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DirecTV Programming Costs Rose Almost 6% in Q1

Programming costs for DirecTV, the second-largest pay TV provider in the U.S. after Comcast, increased nearly 6% in the first quarter — greater than satcaster’s 5% growth in revenue in the States, execs said.

And DirecTV’s content spending will be even higher in the second half of 2013 as deals struck last year with Viacom, CBS and Time Warner Cable Sports kick in, according to DirecTV CFO Pat Doyle. Q1 programming costs would have been up 8% year over year, Doyle said, if NFL Sunday Ticket — which had one fewer week in 2013 than last year — had been a factor.

In the U.S., the company added 21,000 net new subscribers in the first quarter, down from 81,000 in the year-ago period, to stand at 20.11 million as of the end of March. DirecTV said gross subscriber additions declined because of competitive pressures and because it’s focusing on “higher-quality subscribers” with stricter credit policies. The company also increased rates an average of 4.5%, effective Feb. 7.

“In terms of sub trends, I feel very good — despite the price increase, we came in pretty well,” DirecTV topper Mike White said on the satcaster’s earnings call with analysts. “North of 20 million (subscribers) is a nice place to be in the U.S.”

He added that Q2 gross adds are trending well, but that he expects a net loss of subscribers in the historically weak period.

As far as new products and investments, DirecTV is spending capex in 2013 on streaming-video infrastructure, to expand its TV Everywhere capabilities, White said. Today, satcaster offers 83 live channels in the home and on-demand content from 38 networks.

“A lot of the capital investments are plumbing and wiring and infrastructure to enable us to stream even more,” White said.

DirecTV will launch a second-generation Genie DVR in second half of the year with built-in Wi-Fi, as well as wireless Genie clients, White noted. He also called out its new voice search app rolling out in early summer and a second-screen NFL Sunday Ticket app with fantasy football features.

“There’s more to do, no question,” White said. “You’ll see the whole industry evolve in this area over time.”

DirecTV’s U.S. revenue grew 5% in Q1, to $5.79 billion, which the satcaster attributed to subscriber growth, the rate hikes and 4.4% higher average revenue per unit, to $96.05.

Overall, DirecTV posted revenue of $7.58 billion, up 8% year over year, and net income attributable to DirecTV of $690 million, a decline of 5.6%. The quarterly results included a $166 million pretax charge associated with the revaluation of the net monetary assets of the company’s subsidiary in Venezuela at the time of the bolivar’s devaluation in February.

On the strong results, DirecTV stock closed up 6.9% Tuesday, to $61.96 per share, amid a surge in the broader market.

DirecTV’s Latin America unit delivered healthy growth, with net adds of 583,000 subscribers in the quarter, giving it 10.91 million total at the end of the March. Sky Mexico, in which DirecTV holds a 41% stake, had 5.41 million subs at the end of Q1 (excluded from DTLA’s results). Revenue for Latin America was up 18%, to $1.73 billion; organic revenue, excluding unfavorable exchange rates, was up 32% in Q1, White said.

On the call, White was asked about rival Dish Network’s bid for Sprint, and whether DirecTV has considered a wireless play itself. As he’s indicated before, the exec said a greenfield entry into the wireless business or an acquisition in the sector would not be in the best interests of shareholders.

“I think our approach has been to partner,” he said. “It’s why we worked so hard to strengthen our alliance with all our telco partners,” which include AT&T, Verizon and CenturyLink.

Also on the call, Doyle said the company expects to take a non-cash charge of $60 million in the second quarter related to the renegotiation of the deal with baseball’s Seattle Mariners last month for the Roots-branded regional sports network in the market. Under that deal,  DirecTV will now own a minority interest in the RSN while still overseeing operations.

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