A three-part review on DIRECTV’s 2007 Q4-Conference Call
After DIRECTV made their presentation on Q4 results and the outlook for 2008, Wall Street analysts had an opportunity to question the company executives. This is the part of the call where the company generally dances around the questions given, trying not to give out too much information.
While not a lot of details emerge, there are some interesting things to think about from either an investor or customer’s perspective. I will recap some of the Q&A session here.
The analyst from Sanford S Bernstein questioned about the impact of Verizon FiOS, and specifically how DIRECTV was impacted by FiOS in
“And to some degree again, we’re not approaching this as a one size fits all. We’re competing in different FiOS markets in different ways and in different ways in each market, trying to be smart about how do we approach it.”
DIRECTV again seems to try to position itself as a premium service, and is not really interested in engaging in pricing wars with whatever competitors may exist.
The analyst from Goldman Sachs questioned whether the company has set a new goal for its churn rate, and whether DIRECTV is making any plans for renewal of the NFL Sunday Ticket Package, which it holds exclusively through 2010.
Mr. Carey responded by affirming the company had made real strides in its churn rate, but declined to name a specific goal for 2008:
“I think we pursued an array of initiatives and finally made the type of headway we expected to make. Though that being said, I expect churn to be down a bit on ’08 from ’07. So we still think churn is an area we expect improvement.”
As far as the NFL Sunday Ticket, Carey agreed it is a great programming asset, but it is too soon to be worrying about negotiations with the NFL at this point.
“In terms of Sunday Ticket, you’re a bit — it’s awful early and it really is the ’11 season is the first one we’re not licensed, so you are practically three-and-a-half years out, so you are pretty far ahead of the curve.”
The analyst from Credit Suisse inquired about content, and whether DIRECTV is interested in owning additional networks. Carey did not indicate that it was much of and interest for DIRECTV:
“I think we feel very good about DIRECTV as a business. It certainly does not need to add anything to it. I think we believe we’ve got a lot of room to grow the business, a lot of room to expand the business.”
He did continue by saying they would of course keep an open mind toward opportunities that may be out there as far as content.
The analyst from Morgan Stanley inquired about capital expenditures on DIRECTV’s latest satellites, the D11 and the D12. The D11 is scheduled to launch shortly, and no firm decision has been made on the D12-Carey states:
“In terms of we are — we do have D11 and D12 spending. Again, it’s true with the CapEx — and CapEx is sort of continuing to extend out longer than we initially planned. I think we had talked about a window and it has taken longer, so we have D11 and D12. We haven’t really made a final decision on the D12 launch plans so we don’t have those finalized yet.”
Recent speculation on the internet has been that the company is near capacity on its current satellite fleet, and that HD expansion has been halted. The company has not stated anything officially on this speculation, but the launch of D11 and possibly D12 this year will no doubt give DIRECTV more flexibility.
The analyst from Bear Stearns questioned about ARPU growth, which has been strong the last two quarters due to HD and DVR upgrades. The question was whether the average growth per subscriber number could continue to increase, given the fact HD and DVR penetration was already at about 30% of the customer base. After hinting that better direction would be given in a few weeks, Carey said:
“But I think we are continuing to see very significant growth and penetration of those devices and good growth in an array of areas in ARPU, so certainly we see some continued growth and would expect to see good healthy continued growth in that in ’08.”
The company reiterated the expectation that they expect a 10% increase each year in the percentage of subscribers using HD and/or DVR services, Carey stated this about the long term prospects:
“Longer term, where does it go? I mean look, I’m a big believer that these — particularly the DVR and HD have a momentum behind them that are making them sort of mainstream products to American households in the way that over time, DVDs and VCRs and other various things became.”
Finally, the analyst from JP Morgan asked about pricing, and how much of DIRECTV’s price increases contribute to ARPU. After talking about the fact that most companies increase prices in the 3-4% range each year, Carey got off a pretty good remark about Dish Network’s “price freeze”:
“But again, we’re pretty well into it for ’08. Is there a risk of price competition? Look, it’s always there. Right now, it has not certainly — I think most of the major players have announced their price increases for the next 12 months and a couple of them did it in a little bit more of a — probably confusing way to try to hide the price increase but I think the reality is everybody put through a degree of price increases in the last 12 months.”
While not mentioning Dish Network specifically, it was hilarious to see Carey call the increase that Dish put through as “confusing.” Hilarious because he was right. Dish Network made a big deal of their “price freeze” earlier this year, which actually only kept two packages the same, while others were increased.
For the full transcript of the conference call, visit seekingalpha.com.
Part 3-Questions from Wall Street Analysts
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Very cool! I’m looking forward to watching The Master myself.. thanks for the heads-up.