DirecTV Defies Gravity

2/16/2009 4:45 AM Eastern

Bucking any number of economic trends, DirecTV Group blew away analysts' expectations in the fourth quarter, adding 301,000 new customers, its best basic growth in nearly four years.

Analysts had been looking for about 224,000 additions during the same recessionary period when Time Warner Cable, for example, subtracted about 119,000 basic-video subscribers.

“The word 'impervious' comes to mind,” Sanford Bernstein cable and satellite analyst Craig Moffett said in a research report.“Indeed, one could make a case that DirecTV has, at least so far, been as little impacted by the recession as any company in America.”

DirecTV's consolidated revenue in the period rose 9%, to $5.3 billion, and operating profit before depreciation and amortization rose 9%, to $1.2 billion. Revenue was up 14% on the year, to $19.7 billion, and operating profits rose increased 20%, to $5 billion.

“In short, DirecTV continues to defy gravity,” Moffett said.

DirecTV CEO Chase Carey gave analysts on a conference call a less ethereal reason: aggressive promotions.

He said DirecTV wasn't necessarily pushing price promotions: for example, a new customer-loyalty program offers longstanding subscribers free digital video recorder service or free HD service. The promotional strategy is to “neutralize, rather than one-up” rivals, he said.

Carey cited three priorities for 2009 — continuing to drive its brand and content leadership, including boosting HD offerings and original programming like Friday Night Lights; continuing to strengthen and focus sales efforts; and developing tools and technology that improve customer service.

Carey said he was cautious about 2009 — “I believe we should plan for things to be bad” — but predicted 2009 performance would be similar to 2008.

DirecTV wants to continue attracting high quality subscribers and might target wireless telephony as part of that effort. Cable's wireless development is currently keyed on the Clearwire wireless-data joint venture. Carey wouldn't get specific but said a relationship with the cellular telephone industry would be “a real opportunity to put cable on its heels.”

DirecTV reported its strongest net new subscriber growth in nearly four years in the fourth quarter, outpacing its own prior estimates by a wide margin:

  (in Thousands) 4Q08 Est. 4Q08 Actual
Source: Sanford Bernstein and company reports
Total subscribers17,53517,621
Gross additions1,0651,044
Subs lost to churn850743
Net sub additions215301

DirecTV already has a resale relationship with two of the biggest wireless players: Verizon Communications and AT&T. “The real opportunity is for us to expand our relationship in a win-win way,” Carey said. “I think mobility is going to become a more and more valuable attribute and a more and more important one … What's the shape or form of that as we go forward? We'll have to see as we discuss those things.”

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