DirecTV slips in Q4

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Satellite TV giant DirecTV Group on Wednesday posted a slight decline in its fourth-quarter profit because of the higher costs of setting up high-definition TV, DVRs and other advanced services.

However, these services and the firm's lowest monthly churn rate in eight years helped DirecTV record strong revenue and 275,000 in net subscriber growth, on par with the year-ago period, despite a slowing U.S. economy.

The results exceeded Wall Street expectations and sent the stock 4% higher to $24.83.

"DirecTV's content and service leadership continue to drive superior results in a tougher marketplace that reflects increasing competition and a slowing economy," president and CEO Chase Carey said.

Management said subscriber growth will be slightly lower in 2008 than in 2007 after a co-marketing deal with AT&T's recently acquired BellSouth ends, but Carey added churn also should continue to move lower.

DirecTV also expects strong free cash flow this year with capital spending likely to be down "a couple of hundred million dollars," Carey said.

DirecTV, controlled by News Corp., is close to coming under the control of John Malone's Liberty Media.

After delays, regulators are expected to approve the deal this month.

Asked about DirecTV's future use of cash, Carey expressed frustration with the delays, but said the company's board is likely to explore possible stock buybacks, dividend payments or other moves once the Liberty deal is completed. DirecTV's quarterly profit declined 2% year-over-year to $348 million despite a 17% increase in revenue to $4.9 billion.

DirecTV U.S. added 275,000 net subscribers to reach a total of 16.8 million as of year's end, up 6% compared with the 16 million at the end of 2006.

Bear Stearns analyst Spencer Wang said the user growth was above his forecast of 246,000 and consensus expectations of about 258,000.



Churn fell to 1.4%, with Carey crediting "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."

Average revenue per user in the U.S. rose 8.3% to $87.40, also beating analysts' expectations.

Only subscriber acquisition cost was worse than what the Street projected. At $716 per subscriber, it exceeded Wang's estimate of $689 and the Street consensus of $702.

For 2007, DirecTV U.S. added 878,000 net customers, ahead of the 820,000 recorded in 2006 as churn for the year declined from 1.6% to 1.5%.

Goldman Sachs analyst Ingrid Chung lauded the results like many of her Street peers. "Despite macro concerns and triple-bundle competition, the company has continued to beat expectations and grow gross additions," she said in a note to investors. "DirecTV's operations are better positioned than other distributors to weather a macro slowdown."

DirecTV Latin America, meanwhile, also continued to strive. The unit boosted its revenue 41% to $499 million. Its subscriber count there rose by 199,000 in the quarter to end 2007 at 3.3 million, up from 2.7 million at year's end 2006.

Asked about competition from Verizon's FiOS TV video service, Carey said Wednesday that it "adds a competitive dynamic" in markets where it is launched and has "a bit of impact." But he said he feels comfortable with DirecTV's competitive position.

Asked about the importance of content, Carey said there is "synergistic value" to having content and distribution power, but signaled little interest in content acquisitions. "DirecTV doesn't need to add anything," he said. "Our core focus is to grow this business, and there is a lot of room left."
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