Cable Operators

Media Funds Scooping Up Shares In DirecTV

9/07/2010 5:11 AM Eastern

For a handful of media
mutual funds, the second quarter
could be summed up in four simple
words: I Want My DirecTV.

DirecTV, the nation’s largest
satellite-TV provider, was at the
head of the buy list for three of
the top five media-centric mutual
funds, led by Capital Research
Global Investors, the $210 billion
Los Angeles-based fund created by
media legend Gordon Crawford.

Capital Research bought nearly
17 million shares of DirecTV in
the second quarter, according to
documents filed with the Securities
and Exchange Commission,
raising its position from 36.4 million
shares in Q1 to 53.3 million
shares in the second quarter. And
it wasn’t the only major fund enamored
with the satellite giant.

Janus Capital Management,
the $92 billion Denver-based
mutual fund, bought 2.86 million
shares of DirecTV in the
second quarter, beefing up its
stake in the company to 5.6 million
shares from 2.8 million in the
prior quarter. FMR Corp., the $430
billion fund that is the parent of the
Fidelity family of mutual funds,
added about 5.8 million DirecTV
shares in the period, increasing its
stake to 36.6 million shares.

AT&T, TWI GAIN
Telco AT&T also was a popular
stock in the period — Capital Research,
FMR and $181 billion fund
Bank of New York Mellon were big
buyers — as was Time Warner Inc.,
with FMR purchasing nearly 4 million
of its shares in the period.

Wunderlich Securities media
analyst Matt Harrigan didn’t want
to comment on individual fund activity,
but said that DirecTV stock
purchases make sense in that the
satellite giant had a strong second
quarter and has made strides in
returning value to shareholders.

In the second quarter, DirecTV
maintained its net new subscriber
growth trend — it added 100,000
new customers, identical to the
first quarter — and said it had repurchased
about $1.72 billion of its
own stock in the June period. The
company also authorized another
$2 billion for stock repurchases
over time.

“When you look at the repurchases,
when you look at the upside
in Latin America, you have to
believe that is a good place to be,
even in a difficult equity market,”
Harrigan said.

Harrigan was a little stumped
by any large purchases of telco
stocks, however.

During the period, according to
SEC documents, Capital Research
added 13.7 million AT&T shares,
while FMR added 14.3 million and
Bank of New York Mellon added 6
million shares of the telco.

“It’s pretty apparent that [video
digital subscriber line] is
pretty limited. I don’t know why
people would be buying AT&T,”
Harrigan said.

On the selling side, Verizon
Communications, Viacom and
Dish Network were at the top of
many of the funds’ lists.

FMR was the biggest seller of
Verizon stock, shedding 24.5 million
shares of the telco in the period,
reducing its stake from 51.4
million to 26.9 million shares.
Another big seller was Capital Research,
which dumped 7.7 million
Verizon shares, lowering its stake
from 39.3 million to 31.6 million
shares.

Miller Tabak media analyst David
Joyce said the reason for the
Verizon sell-off could in part be
the telco’s announcement in April
that it would cease building out
its FiOS network, instead concentrating
on growing the markets it
has already completed.

But the full reason lies with the
individual funds, which do not
comment on their buying and
selling activity, Joyce added.

“Who knows, other than these
firms themselves, when they
bought and sold?” he said.

It is possible that profit-taking
was a factor in what funds bought
and sold during the quarter, but
there were no wild price fluctuations.
DirecTV stock actually declined
about 1% between April 1
and June 30, from $34.14 to $33.92
each, but the shares reached a
peak of $38 during the quarter.
Verizon shares were down about
10% in the period, from $29.20 on
April 1 to $26.18 on June 30. Those
shares peaked at about $29.62
each during the period.

DISH WEAKNESSES SHOW
But the reasoning behind one
of the other big sell-off — Dish
Network — was more evident.
Dish had a disappointing second
quarter, losing about 19,000
subscribers in a period where
analysts were expecting gains of
as many as 129,000 customers.
The subscriber losses appeared
to refuel investor fears that Dish
could return to negative growth.

FMR was the biggest seller of
Dish stock, shedding 8.5 million
shares in the period. Other funds
either didn’t own the stock — Capital
Research and Capital Guardian
Trust — or had relatively small
positions in the No. 2 satellite
company. For example, Janus Capital
sold about 250,000 Dish shares
in the period, reducing its overall
stake in Dish to about 740,000
shares. Bank of New York also sold
about 564,000 Dish shares in the
period, knocking down its overall
position in the company to about
1.3 million shares.

The funds also sold large positions
in programmer Viacom,
which, despite an increase in advertising
sales, has performed below
its peers in the past several
quarters. For example, Viacom’s
domestic ad sales increased 1% in
the first quarter (compared to 9%
for Discovery Communications
and 9% for Time Warner Inc.’s
Turner Networks) and rose 4% in
the second quarter — behind 13%
increases at Discovery and a 14%
rise at Turner.

Viacom’s stock price also declined
about 4% ($1.41 each) during
the quarter, from $37.07 per
share on April 1 to $35.66 each
on June 30.

March