DirecTV Turns Credit Crisis Into Competitive Advantage

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When the credit market gets tough, DirecTV (NYSE: DTV) gets going.

The satellite TV operator just reported a very good quarter with 17% year-over-year revenue growth and 21% higher operating profits excluding depreciation and amortization. But the best number in the whole report was the lowest monthly subscriber churn in eight years at a paltry 1.42% -- and I don't think DirecTV would have achieved this without the consumer credit crisis.

CEO Chase Carey wanted to give kudos to the accelerating adoption of high-def receivers and digital video recorders. Competitors like Comcast (Nasdaq: CMCSA) and Verizon (NYSE: VZ) often make the same case, so I can't really dis Carey's argument too much. Those addictive services really do help broadcasters hold on to their subscribers longer.

But there's more to this picture. CFO Pat Doyle filled in some of the blanks when he explained that the company was looking for better customers. You can't sign up for DirecTV service without a valid major credit card these days, and the minimum contract period was recently lengthened from 12 months to 18. That one-two punch weeds out a few prospective subscribers with sketchy credit histories.

This focus on credit-worthy customers is not new to DirecTV; it's simply a bit more focused of late. It's been one of the main differences between this company and Dish Network (Nasdaq: DISH) for a long time -- one goes after high-quality customers with an arguably more refined service, while the other drags its net a bit deeper with discounts and lower levels of commitment.

It all adds up to two very different reactions to the slow housing market. Dish has complained that its monthly churn -- higher at 1.94% last quarter -- is inflated by customers who can't pay their mortgages anymore and have to leave their dish-adorned houses behind. But Carey doesn't see it that way at all: "I think we continue to really not see an impact on our business from any broader economic subprime issues. I'm not saying there are none but certainly not an impact ..."

So it looks like DirecTV's bet on fewer new customers with less financial risk is paying off, and will continue to benefit the company as long as the overall economy remains iffy. Good bet, guys.

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