Growing Pains: DTV Sub Gains Stall

DirecTV reported a narrower 4Q loss yesterday, but the DBS giant’s sub growth came as a bit of a let down to some analysts. Oppenheimer’s Thomas Eagan said DTV’s 444K net sub adds were significantly below his firm’s estimate of 557K, which seemed to suggest that its "RBOC partnerships were not that successful in driving net adds." Eagan noted that Oppenheimer’s estimate was high on the Street. Another figure that caused consternation was DTV’s subscriber acquisition costs, which at $669 per gross add, were also above estimates and underscored how tight the multi-channel market remains. On a conference call with analysts, DirecTV CEO Chase Carey said the DBS giant had "consciously pared back on marketing efforts geared toward potentially high-risk customers," and said there would be an eventual payoff in lower churn rates. (Churn was slightly higher than expected, averaging 1.6% per month vs estimates of 1.56%.) Upgrade/retention costs were also up, reaching $332mln for the quarter, well over the UBS estimate of $269mln and an increase of 117% YOY, as DTV was forced to offer higher-priced set-tops and dishes to keep less satisfied subs from churning. Carey said the company "need[s] to do a better job of managing upgrade costs." The Dish: Carey reflected on a number of issues facing DTV in 2005, including HD, which remains "a pricey proposition" for many consumers and by extension, carriers. The CEO said DTV would take the middle ground, making "an intelligent investment in front of the market but not unreasonably ahead of the market." And while he didn’t dismiss telco TV outright, Carey questioned how the phone companies will be able to sell a product with which it has little to no experience. No question who’s the 800-lb gorilla, then: "Our interests by and large are designed to compete with cable." — DirecTV closed down 57 cents at $15.23.