AP News

DirecTV loses subscribers for first time in 2Q


NEW YORK (AP) — DirecTV, the country's largest provider of satellite TV services, is losing subscribers for the first time, as the company tightened credit policies and consumer appetite for pay-TV services appears to have plateaued.

DirecTV Inc. said Thursday that it lost 52,000 U.S. subscribers in the April-to-June period. Last year, it added 26,000 in the same period, which is seasonally the weakest of the year.

Other pay-TV companies have reported worsening subscriber trends in the quarter, except for Comcast Corp. and Dish Network Corp., which have reported reduced losses. Time Warner Cable Inc., the second-largest cable company, said Thursday that it lost 169,000 subscribers in the second quarter, a record for the company.

The second quarter is usually a weak one for pay-TV services because students cancel their subscriptions ahead of the summer holidays, and some "snowbirds" cancel their winter home subscriptions before heading to their summer homes. For the past two years, the industry has lost overall subscribers in those quarters.

Cable, satellite and phone companies that sell TV services have made up for the losses with subscriber gains in other quarters, but the gains are running below the rate of population growth, indicating a slow erosion in the willingness or ability of households to pay for TV.

Surveys point to the cost of TV signals as being the chief reason households go without. In addition, more younger adults are living with their parents in the wake of the recession. But anecdotal evidence suggests some households are also eschewing pay-TV in favor of Internet video from Hulu, Netflix, iTunes and other sources.

Rapid subscriber gains in Latin America buoyed DirecTV's results, but earnings missed expectations. Net income was $711 million, or $1.09 per share, compared with $701 million, or 91 cents per share, a year ago.

Analysts polled by FactSet were on average expecting $1.14 per share, but may not have been factoring in the decline of the Brazilian real in the quarter. That drop led DirecTV to take a pretax charge of $43 million related to its Brazilian operations.

Revenue rose 9 percent to $7.2 billion.

CEO Mike White said the operating profit on its U.S. operations grew at the fastest rate in two years. He called that "an early indication of successfully executing on our long-term strategy of striking a more optimal balance between growth and profitability."

New subscribers need to be equipped with dishes and set-top boxes, which cost DirecTV money, so an influx usually cuts into short-term profits. Conversely, fewer new subscriber boost profits in the short term.

Analysts were expecting DirecTV to lose subscribers in the quarter. Matthew Harrigan at Wunderlich Securities said it makes sense for DirecTV to focus on high-paying customers who will stay with the service, rather than attracting value-seekers who cancel after a year or two.

"Unfortunately, in this environment, you have to find consumers who can afford the product," Harrigan said.

Harrigan still expects DirecTV to add customers over the full year, a view DirecTV executives supported on a conference call Thursday.

DirecTV shares fell $1.30, or 2.6 percent, to close at $48.80. They're retreating off a 52-week high of $50.50 hit Wednesday.

DirecTV ended the quarter with 19.9 million U.S. subscribers, making it the second-largest provider of pay-TV signals in the country, after Comcast. Smaller rival Dish said two weeks ago that it lost about 10,000 subscribers in the quarter. It has been reporting losses off and on for more than four years, reflecting a roughly stable subscriber base of 14 million.

DirecTV's Sky Brasil and PanAmericana added 645,000 subscribers. That was up from 472,000 a year ago and the best result ever for the company. DirecTV now has 9.1 million subscribers in Latin America. Sky Mexico, of which it owns 41 percent, has another 4.6 million.

Latin American subscribers pay less than those in the U.S. DirecTV gets 78 percent of its revenue from U.S. operations.


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