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HD, DVRs, ‘Higher Quality Subscribers’ Drive DirecTV Profits

DirecTV Group reported a quarterly operating profit (before depreciation and amortization) up 12 percent over the last-year quarter to $1.00 billion on an 18 percent increase in revenue to $4.33 billion

Deployment of HD and HD-DVR set-top boxes resulted in higher per-customer revenue and lower churn, the company said. That primarily contributed to the increase in operating profit; but counting depreciation and amortization, operating profit declined 10 percent and net income fell 14 percent compared with Q3 2006, due to increased capitalization of customer equipment since the company switched to a box leasing model in March 2006.

The company has also incurred increased programming and capital costs associated with its drive toward about 100 HDTV channels by year’s end.

“The headline for the third quarter is that significantly greater sales of high-definition and digital video recorder services to higher-quality subscribers are having an extremely positive impact on the key operating metrics that drive DirecTV’s value,” President and CEO Chase Carey said in a statement.

In the United States, net subscriber additions were up 45 percent, fueled by growth in the demand for advanced services. More than half of new subscribers in the quarter signed up for HD and/or DVR services, compared to only 28 percent a year ago, the company said. That pushed churn rate down to 1.61 percent (compared to 1.80 past year)—one of the largest improvements in DirecTV’s history, the company said.

Of DirecTV’s total subscriber base, just under 40 percent now have advanced services, up from less than 30 percent a year ago.

“The increase in customers adding advanced services, as well as converting to our newer MPEG-4 HD equipment, resulted in higher upgrade and acquisition costs in the quarter compared to the prior year,” Carey said. “As we’ve highlighted in the past, customers with advanced services generate significantly greater cash flows and superior financial returns.”

DirecTV’s Latin American businesses reported a 67 percent jump in revenue over Q3 2006 to $442 million, due to the merger with Sky Brazil, completed in August 2006, as well as strong subscriber growth.