DirecTV posts Q4 loss due to merger charge

Sees four-year high for 2009 U.S. net subscriber additions

NEW YORK -- Satellite TV giant DirecTV swung to a fourth-quarter loss due to a merger charge, saying Thursday it signed up fewer subscribers than in the year-ago quarter, but reporting a four-year high for U.S. net subscriber additions for all of 2009.

DirecTV swung to a fourth-quarter loss of $32 million from a year-ago profit of $332 million. Excluding a pre-tax charge of $491 million related to the merger with Liberty Entertainment, completed in November, profit increased 37% to $454 million.

Fourth-quarter revenue grew 13% to nearly $6 billion.

The 119,000 U.S. net adds in the quarter compared to 301,000 a year earlier as the company faced an aggressive advertising campaign from competitor Dish Network. DirecTV managed to add 939,000 net subscribers for all of 2009, compared with 861,000 in 2008. It ended the year with 18.56 million users.

The company said the weaker quarterly subscriber trends and higher acquisition costs reflect tighter credit policies, increased competition and what new president and CEO Mike White called "a generally cautious consumer seeking value in what continues to be a sluggish economy."

In his first earnings call since taking on the CEO post, White said it doesn't do any good to chase customers with weak credit. He listed as his key priorities: further improving customer service; making DirecTV not only the best TV experience but also rolling out further high-speed, mobile and other services; and exploring additional international opportunities, especially in emerging markets.

White also shared his thoughts on key strategic issues that investors regularly bring up.
For example, he said he expects to keep DirecTV Latin America as part of the company rather than spinning it off and said he is interested in smaller, affordable content acquisitions, especially in sports, without feeling the need for a big content deal. He mentioned the three regional sports networks in Seattle, Denver and Pittsburgh that DirecTV now owns after the Liberty deal as great content holdings.

White expressed no interest in an often-rumored combination with a telecom giant.

In terms of shareholder returns, DirecTV on Thursday announced a $3.5 billion stock buyback program, and White said he isn't ruling out a dividend.

He also said he has high hopes for DirecTV Cinema, which will launch this spring with about 400 current film titles, many of them day-and-date with their DVD release; 3-D and multi-room viewing offers that are being rolled out this year; and the debut of DirecTV's Home Media Center in the second half of the year.

The new boss said he was "thrilled to be joining DirecTV at a time when it has just completed one of its strongest years ever." He added: "Strong fourth-quarter results capped a record-setting year for both our U.S. and Latin American businesses as DirecTV became the world's largest provider of pay television services."

Full-year 2009 revenue rose 10% to $21.6 billion, but profit declined from $1.5 billion to $942 million.

Sanford C. Bernstein analyst Craig Moffett said DirecTV's latest figures are the result of a trade-off of user growth for profitability.

"In the face of Dish Network's withering 'anti-DirecTV' campaign -- a 'we're cheaper' campaign which appears aimed at replacing satellite sector growth versus cable with a satellite-versus-satellite share war -- DirecTV seemingly accepted lower growth...but has sustained profitability and cash flow," he said in a report to investors.

He also highlighted that the company's fourth quarter is "heavily dependent on adoption rates of the pricey NFL Sunday Ticket, which could arguably have fallen victim to discretionary belt tightening -- it didn't."

Moffett also lauded an increase in DirecTV's gross profit per subscriber, "suggesting that the programming cost squeeze so many observers have predicted industry-wide remains restrained at DirecTV."