Losses widen despite partial offset on XM gain
NEW YORK — Losses widened at the DirecTV Group last quarter on a few hefty one-time charges and higher marketing costs to lure new customers. But Rupert Murdoch’s new satellite powerhouse is clearly on a roll as it piled up new subs, kept most of its old ones and boosted rev by 22%.
Losses widened to $639 million in the quarter from $51 million the year before, largely on a $479 million loss from the pending sale of PanAmSat and a $311 million hit from accounting changes. Execs acknowledged during a conference call that DirecTV, as expected, has been spending aggressively to hand out free satellite boxes and attract new subs.
Losses were partly offset by a $387 million gain on the sale of DirecTV’s stake — about 19 million shares — in XM Satellite Radio.
Revenue grew to $2.51 billion from $2.06 billion.
The company, which News Corp. acquired late last year, added a net 460,000 new subscribers in the quarter — up 67% from the year before. The monthly churn rate — which reflects the number of subs who bail — fell to a four-year low of 1.4%.
News Corp. recently changed the name from Hughes Electronics to the DirecTV Group to emphasize the sat biz. The company has restructured, brought over a number of managers from News Corp and Fox, and, execs said, is itching to give cable a real run for its money.
“Our focus is on making DirecTV the best television experience available anywhere,” said CEO Chase Carey.
Mitchell Stern, CEO of DirecTV Holding — the satellite service, not the parent — noted that the company continues to roll out local channels, which will soon air in 92% of DirecTV’s markets. He said the absence of local signals has been the main reason subscribers have favored cable.
Besides that, attractive pricing, free set-top boxes and new services like personal video recorders make satellite a superior service and value proposition over cable, Stern said.
He reassured investors that the high costs of acquiring subscribers will hit profits in the short term but ensure strong returns in the future. News Corp. pursued a similar strategy with U.K. satcaster BSkyB with stunning success.
DirecTV said it expects to receive $2.8 billion in cash from the sale of PanAmSat, which manufactures and manages satellites, to Kohlberg Kravis Roberts & Co. once the deal closes. KKR agreed to acquire PanAmSat last month in a deal worth $4.8 billion.
The $311 million accounting hit comes from an accounting shift in which DirecTV will start to account for subscriber acquisition, retention and upgrade costs as they are incurred.
DirecTV’s shares closed down 10¢ to $18.05.