News

Tough-Talking Austin Bashes Cable Rivals

4/20/2003 8:00 PM Eastern

Just days after it announced that News Corp. would acquire a controlling interest in Hughes Electronics Corp. for $6.6 billion, Hughes subsidiary DirecTV Inc. reported one of its best first quarters ever.

Subscriber growth, revenue and cash flow all increased to near-record levels for the direct-broadcast satellite pro-vider, as monthly customer churn hit a four-year low for the second consecutive quarter.

DirecTV added 275,000 new customers in the first quarter and increased its 2003 guidance to between 800,000 and 850,000 new additions. Previous guidance had topped out at 800,000 additions.

Hits dish net, too

DirecTV president Roxanne Austin said that 2003 subscriber growth would fall below the 1.1 million additions of 2002 — No. 2 DBS provider EchoStar Communications Corp. had 1.4 million new adds at that time — but that's only because DirecTV is bigger and the market is maturing.

"It's the law of large numbers," Austin said. "They [EchoStar] are not beating us."

DirecTV's status as the No. 2 multichannel video-service provider, with 11.4 million subscribers, trailing only Comcast Corp., with 22 million, provides leverage to renegotiate programming deals and cut costs, she said. DirecTV expects programming costs to increase 7 percent this year, down from 8 percent to 9 percent last year.

SAC isn't declining

Subscriber acquisition costs don't appear to be declining from the current $540 per subscriber level. Set-tops with digital video recording add about $10 to $15 to SAC, but tend to add revenue and cut churn (to less than 0.5 percent per month).

DirecTV expects 250,000 existing customers to migrate to digital video recorders this year, raising the total number of DVR customers to about 1.1 million.

Austin talked a lot about cable's deficiencies. Some 40 percent of DirecTV's new adds previously subscribed to digital cable, she told analysts on a call last week.

"Cable is not delivering on the digital promise," she said, because not all channels are delivered in digital format.

"I'd be talking about bundling and high-speed Internet, too, if I were them," she added. "We don't need it to be competitive."

September