DirecTV Makes Case For Future Growth
Unveils Three-Pronged Attack For Mid-Single Digit Revenue, Cash Flow Growth
Mike Farrell -- Multichannel News, 2/16/2012 6:01:20 PM
On the heels of another strong quarter, DirecTV said it will focus on a three-pronged approach to drive mid-single digit or better revenue and cash flow growth over the next three years.
While it has traditionally been a growth engine in the pay TV sector, subscriber growth has been slowing across the entire sector. After a stellar third quarter when net new subscriber growth soundly beat expectations mainly due to an aggressive promotion for its NFL Sunday Ticket out-of-market pro pigskin package, fourth quarter net new customer additions, while strong at 125,000, were below the 289,000 additions of the prior year.
On a conference call with analysts to discuss quarterly results, DirecTV CEO Mike White said the satellite giant has identified three strategic priorities for the next three years -- shifting its focus from an emphasis on top line (revenue) growth to bottom line (profit); increases controlling costs, both on the operations and programming side; and heightening its focus on customer service.DirecTV plans to provide more detail on those plans at its upcoming Investor Day.
Analysts have been bracing for a slowdown in subscriber growth at DirecTV and improved losses at both Comcast and Time Warner Cable in the fourth quarter has only accelerated that talk.
On the conference call, White said that the satellite giant expected to report positive net new customer growth in the first quarter and for the full year 2012, but conceded that DirecTV focusing more on retention and upgrading existing customers than on new customer acquisition.
"We're not planning subscriber losses," White said on the call.
Chief financial officer Patrick Doyle said DirecTV took a long hard look at its business and determined that it would get a greater return by upgrading existing customers.
"It made a lot more sense for us to go spend money over into the upgrade budget than to bring on a low value customer with the pressure on programming costs." Doyle said.
As part of its new strategy, DirecTV will restart its Connected Home initiative - a plan to hook customers to broadband service from partners, allowing them greater access to on demand movies and other content. DirecTV dialed back the Connected Home in the summer after the project hit some execution snags. Most of those problems have been ironed out and the initiative - which has about 2 million customers - was back on track in the fourth quarter. White anticipates that DirecTV will add another 1-to-2 million Connected Homes in 2012.
"While we've worked out the kinks, we really haven't turned the marketing approach on," White said. "Frankly, that's a conscious choice and I think you know how powerful our marketing can be. We're just trying to make sure we've got it fully buttoned up. And I'm sure you'll see probably later this year as we start to turn the marketing on we're going to create more pull for that product."
On the programming side, White said that DirecTV can get more creative with entertainment and sports packaging, while at the same time balancing promotional offers with annual rate increases. DirecTV raised rates by about 4% early last year.
"I believe the brand is very strong," White said. "But I don't think in today's economy anybody can be pushing price increases much beyond what we're all as an industry trying to do --- low to mid-single digit price increases are relatively high relative to most other industries. You can't not increase prices when content costs are growing high single to low double digits. You're cost of business is going up and you have to factor that into your thinking."
He added that pushing through ever larger rate increases only increases the level of discounting needed to attract new customers. By focusing on selling more services to existing customers - a strategy that has done well for the cable industry - DirecTV can drive profitability and keep its subscriber acquisition costs down.
"This is the right moment in time for us to slightly rebalance, to ensure that as we grow the business, we don't just grow the top line, but that we equally grow the bottom line and the cash flow that goes with it in a sustainable way." White said.
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If DirecTV wants to upgrade existing customers, especially to HD, then they should add a lot of basic HD Channels. Current HD customers are demanding them and DirecTV's other main competitor, Dish, already have those HD Channels. Just go to Dish's website and see for yourselves.
DirecTV needs more basic HD Channels - 2/17/2012 1:29:39 AM EST
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