One of the best things that could happen to the DTH companies in the US is that it enters full scale recession. Cable TV is thought to be the ultimate in TV experience in the US, and it is only once the cautious US consumers decide they need to cut their bills and look at what’s on offer in the satellite world that they will find that there is no difference between the two.
And this works the other way around as well, with less desertions to cable, because consumers are pulling in their belts.
And although DirecTV is on the verge of being handed over to John Malone’s Liberty Media, it has had one of those come-back quarters that shows just how strong it is as a business.
Fourth quarter revenues were up 17% to $4.9 billion, operating profit before depreciation and amortization increased 21% to $1.10 billion, and although that only took operating profit up by 4% to $617 million, and net income actually went down due to increased interest.
Those underlying numbers are impressive ‘ 275,000 net additions, due in the most part to churn falling to 1.42% each month, from over 1.8%. That means that 180,000 of those additions are consumers that decided his quarter NOT to leave DirecTV, compared to previous quarters. This of course means that the effort of finding new subscribers can be slower, keeping costs down and driving operating profit. However in this case many of the existing customers are moving to higher value services and this has had the temporary effect of costing DirecTV more money in upgrading to HD DVR set tops.
Rival Dish only grew its customer base by 110,000 in the third quarter and its results are not out for the fourth quarter for another week. If this is an industry trend that will likely work out well for Dish, but this may be due to the tight control that DirecTV has put on its customer acquisition these past few years, only allowing low credit risk customers to acquire service.
DirecTV CEO Chase Carey said, ‘Strong net subscriber additions of 275,000 were punctuated by the lowest monthly churn rate in eight years. This 15 basis point reduction in monthly churn to 1.42% was largely due to the significant growth in customers with HD and DVR services, increasing from about 30% of our subscriber base last year to over 40% this year, as well as tighter credit policies.’
DirecTV has also experienced a significant upturn in ARPU, up 8.3% and it is this that drove up revenues 14% to $4.38 billion for the fourth quarter and to $17.2 billion from $14.8 billion last year.
DirecTV is also enjoying the sudden interest in Latin America in taking up pay-TV, as the economy there has consistently strengthened during the past year, so far unaffected by the sub-prime lending crisis in the US. The company experienced an 82% increase in gross subscriber additions, got churn in Latin America down to 1.35% and doubled net additions there to 199,000 in the fourth quarter, primarily in Brazil.