DirecTV records Q3 gains -- in HD

Revenue leaps 18% as hardware, format 'drive marketplace'

A well-received earnings report from DirecTV Group helped it buck a wicked downtrend Wednesday on Wall Street. The stock rose 2.5% and was one of just seven gainers among The Hollywood Reporter Showbiz 50 stock index.

DirecTV blew past revenue projections in its third quarter helped by more customers opting for high-definition and DVR packages, two services that CEO Chase Carey raved about during a conference call with analysts.

Carey said average revenue per user was up 8% year-over-year and that churn was contained, both thanks to HD and DVR, and that additions to a box that can handle both grew about 80% year-over-year.

He said HD and DVR "will continue to drive the marketplace" much more so than VOD.

On the downside, Carey said DirecTV is rolling out too many trucks in order to handle upgraded services and repairs, and rising programming fees for the NFL, Fox News Channel and Showtime all sliced into profits.

DirecTV reported an 18% rise in revenue to $4.33 billion, better than the $4.25 billion analysts expected. Net income, however, fell from $370 million a year ago to $319 million.

DirecTV added 240,000 net subscribers to total 16.6 million, 6% more subs than it had at the end of the third quarter last year. Churn fell from 1.8% last year to 1.6% and average revenue per user was up from $72.74 last year to $78.79.

DirecTV also is a hit in Latin America, where revenue at that business unit soared 67% to $442 million. The subscriber count there rose from 33,000 last year to 161,000.

DirecTV, controlled by News Corp., is in the midst of falling under the control of Liberty Media, though Carey said federal regulators have made the process "frustratingly slow." He said he still expects the transaction to close by year's end.

Carey downplayed the competitive threat from cablers' "triple threat" of phone, Internet and cable services, which he said competes only on price, as opposed to quality.

Several observers contrasted DirecTV's success in finding customers with cable's failure in that regard. Time Warner Cable, for example, said Wednesday that it lost 83,000 basic subscribers in its most recent quarter.

"Cable is losing the battle for churn despite having the triple bundle as a weapon," Goldman Sachs analyst Anthony Noto said.

Echoed Wedbush Morgan Securities analyst William Kidd: "The good news is that demand for satellite is continuing to hold up very well against upgraded cable and early telco competition."

Kidd also noted that subscriber acquisition costs did not need to rise much in order for DirecTV to sign on subs. SAC rose a relatively mild $8 sequentially to a total $696.

"Just in case you were thinking DirecTV bought their subs this quarter, it didn't," Kidd said.

Nevertheless, the analyst did not upgrade DirecTV, rating shares a "hold" with a $25 target, suggesting that they will fall about 7% in the next year or so.

Kidd said his target could go lower if DirecTV loses AT&T as a distribution partner. AT&T is rumored to be interested in acquiring EchoStar Communications, parent of DirecTV competitor Dish Network.

"We are talking to AT&T about bundling relationships," Carey said. "There's not a whole lot more to add."

Wall Street on Wednesday was crushed with a 2.9% loss in the S&P 500, though media shares held up better with the THR Showbiz 50 falling 2.16%. DirecTV shares were up 2.5% to $26.78, making it the third-best performer on the index behind Martha Stewart Living Omnimedia, which rose 4.2% after an analyst upgrade, and Blockbuster, which gained 2.5% to $4.84.
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