DirecTV Subscriber Growth Down 35% In Q3


In the midst of a national economic downturn, DirecTV saw its third-quarter subscriber growth drop 35%, adding 156,000 households versus 240,000 last year, the satellite provider reported Thursday.

“Subscriber growth in their U.S. business is decelerating rapidly,” Sanford Bernstein analyst Craig Moffett wrote in a report Thursday. “DirecTV's 156,000 subscriber additions were 35% lower than last year, and 19% below our forecast. Subscriber growth has dropped to 4.6% annually, from 5.6% a year ago, marking the first time ever subscriber growth has dropped below 5%.”

The nation’s-largest satellite provider said it had 17.32 million subscribers in the third quarter, up 5% from the year-ago’s 16.56 million. 

DirecTV will hold a third-quarter call with analysts Thursday afternoon.

The satellite provider in part attributed its subscriber-growth slowdown to the fact that it didn’t have a reselling deal with AT&T during the third quarter. In April, AT&T decided to just resell Dish Network’s satellite service as part of a bundle, rather than offering both DirecTV and Dish.  

However, subsequently AT&T announced that as of Jan. 31 it was switching and would just resell DirecTV’s satellite service, no longer offering Dish Network’s video service

“Net subscriber additions of 156,000 were lower than last year's third quarter primarily due to a slight decline in gross additions and a monthly churn rate of 1.64%,” DirecTV said in its third-quarter press release. “The decline in gross additions to 1,002,000 was mainly due to the end of the previous AT&T distribution agreement in the former BellSouth territories on April 1, 2008. The increase in churn was principally due to a more challenging economic and competitive environment.”

DirecTV’s U.S. revenue increased 11% to $4.32 billion due to strong ARPU growth and the larger subscriber base. ARPU of $83.59 increased 6.1% principally due to programming package price increases as well as higher HD and DVR service fees.

“Our strong third quarter results are entirely consistent with DIRECTV's top financial goals to achieve double-digit revenue growth, higher operating margins and significant cash flow growth," DirecTV Group CEO Chase Carey said in a statement. "In an increasingly challenging economic and competitive environment, we're continuing to see strong consumer demand for DirecTV's unique and differentiated content including its industry-leading HD, DVR and interactive services."

Carey added, "In the U.S., solid DirecTV subscriber growth coupled with a 6.1% increase in ARPU drove revenues up 11% to $4.3 billion. In addition, our operating margins continued to improve as we capitalized on greater efficiencies and cost controls. Most importantly, DirecTV U.S.' cash flow before interest and taxes grew 85% to nearly $600 million as the strong revenue and operating profit growth was combined with a 31% decline in capital expenditures.”

There was a “bright silver lining” in DirecTV’s third-quarter news, according to Moffett.

“As growth slows, so too does spending, both capitalized and expensed,” he wrote. “Consolidated capital spending fell to $536 million in Q3, from $706 million a year ago. And that pushed free cash flow up sharply, just as it did at Comcast (and indeed at the rest of DirecTV's Pay TV peers). Free Cash Flow of $332 million was up 304% from $82 million last year (although, to be fair, that solid result was still slightly below our 421% expectation).”

In his report, Moffett also noted, “DirecTV's strength remains its high end positioning. As conditions have deteriorated at the low end – foreclosures, higher gas prices, curtailed home equity extraction, tightened access to credit card debt – the high end has held firm. Peer Dish Network – the value brand – has struggled with high churn and declining gross additions, and even reported its first ever subscriber loss in Q2. But DirecTV – the premium brand – has held up better, positioning itself as the best place to watch TV, and especially HDTV, at any price. If the high end cracks, then Dish's troubles will spread.”