DirecTV Dishes Out High-Def

DirecTV (NYSE: DTV  ) announced better-than-expected results for its most recent quarter, but what really interests me is the way the company is pushing into high-definition television. The satellite broadcaster is hitting HDTV with an aggressiveness that gives it a leg up over the increasing competition.

Compared with the same quarter last year, revenue increased by 16%, profit doubled, subscriber churn fell to 1.57%, and average monthly revenue per subscriber rose to $80.70. In the earnings release, the company reiterated its dedication to HDTV. CEO Chase Carey confirmed "the launch of up to 100 national HD channels in the second half of this year," and he also stated that DirecTV expects to "offer significantly more HD channels than most of our competitors." This is a smart move, not to mention a key to survival in a cutthroat marketplace.

DirecTV already has an edge with sports fans because of NFL Sunday Ticket, NBA League Pass, and other exclusive sports content. However, to continue growing, DirecTV needs to offer another compelling service that cable cannot provide. HDTV is that offering.

Cable companies have less bandwidth than satellite providers do, and therefore, cable companies cannot broadcast as many HD channels. Thus far, cable companies haven't been hindered because there is so little HD programming in existence -- some 20-odd channels. But the world of HD programming is rapidly expanding. Just recently, CNN, TBS, and Cartoon Network announced plans to launch HD versions of themselves. News Corp.'s (NYSE: NWS  ) Fox and General Electric's (NYSE: GE  ) NBC Universal are expected to follow suit. At the same time, sales of HD-ready televisions are on the rise. According to the Consumer Electronics Association, 16 million HD-ready TVs will ship to retailers in 2007.

DirecTV is making the right moves to capitalize on growth in HD. The company is launching two new satellites this year, and it has signed carriage agreements for almost 70 channels. This could prove to be a significant competitive advantage, which should translate to an improvement in net subscriber additions, average revenue per unit, and churn starting in early 2008.

Of course, cable companies are fighting back. They are reducing churn and aggressively adding digital television subscribers by offering attractive triple-play bundles. For instance, Comcast (Nasdaq: CMCSA  ) is offering television, high-speed data, and phone service for $99 per month to new subscribers. In the most recent quarter, Comcast added 613,000 net digital television subscribers, while DirecTV added only 275,000 net subscribers.

Comcast, Time Warner (NYSE: TWX  ) , and other cable companies are also wooing customers with impressive video-on-demand offerings. Some companies are already using VoD to expand their HD programming, and Comcast is testing a new technology called "switched digital video," which would also allow them to broadcast more HD channels.

But at least in the near term, DirecTV is carving out a nice niche for itself in a tough market.

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Fool contributor Brendan Mathews welcomes your feedback. He does not own shares in any of the companies mentioned in this article. The Motley Fool's disclosure policy is always highly defined.

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A Fool since 2005, Brendan is a research analyst on The Motley Fool's Stock Advisor newsletter. He enjoys scouring financial statements, pontificating on competitive advantage, and any outdoor activity.

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