DirecTV Reports Profits Increased 184% During Q2
By Alan Wolf -- TWICE, 8/21/2006
El Segundo, Calif. — DirecTV's efforts at attracting and retaining higher-quality customers, combined with newfound savings and efficiencies in hardware and installation costs, helped send second quarter profits soaring 184 percent to $458.7 million for the three months ended June 30.
Revenue for the period grew 10 percent to $3.5 billion year-over-year, the company reported.
In a conference call, president/CEO Chase Carey also announced a pending partnership that will put DirecTV into the wireless broadband business, but declined to disclose details before the agreement is finalized.
Carey said that while gross subscriber additions declined 10 percent to 863,000 for the quarter and net additions of 125,000 also fell below expectations, the company added 11 percent more higher-quality gross subscribers than it did during the prior-year period. The higher-quality subscriber base led to top- and bottom-line improvements as customers bought more premium services such as HD programming and DVRs — leading to average revenue per user (ARPU) growth of 5.6 percent, to $71.59. Conversely, the monthly churn rate fell from 1.69 percent to 1.59 percent, bad debt expenses were reduced, and subscriber acquisition costs declined, he said. Acquisition cost per subscriber declined both sequentially and year-over-year as set-top box cost reductions of some $20 per box offset the higher sales of advanced HD and DVR boxes.
Earnings were also aided by the March 1 launch of a set-top receiver lease program that allows DirecTV to reclaim and reuse boxes from deactivated customers. Under the program, which is designed to increase future profitability, set-top receivers are capitalized and depreciated over their estimated useful lives of three years. The company paid $253 million for leased equipment during the second quarter, including $153 million for subscriber acquisitions and $100 million for upgrades and retention.
Carey noted that the company is attaining higher-quality customers through refinements in its credit policy and a restructuring of its dealer network. “We transitioned to a dealer base that compliments our direct sales initiatives,” he said. As a result, dealer sales fell from 50 percent to 36 percent of total revenue during the quarter while direct sales grew from 22 percent to 33 percent.
Carey said the company will:
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Launch its new HD-DVR box later this month in Los Angeles and roll it out nationwide in the following weeks;
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Offer HD in 25 additional local markets by year's end for a total of 61 markets or 75 percent of all U.S. TV households;
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And will launch several new products and services prior to the holiday season, including an enhanced NFL Sunday Ticket package that features new interactive services and more HD games.
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