DirecTV grows 2Q profit, confirms interest in Hulu

AP News
Posted: Aug 04, 2011 6:16 PM
DirecTV grows 2Q profit, confirms interest in Hulu

Satellite TV provider DirecTV said Thursday that its second-quarter net income grew 29 percent thanks to healthy subscriber growth in Latin America. It also confirmed its interest as a potential bidder for online video service Hulu.

The interest in buying Hulu comes as subscriber growth is slowing in DirecTV's biggest market, the United States. Some customers are dropping subscription-TV packages and turning to free or cheaper online options for watching TV shows, including Hulu. They are also shopping hard for better deals in a weak economy.

The nation's second-largest provider of pay-TV services added far fewer subscribers in the U.S. than it has in previous quarters _ 26,000 compared with 100,000 in the same period a year ago. Its stock fell nearly 6 percent.

Consumers "are increasingly under stress from an ongoing weak economy," Chief Executive Michael White told analysts on a conference call.

He said Hulu _ which is up for sale by its parents, The Walt Disney Co., News Corp., Comcast Corp., and Providence Equity Partners _ could help accelerate DirecTV's push to offer its video package on mobile devices as well as in the home.

"It's an interesting idea and we are looking at it," White said.

Churn, or the percentage of people who drop the service every month, rose to 1.59 percent from 1.51 percent a year ago. White said the company is working to trim that rate by taking such actions as offering deals to those about to quit. He blamed the higher churn partly on attractive offers from cable and phone companies with video service. He also blamed a 4 percent price hike that DirecTV imposed in the U.S. in February.

In a new sign of the feisty competition, Comcast Corp. filed a federal lawsuit in Chicago on Wednesday accusing DirecTV of false advertising. It's over a new promotion that started last month, in which DirecTV offers new customers its popular NFL Sunday Ticket package for "free" or at "no extra charge." Comcast says the campaign fails to mention that the promo requires a two-year contract during which the package is charged at the full rate in the second year.

DirecTV spokesman Robert Mercer said "it's deplorable that Comcast is trying to compete in the courtroom rather than the marketplace." He said the NFL package is free for a year and there's no need to subscribe for a second year, although a general two-year contract is required.

Despite tough slogging in the U.S., the company said it added 472,000 net subscribers in Latin America during the quarter, ending the period with 6.7 million. The demand was mainly from Brazil. In the U.S., its main source of revenue, it ended the quarter with 19.4 million subscribers.

"For more than a year, DirecTV has been all about Latin America," said Bernstein analyst Craig Moffett in a research note. "Unfortunately, the picture in the U.S. isn't all that appealing."

Overall, the results beat analyst expectations.

Net income in the three months through June 30 rose to $701 million, or 91 cents per share. That's up from $543 million, or 42 cents per share, a year earlier.

Revenue grew 13 percent to $6.6 billion from $5.85 billion.

Analysts had expected earnings of 85 cents per share on revenue of $6.55 billion, according to FactSet.

Nomura analyst Mike McCormack had expected the company to add 460,000 subscribers in Latin America and 56,000 in the U.S. _ the latter more than twice what the company reported.

Smaller competitor Dish Network Corp. reports its second-quarter results on Tuesday. McCormack expects it to report losing 28,000 subscribers. If that holds true, the U.S. satellite-TV industry will have lost subscribers for the first time.

DirecTV's stock fell $2.84, or 5.7 percent, to close Thursday at $46.63. DirecTV, which is based in El Segundo, Calif., announced results before the market opened.


AP Technology Writers Peter Svensson and Barbara Ortutay in New York contributed to this report.