put yourself on their DNC list or take your business elsewhere.
Posted by: Mo on December 13, 2005 at 6:54 PM | PERMALINK

Specific opt-in consent should be required. The abuse of this loophole has made it imperative that I disable the ringer on my telephone. From mortgage refi companies alone. All "partnered" with the company that my lender sold my loan to. So basically, I'm paying a monthly bill, for phone service that can only be used for outgoing calls, or inbound by-appointment calls only.

If I was emporer of the US, I would have all telemarketers hands smashed with a sledgehammer.

That was amusing.

Specific opt-in consent should be required.

Exactly.

My oldest son works for DirectTV. His major business (this time of year anyway) is the nfl package. DirectTV doesn't give a rat's rear end about illegal calls, they just chalk up the fine to the cost of doing business. 3 months from now it will be forgotten in the whole media scheme of things...

What really matters is that just about everyone with a phone does not want telemarket sales calls, ever. I'm not on the "no call list" and I can say that at times these unnecessary interuptions to my day cause a finiacial loss. Sometimes, after several unwanted sales calls, I get an ugly attitude with my customers which I'm sure causes business losses. So, why do we let them do this? When I got a phone, it was for business reasons, not to get sales calls from lazy ass telemarketers. Change is what we need. I want to see one person come out and say "yes, I like tele-sales calling me." They gotta be very lonely.

Artemus, would you rather the lazy-ass telemarketers be sitting on their butts at home taking TANF $$?

Most telemarketers are unskilled single moms and take the jobs to fulfill their work requirements. Being unskilled and unable to afford college they are at least working.

How exactly are unskilled single moms supposed to earm money? Yeah, I know, they should have kept their knees closed but the kids are here now and they (moms) are trying. Cut them a break, you don't have to buy anything from their calls but at least don't trash what they are trying to do.

I agree, especially since Kevin's "UPDATE 2" makes the rest of this thread moot. While I don't agree with the "fax rant" above, how about those damn "pop-up" ads - I'm new to the Internet, but that is annoying.

The companies who gamed California gas prices were fined, what, a couple hundred thousand dollars? Probably less.

Makes you proud to be an American capitalist.

How exactly are unskilled single moms supposed to earm money?

You're a parody, but one of our better ones, so I'll bite this time. It's not my social and civic responsibility to give up my peaceful family time--not to mention take time out of my working day--to field unsolicited calls from people attempting to sell me things I don't want. (No, there are no exceptions to this statement; I have NEVER purchased anything from a telemarketer, including companies with which I'm already doing business).

If telemarketing companies want to invade my home and workplace using a means of communication for which I've paid, they can start footing my phone bills. Until then, get the hell out of my way.

Now, about finding and creating decent jobs for unskilled workers--that's an interesting topic on which we should be having a national conversation. But you don't really want us to do that, do you, ASubMom?

AFAIK, telemarketing is done from a call center, not a person's home. So for unskilled single Moms I would would much rather they do some kind of factory work instead of telemarketing, since they need to be out of the home anyway.

Of course we've outsourced those jobs, but I'd guess we've outsourced the telemarketing jobs, too. I mean why not hire Chinese or Indian workers for at low low wages?

I think the most important question is, as a Directv subscriber, how much more are my rates going to go up in order to eat the cost of the fine? Thanks for your 1.4 million complaints to the FTC guys! ;-)