HD DVR Delay Could Sting

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DirecTV Inc. could lose impatient subscribers to cable or Dish Network after the satellite provider’s latest delay rolling out new high-definition digital recording devices, a Wall Street analyst said last week.

Sanford C. Bernstein & Co. analyst Craig Moffett said DirecTV’s churn rates could rise because of yet another postponement of state-of-the-art dual-tuner HD DVRs.

“There is obviously a limit to how long customers — who, after all, have just spent large amounts of money on a flat panel HDTV — will be willing to wait for an upgrade from DirecTV before they simply switch to a competitor instead,” Moffett wrote in a research note. “EchoStar and cable operators could benefit.”

Moffett cited a letter DirecTV is sending to customers on a wait list for the HD DVRs. The new set-tops — first expected early this year, and then in the spring — are now supposed to be available this fall. “We believe shortages of the combination HD DVR unit have contributed to DirecTV falling behind cable competitors in HD readiness,” Moffett wrote. “HDTV penetration of digital subscribers among cable operators appears significantly higher than at DirecTV.”

DirecTV spokesman Robert Mercer said the satellite provider is not that far off the timetable it established earlier this year for the HD DVR launch.

“We are completing some additional testing on the software to ensure that the box is operating smoothly when we begin shipping to consumers nationwide in the September/October timeframe,” Mercer said. “The receiver’s performance thus far has been exceptional and we’re looking forward to the launch.”

Moffett also cited plans by News Corp.’s BSkyB to provide free broadband service to customers in Great Britain. News Corp. owns 38% of DirecTV, which lacks a broadband offering. A Federal Communications Commission auction for advanced-wireless-services spectrum begins in several weeks, and DirecTV and EchoStar, under the entity Wireless DBS LLC, are on the list of potential bidders, Moffett noted.

“News Corp.’s willingness to slash cash flows at BSkyB would appear to raise the risk of an unwelcome surprise in capital spending related to plans for a terrestrial broadband network at DirecTV, as well,” Moffett wrote. “Even if the business were to be built off-balance sheet, subscriber-acquisition costs associated with the broadband venture could directly and significantly impact DirecTV’s cash flows.”

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