Satellite

DirecTV Subscriber-Retention Costs Soar

1/27/2005 7:01 AM Eastern

DirecTV Group Inc. reported mixed results for the fourth quarter, matching analysts’ estimates for revenue growth but falling short on net new subscriber additions.

The direct-broadcast satellite provider reported revenue of $3.3 billion, an increase of 42% from the previous year. But subscriber additions, at 444,000 for the quarter, were below the 460,000-500,000 analysts expected. Churn was also slightly higher than expected, at 1.6% per month compared with estimates of 1.56%.

For the year, DirecTV added about 1.7 million new customers.

Also troubling analysts was the huge increase in subscriber-retention marketing in the period. DirecTV said it spent $334 million on retention marketing in the quarter, a 117% increase over last year and 24% higher than analysts’ estimates.

The increase in retention-marketing costs also dragged down DirecTV’s pre-marketing cash-flow margins (cash flow as a percentage of revenue) to 28.9% versus estimates of 30.2% for the period.

In a conference call with analysts, CEO Chase Carey said the increased retention-marketing costs were due to the rollout of HDTV and digital-video-recorder products. He added that those costs should go down this year, with the ultimate goal of keeping them flat going forward.

DirecTV had its biggest quarter ever for DVRs, adding 345,000 customers in the period.

Carey added that new subscriber growth will slow slightly in 2005 to between 1.25 million and 1.5 million, then to “well over 1 million,” in 2006. He said the slowdown would be the result of more stringent new customer screening, which should weed out those at a high risk of not paying their bills.

“We would much prefer, and think we can achieve, very good growth while focusing as well on the bottom line, than having great growth at too high a cost,” Carey said.

DirecTV shares were down 49 cents each to $15.31 per share in afternoon trading Thursday.

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