DirecTV On Course

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According to Liberty Media CEO Greg Maffei, DirecTV Group’s strategy of concentrating on video services — primarily HDTV — apparently seems to be working, so there won’t be any big change in strategy when his company takes control of the satellite-TV giant.

Liberty agreed to swap its 19% voting stake in News Corp. last December for News Corp.’s 40% interest in DirecTV, three regional sports networks and cash. The deal is currently winding its way through the Federal Communications Commission approval process and still is expected to close by the end of the year.

There has been considerable speculation that Liberty, a Denver-based media conglomerate, would invest heavily in bringing a wireless high-speed data product to DirecTV. But at the UBS Securities Media & Communications conference on Dec. 3, Maffei sounded like he was downplaying any need for a high-speed Internet play.

Maffei credited DirecTV’s current management for setting the satellite provider apart from cable and telco offerings by focusing on HDTV content and high-end digital video recorders.

The result: In the most recent quarter, DirecTV added about 240,000 customers.

In contrast, the five publicly traded cable operators — Comcast, Time Warner Cable, Charter Communications, Cablevision Systems and Mediacom Communications — lost a combined 217,000 basic customers in the third quarter.

Maffei said lacking a bundle of voice, video and data might have hindered DirecTV’s subscriber growth in the past, but no longer. “Most of the growth in voice and data has already occurred, that is why you’re seeing slowing growth rates for the cable guys,” he said. “By concentrating and differentiating around content and HD and the TV experience, DirecTV has been able to find a customer set that enjoys that product and reaches for that product.”

Maffei added that Liberty could choose in the future to boost its stake in DirecTV — which would allow it to consolidate its revenue — but that there also is a possibility that its stake in the satellite TV company could be reduced over time.

Liberty is taking a wait-and-see approach to DirecTV, the CEO said. “It may make more sense to be a larger owner, or to reduce our stake. I don’t think we’ve committed either way. We like the asset and a larger stake is positive. We will weigh that against the opportunities at the time.”

Reducing DirecTV’s below 25% would affect the tax-free status of the transaction, Maffei said. So it is unlikely that Liberty would go below that level.

Maffei said the potential to build onto three regional sports networks Liberty is acquiring in the DirecTV deal — FSN Northwest (Seattle), FSN Rocky Mountain (Denver) and FSN Pittsburgh — is less clear.

“Sports has been a linchpin of the strategy of DirecTV and a good linchpin,” Maffei said. “These RSNs are good businesses. But they’re rather scary to the degree that you’re cutting deals with these content owners, the leagues or the teams, and then you’re turning around and trying to collect good rents from the distributors, primarily the MSO in the market or the satellite companies. That process has led to a huge amount of money flowing to the teams and bigger and bigger rents being extracted from cable companies and ultimately, consumers.”

There could come a time, though, when cable and satellite TV companies — and even consumers — resist paying more for sports programming. “We like the sports business both as a way of pushing our differentiated offerings at Direct [and] we like to some degree the cash flow asset that we have,” Maffei said. “But I’m worried about investing too heavily given those risks.”

On another subject of interest to investors, Maffei said it’s not clear whether Liberty will gain control of home shopping network HSN once network parent IAC/InterActiveCorp splits into five separate companies. One of those entities is expected to be HSN, but it will be up to IAC chairman Barry Diller as to how the split will play out, the Liberty executive said. “We’re waiting to hear from Barry and then negotiations will begin.”

Liberty and Diller had been in negotiations for the network earlier this year, but talks broke down over differing valuations of HSN’s worth.

Maffei said that while it is logical that Liberty could exchange its 24% stake in IAC for HSN and other assets, Liberty might wait until the split is completed and let the public markets value HSN.

He cited IAC’s Ticketmaster service as potential swap fodder. “Ticketmaster is a great business. At the right number, sure we would be interested in that business. I can see more synergies, particularly when you look at DirecTV as the second largest or one of the largest sellers, through its concert programs, of entertainment. There are lots of interesting things you might be able to do across that.”

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