DirecTV Posts Wider Q3 Loss

Nov 2, 2004  •  Post A Comment

DirecTV Group on Tuesday posted a widened third-quarter loss as higher marketing costs and a one-time charge related to the planned launch of a pair of satellites offset a double-digit gain in revenue brought on by strong subscriber growth.

The No. 1 satellite operator, which is 34 percent controlled by Rupert Murdoch’s News Corp., reported a third-quarter loss of $1.01 billion versus year-earlier red ink of $23 million. On a per-share basis, DirecTV’s loss was 73 cents compared with a year-ago loss of 2 cents. Revenue surged 20 percent to $2.9 billion as the company added more than 1 million new subscribers in the quarter.

Driving much of the red ink in the 2004 quarter was an adjustment DirecTV made to the fair value of two satellites the company expects to launch next year. Originally planned for use as part of the company’s satellite-based high-speed data service, DirecTV scrapped the broadband plans and decided to use the satellites to deliver video.

However, because video wasn’t the main purpose for the satellites, DirecTV had to adjust downward the value of the satellites from an original worth of $1.9 billion to $390 million. That led the company to book a charge in the 2004 third quarter of $903 million.

The quarter also reflected $260 million in marketing and customer-retention costs spent in the quarter.

Despite the charges, DirecTV had a strong quarter in terms of subscriber growth, adding more than 1 million subscribers in the period.

More than half of the subscriber growth was fueled by DirecTV’s relationship with telephone companies BellSouth and Verizon Communications, which has teamed up with the satellite company to offer consumers a bundle of services in a bid to take on cable operators, which are touting a suite of video, voice and data services.

DirecTV itself booked a record 484,000 new customers in the quarter, far outpacing the new-subscriber adds made by cable operators Comcast and Cox Communications, which said last week in their earnings releases they signed up 18,000 and 8,500 new subscribers, respectively.

However, the growth didn’t come without some downside. In what DirecTV management attributed to faster-than-expected growth, the company’s churn, or rate at which subscribers are removed from the rolls, crept up to nearly 1.7 percent from a year-earlier level of 1.6 percent.

Mitch Stern, DirecTV’s president and CEO, said the company has taken measures to reverse the churn increase, including strengthening credit scoring mechanisms to better weed out risky customers.