As a turnaround year, 2005 was a success in many ways for El Segundo-based DirecTV Group Inc. But the nation’s largest satellite TV service is still struggling to get ahead of cable and telecom competitors that also want to become the one-stop shop for consumers’ entertainment needs.
The nation’s largest satellite TV service not only reversed a long string of quarterly losses but also initiated technology upgrades and exclusive programming.
A few weeks after reporting its third straight profitable quarter, El Segundo-based DirecTV last week told Wall Street analysts that it expects to be able to grow from its current 15 million subscribers to 18 million by 2008, starting with the addition of 1 million households this year.
The company trumpeted initiatives aimed at hitting several telecom sweet spots, including high-definition TV, digital video recording, and video on demand for movies, TV shows and video games.
New and existing customers are receiving next-generation equipment designed to be easily upgradeable for future services. The company also is working with a handful of TV and computer manufacturers to add its tuners to television sets and personal computers.
Subscribers “want to watch what they want, when and where they want,” Romulo Pontual, chief technology officer, said at a recent analyst outlook conference. “And they want it to be simple.”
But still missing from the mix: the ability for the satellite provider to offer a branded broadband Internet service it can bundle with its television package in the same way that cable companies now aggressively promote as a customer convenience.
Comparable DirecTV offerings are limited to telephone-DSL partnerships with several telecommunications companies, including Verizon Communications Inc. and BellSouth Corp., plus a deal with Internet provider EarthLink Inc., also announced last week.
Despite rumors of a potential partnership between DirecTV and archrival EchoStar Communications Corp. to launch a wireless broadband network, Chief Executive Chase Carey was noncommittal at the analyst meeting. He suggested that a more likely scenario would be a partnership in an existing broadband service that his company could bundle with its satellite service.
In the meantime, the company, whose largest shareholder is Rupert Murdoch’s News Corp., is taking greater advantage of the customized exclusive content that Murdoch’s television and online properties can provide.
While DirecTV’s regional sports packages have long been a draw for its male audience, Carey said new exclusive music and family programming, including educational video games for children, should broaden its base.
One example is the service’s recently launched CD USA, an American Bandstand-style music show taped in Los Angeles. The show draws heavily on independent artists who are affiliated with the popular MySpace.com online site, a recent News Corp. acquisition. The FX TV network, another Murdoch property, soon will offer 48-hour advance on-demand access to many of its shows.
“The vast majority of these initiatives didn’t exist 12 months ago, so there’s been a lot of activity to drive this business forward,” Carey said.
And to improve its bottom line, DirecTV has attempted to reduce subscriber acquisition costs by improving the quality and longevity of its subscriber base. That means tightening credit standards for new subscribers, carefully monitoring promotions and requiring customers to sign longer contracts so that they are less likely to drop out after a promotional period.
At the same time the company plans to reduce a customer’s initial investment by launching an equipment lease program this spring. The usual closet-full of satellite dishes and set-top boxes required to obtain more than basic satellite TV services has been effectively lampooned in cable company advertising.
The early initiatives are showing results. The company added 200,000 subscribers during the quarter, at least 100,000 less than expectations. However, the average cost of acquiring a subscriber fell 4 percent to $639.
“We think the recent trading in the stock is bullish because it shows that the market is embracing its increasingly evident strategy of prioritizing subscriber profitability over unit growth,” said analyst Douglas Shapiro of Bank of America Securities in a note to investors.
