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Friday
Nov042011

DirecTV Adds 327k U.S. Subs in 3Q11

Revenue Rises 14% YoY for DirecTV

As the U.S. cable providers continue to blame their declining video subs and revenues in 3Q11 on a lagging economy, DirecTV (Nasdaq:DTV) reversed course and turned in its largest third quarter subscriber gain in seven years this past quarter. The leading satellite provider reported a net addition of 327k customers in the U.S., fueled by the popularity of its Sunday NFL Ticket.

During the summer, when the status of the NFL season was in doubt, DirecTV decided to offer its NFL package to customers free of charge in 2011, if they signed up for a two-year contract. The offer proved popular, attracting nearly 1 million gross additions of customers in during the quarter. While it is giving away its NFL package free this year, DirecTV commented that it now has the opportunity to upsell these customers next year, creating potential for ARPU growth.

Overall, DirecTV grew its top line 14% YoY in 3Q11 to $6.8b, attributable to its customer gains and a 3.6% rise in ARPU. In addition to sub growth in the U.S., DirecTV added 574k net connections in Latin America as well—a market which also provided it with strong growth in 2Q11. Improved penetration of its premium services with new customers led to the jump in ARPU in the quarter. The take rate on DirecTV’s whole-home DVR  in 3Q11 was up to 40% from 30% YoY, while 65% of its new subs signed up for both HD and DVR services compared to 50% of new customers in 3Q10.

While DirecTV’s top line and video subscriber growth broke the downward trend set by cable providers this earnings season, it experienced the same rise in programming expenses as its cable rivals. Broadcast programming costs increased $660m, or 10% YoY, in 3Q11 at DirecTV. It also increased spending to acquire and retain customers by 10% YoY in 3Q11. Its operating margins fell 240 basis points YoY to 21.3% as a result of the rise in costs. Despite narrowed margins, its net income rose 8% in the quarter to $516m or 70 cents a share.

On the earnings call, DirecTV management opened up about the company’s outlook in future quarters and potential opportunities.

Patrick Doyle, DirecTV cfo, commented on the potential impact in 4Q11 of giving away the NFL Sunday Ticket for free: “The fact of the matter is because we have more NFL subs, there won't be a negative impact on revenue or ARPU in the fourth quarter. If anything, there will be a modest benefit.”

Ceo Michael White discussed a potential partnership with DISH Network down the road to get involved in wireless broadband: “The mobile wireless business is a really tough business. Just look at Sprint. Fixed broadband to the home is something no one's done in scale up to this point. But it's certainly something that we continue to think about and have done a lot of technical analysis on. And we'll continue to keep an open mind and, heck, I've said before, I’m willing to partner with anyone if it makes good sense for our shareholders and for our customers.”

In 3Q11, the new DirecTV subscribers sent a message to all media providers that programming, such as the NFL Ticket, can still get people to spend money, even in a down economy (albeit at a discounted price).    

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