DirecTV is showing the kind of growth that we always knew would come from a successful partnership with AT&T, up 13% in revenues to just under $6 billion for the fourth quarter, with the great bulk of that, around $5.1 billion, coming from its US operations. DirecTV had an operating profit up 49% to $862 million. However the company said it made a small net loss due to a $486 million charge related to the merger with Liberty Entertainment completed in November.
But even so it only added 119,000 net subscribers and said it had higher subscriber acquisition costs in the quarter. In its heyday DirecTV added around 240,000 subscribers, and AT&T should be adding something close to 160,000 a quarter for it as well, if it is performing anything like as well as it did when working with Dish. If it did this kind of performance with the help of AT&T, then how much worse will Dish Network figures be, out next week, which lost its marketing deal with AT&T last year and which is perceived as having a slightly less compelling HD experience than DirecTV.
In Latin America by comparison the company added 254,000 net subscriber additions, more than twice the number it added in the US, but then again with a typical churn rate of 1.54% the US additions were achieved with 964,000 gross additions. That’s what happens when 1.52% of the entire 18.5 million customer base cancels each month, so you have to sell more than the number of homes which cancel in order to grow.
New DirecTV president Mike White said, ‘Strong fourth quarter results capped a record-setting year for both our US and Latin American businesses as DirecTV became the world’s largest provider of pay television services.’ Except we think he is wrong, the US operation did not have a strong quarter.
Full year revenues grew by almost 10% to $21.6 billion and free cash flow went up by 40% to $2.4 billion. The company announced that it would repurchase shares to the value of $3.5 billion. DirecTV said that its improved margins were down to more disciplined cost management, but it looks to us like it was more about pushing a portion of subscriber acquisition costs off onto AT&T. Think about it, those AT&T customers can’t churn because they are ALL new. So all the churn is among existing customers which makes the numbers even less impressive.
White added, “In Latin America, increasing demand for DirecTV’s pre-paid, DVR and HD services in a relatively stable macro-economic environment drove record growth across the region. Propelled by strong results in Venezuela, Colombia and Brazil, DTVLA’s gross additions grew 35% to 460,000 and net additions increased 59% to an all-time high of 254,000 in the fourth quarter.
DirecTV LA revenues were also extremely strong in the quarter growing 47% fueled by the significantly larger subscriber base and favorable exchange rates in Brazil.
White was quick to remind investors that the coming year will include initiatives into multi-room DVRs, and 3-D and said that in Latin America he was expecting another year of huge growth, especially as the FIFA soccer World Cup is due.