DirecTV to Expand Ties With Cellular Carriers, CEO Says

The satellite company’s long-standing alliance with Verizon and recent resumption of resale pact with AT&T, put it in a strong position for moves to increase subscriptions, Carey said. AT&T, which switched last year to Dish Networks, returned to the DirecTV fold last fall. It resumed DirecTV service sales in 22 states last week, company officials said. But how DirecTV will bring its programming to cellphones is a long-standing goal that still hasn’t been finalized, company officials said.

News Corp. CEO Rupert Murdoch trumpeted DirecTV plans for a wireless broadband strategy three years ago. While DirecTV at the time planned to invest $1 billion and forged an alliance with WiMAX provider Clearwire, a service never materialized. DirecTV’s WiMAX interest waned when Liberty Media replaced News Corp. as its majority owner. In late 2005, DirecTV and EchoStar issued a request for information that envisioned a nationwide wireless broadband network using 1.5/1.6 GHz L-band or 2.5 GHz spectrum.

“There will be more of an interest” between DirecTV and carriers in making wireless “more of an inter-related part” of the satellite business,” Carey said. “It’s a positive opportunity for us. What the shape and form is going to be, we'll have to see.”

In addition to wireless, DirecTV plans to begin deploying home networking software with some of its high-end HD/PVRs this year with a home server/slave unit strategy targeted for 2010, Carey said. The home networking is part of a move by DirecTV to switch its HD/PVR satellite receivers to an internally developed operating system (CED March 3 p1). DirecTV also paid a one-time license fee to Motorola to gain access to code designed originally for Ucentric’s home networking platform, said executives familiar with the developments. Motorola, which once worked with Ucentric, bought the company in 2005. DirecTV put $20 million into developing internally a Linux-based operating system that includes Ucentric code, sources said. The final OS, which is in new DirecTV HD/PVR satellite receivers that shipped in July 2008, used about 20 percent of the licensed code, a source said.

While DirecTV switched to NDS PVR and middleware it has increasingly shifted to internally developed software. NDS’s OS uses mini-Java and NDS C-code. The DirecTV version is based on Skelmir’s virtual machine Java and Linux, officials said. Last year DirecTV extended its agreement with NDS to 2013 from 2010, with NDS continuing to provide security software as well a complete HTML engine and low-level drivers for its XTV PVR platform, DirecTV officials said. But DirecTV also is expected to deliver a new TiVo HD/PVR later this year. DirecTV initially struck alliances with Microsoft and Intel in 2006 to link its satellite service to a broader array of networked devices. But the new DirecTV software, which is expected to be available in the second half, will allow HD/PVRs to share programming, Carey said.

“We want to make sure we get the bugs out” before the networking is more widely available to DirecTV customers, Carey said. The networking software will be distributed this year “reasonably broadly” to DirecTV’s high-end HD/DVR customers, Carey said.

While DirecTV’s video-on-demand service launched last year and the take up among customers is “improving,” it “needs to be made easier to use,” Carey said. VoD isn’t “big enough yet to drive any material” revenue for DirecTV, but “over a couple of years” that will change with emergence of home networking, Carey said. The required VoD software was downloaded to DirecTV HD/PVRs last March. DirecTV also is making “some investment” in Q1 in its multiple-dwelling unit business to upgrade systems and will “actively manage” some properties, Carey said.

Meanwhile, DirecTV’s Q4 profit narrowed to $332 million from $348 million a year earlier as interest expense rose to $112 million from $59 million. The rise in interest expense was tied to DirecTV’s long-term debt, which jumped to $5.7 billion from $3.3 billion a year ago. Revenue increased to $5.31 billion from $4.87 billion as DirecTV added 301,000 net new subscribers, ending the year with 17.6 million subscribers in the U.S., up from 16.8 million a year ago.

DirecTV’s U.S. operating profit shrank to $488 million from $576 million as sales rose to $4.74 billion from $4.37 billion. Monthly customer churn was flat with a year ago at 1.42 percent and average monthly revenue per (ARPU) subscriber increased to $90.46 from $87.40. Subscriber acquisition costs jumped to $589 million from $524 million, while upgrade and retention costs increased to $217 million from $215 million. The average per subscriber acquisition cost jumped to $724 from $716.

DirecTV Latin America’s (DLA) Q4 operating profit improved to $104 million from $56 million as sales rose to $572 million from $499 million. DLA’s net subscriber additions slipped to 160,000 from 190,000 to end the year with 3.88 million, up from 3.27 million, the company said. Monthly churn increased to 1.59 percent from 1.35 percent. Monthly revenue per subscriber dropped to $50.09 from $52.22, due largely to unfavorable currency exchange rates in Brazil. DLA began offering a pre-paid service in Brazil last year, expanding it from Venezuela, where it is a “significant part” of DirecTV revenue there. - Mark Seavy