DIRECTV Conference Call

A three-part review on DIRECTV’s 2007 Q4-Conference Call   

Part 1-HD and DVR Growth

A large portion of the conference call was devoted to the impressive results from so-called advanced technologies, HD and DVR.  While these technologies are certainly important for DIRECTV, they are also expensive.  Set top boxes for new subscribers are a significant start up cost for the company to incur, and using up satellite capacity for HD channels restricts the company’s ability to beam additional channels and local networks to new markets.

Overall revenue for the quarter was $4.4 billion, up 14%.  Customers with advanced services (HD and/or DVR) now compose 40 percent of the customer base, compared to 30% at the start of the year.  DIRECTV added over 600,000 customers in these areas in the fourth quarter, which was a similar increase seen in the third quarter of 2007.   The company expects to increase another 10% in 2008.

The company attributed several favorable financial benefits from these advanced services.  The churn rate was reduced to an 8 year low, mainly due to involuntary churn being reduced due to DIRECTV’s focus on high quality subscribers.  Mandatory credit cards and an 18 month commitment, up from 12 months, were driving factors in growing a high quality subscriber base.  The low churn rate was admirable considering pay TV competition and a weakening economy.

Subscriber acquisition costs, or SAC, while not explicitly given, were above $700.  This was above the company’s stated goal of keeping SAC in the $650-700 range.  The company did mention progress in reducing costs for HD and HD DVR set top boxes.  While HD DVR boxes were around $400 a year ago, DIRECTV expects company cost to be in the low $200 range by year end 2008.  The company reduced their costs on HD and HD DVR set-tops by 30% in 2007 and is targeting another 30% reduction this year.