DirecTV Sees Slow Growth in the Stars


Perhaps DirecTV has seen its future
in the stars, because the nation’s No. 1
satellite-TV service provider is now preparing
for slower growth.

The satellite giant — it has 19 million customers,
making it the second largest multichannelvideo
provider in the country behind Comcast
— said last week it will dial back its customer acquisition
efforts in favor of driving more profitable
growth, a move that acknowledges the
maturing of the pay TV market and ever rising
programming costs.

The moves, said CEO Mike White on a conference
call with analysts Feb. 16, will help drive
mid-single digit or better revenue and cash flow
growth over the next three years.

White outlined a three-pronged approach
— shifting the business focus from top-line to
bottom-line growth, controlling costs on the
operations and programming side and heightening
its efforts to
improve customer

DirecTV plans to
provide more detail
on those plans at
its upcoming Investor
Day, March 29, at
the Roosevelt Hotel in
New York.

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 have only accelerated
that talk. While DirecTV reported strong customer
additions in the fourth quarter — it added
125,000 net new subscribers — it was below
some analysts’ expectations and fell short of its
289,000 net new additions in the prior year.

On the conference call, White said the satellite
giant expected to report
positive net new customer
growth in the first quarter
and for full-year 2012, but
conceded that DirecTV is
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.

The prospect of declining customer growth
hit DirecTV stock — it was down 2% (92 cents
each) to $47.30 on Feb. 16, but most analysts said
any concerns are overblown.

Collins Stewart media analyst Tom Eagan
still expects DirecTV to add about 153,000 net
new customers in the fourth quarter; he said the
focus on retention will likely increase customer
valuations. And though focusing on more profitable
customers is nothing new in pay TV —
cable companies have been
doing it for years with the
triple-play bundle — several
analysts believe DirecTV
can do that effectively.

“The difference between
DirecTV and everyone else,
in my estimation, is that they
have the brand power and the
demographics to pull it off a
lot better,” said Wunderlich
Securities analyst Matt
Harrigan. He added that
he wouldn’t be surprised
if the favorable customer
trends during the first six
weeks of the first quarter
lasted longer than the Street expects.

“At the worst, I think the domestic business
could degenerate into more of a blocking and
tackling slog but will maintain growth even
then in the top quartile,” Harrigan said.

On the programming side, White said
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.

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 profit ability and keep its subscriberacquisition
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.