Flipping the bird
Murdoch dishes up record for DirecTV
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NEW YORK -- Cable just can't keep up.
Rupert Murdoch-controlled DirecTV turned in a record quarter, raking in nearly a half-million new subscribers and adding to the woes of cable operators, which are losing subs at a quickening pace.
Company passed the 13 million subscriber mark, adding 455,000 new dish viewers in the quarter. Revenue rose 21% to $2.64 billion from $2.19 billion a year ago.
The increased spending to acquire and retain customers did take a toll on the bottom line, however, as DirecTV swung to a loss of $13 million from a profit of $22 million last year.
DirecTV stock closed up 42¢, or 2.6%, at $16.75.
A year ago, many investors and analysts believed cable's bandwidth advantages and ability to offer telephone, Internet and video-on-demand would give it the edge with consumers.
But satellite has experienced a remarkable turnaround since then. Satcasters offered a comparable set of channels for about 25% less than cable. DirecTV and Dish Network handed out heavily subsidized digital video recorders, which were a hit with consumers, and they signed deals with Verizon, SBC and Bell South to distribute the service.
The subscriber additions beat analyst predictions by a wide margin -- a disturbing trend for cable operators, which lost 160,000 subs in 2003 and another 867,000 in the first seven months of 2004.
Price war on horizon
Now some analysts expect a price war as cable fights back. "I think you'll find satellite guys will force cable either to lose subs or spend more to retain them," said John Hill, analyst at Schwab SoundView.
It's the third quarter of 400,000-plus subscriber growth for DirecTV, which came under the control of News Corp. in December. "We feel we're on course to transform DirecTV," said topper Chase Carey.
But Carey, too, expects a marketing onslaught from cablers, making recent growth harder and more expensive to maintain. "Obviously, cable is going to challenge us, and intensifying competition will put pressure on our metrics," he said.
Analysts attribute increased DirecTV marketing for subscriber losses at Time Warner Cable, Comcast and Cox Communications. Cox is weighing a buyout bid that would take it private, in part to allow it to make the kind of capital investments required to fight competition from satellite and the Baby Bells.
Rural push
Carey said the company would concentrate its marketing efforts on rural areas formerly served by Pegasus Communications. DirecTV acquired 1.4 million subscribers in an $875 million deal with Pegasus and the National Rural Telecommunications Cooperative.
DirecTV's stellar quarter was marred somewhat by the failure of the propulsion system of a PanAmSat satellite, which could scuttle DirecTV's sale of the unit to a consortium of buyout firms led by Kohlberg Kravis Roberts & Co.
DirecTV is selling PanAmSat and Hughes Network Services to focus on its core TV biz. But the $3.5 billion deal has a clause that allows KKR to abandon it if one of the unit's satellites fails. DirecTV said KKR is weighing its options but hadn't decided yet whether to exercise that right.
