DIRECTV Earnings Call Nuggets: Latin America and Genie Impact

DIRECTV (NASDAQ:DTV) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Latin America

Phil Cusick – JPMorgan: I guess, Bruce, can you talk about that middle market segment in Latin America? Where does that mix go and what’s the churn relative to the rest of the business there? And then as you think about Brazil, in general, that business has been slowing the last few quarters, can you talk about what you’re seeing overall in the economy?

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Bruce B. Churchill – EVP and President, DIRECTV Latin America: I’m not going to breakup churn by segment, but it is – I think we’ve said before many times that the churn profile of the middle market segment is a little bit higher than our normal base is certainly higher than A/B household. It’s probably also exacerbated by the fact that because it’s growing more quickly and any base subscribers – new subscriber tend to churn more quickly than obviously well-established subscribers. So, that’s a characterization as too in Brazil as well as PanAmericana. With respect to Brazil, in general, I would say that, yes, there does seem to be a bit of slowing of the economy there. Certainly, if you believe what you read in the press everybody is either reducing or not – certainly not increasing their GDP forecasts et cetera and that may well be starting to have effect on certain segments of the population. And linking it to the churn question, I would say from our perspective, what we do find the most challenges are in the segment of the middle market that are paying us with cash. So, therefore probably those consumers which are more on the marginal, the edges of the economy as opposed to those that even that our middle-market that pay us either with the credit card or an automatic debit. So, we are saying you’d see some noise in there and that’s part of what I think the entire industry experienced, if you would, to look at the industry numbers. It was not a super strong quarter for the industry as a whole.

Genie Impact

Douglas Mitchelson – Deutsche Bank: Domestic ARPU was healthy. Can you walk through the impact of Genie on ARPU given I would think most of the Genie customers are coming in on promotion and how the accounting for works? Then for Bruce, you emphasized that HD adoption will accelerate in LatAm in the coming years and that you’re well positioned for that. I’m sure it’s probably not all that different context you would have given us six months ago or a year ago, but what specifically do you think HD adoption will accelerate?

Patrick T. Doyle – EVP and CFO: On the Genie question. I think promotion offer, we have an RC that’s $25 for new customers they do get a discount on that product for the first year. So a lot of the ARPU effect we’ve seen is kind of a lot of the HD DVR growth adds we’ve seen over the last few years and we’re also seeing a fairly high demand for our existing customers that aren’t HD DVR or multi-room viewing homes to upgrade and even though they don’t necessarily get a discount they’re willing to pay upfront fees, I think that’s our homes upgraded, so we’re really, it’s probably a sign of how popular that product is that we’re seeing from our existing – lot of demand and like I said even a willingness to pay an upfront fee for that upgrade experience.

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Bruce B. Churchill – EVP and President, DIRECTV Latin America: I think there is probably a few drivers there. One is just the sales of TV sets in today’s world, they’re pretty much all HDs, and some of the research that we’ve done and anecdotal information we get from the market says that the penetration of HD sets is even – is much higher than one might think even in the middle market. So there is a lot of consumers out there who may be first time adopters for pay television then they already have an HD set. Secondly, the World Cup is around the corner that tends to be a big driver of HD adoption, one year away, but I was kind of talking about that kind of a time horizon put in the next few or two, so I think that would be a big driver. Finally, what you are seeing in the market is that people like us and others are starting to offer lower-priced entry-level packages for HD. Now they’re not at the low prices for our SD, but we have a four, because all our HD product was really part of a service that included HD DVR, the entry-level price point for an HD service is relatively high, but others including – us and then several others are now moving into the place where it’s becoming a little more affordable. So I think those factors will combine to accelerate the growth.

A Closer Look: DirecTV Earnings Cheat Sheet>>