Quality Customers, Quality Profits

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Satellite TV operator DIRECTV Group (NYSE: DTV) is turning a profitable corner right about now, and it's all thanks to a smart customer recruiting policy.

Where rival Dish Network (Nasdaq: DISH) is chasing customer growth through discount pricing plans, DirecTV asks for a stronger credit history and charges higher prices. The selling point is the company's large and growing number of high-definition channels. Cook those ingredients together and you get loyal, high-quality customers and high margins.

This quarter, DirecTV reported GAAP earnings of $0.32 per share, up from $0.27 a year ago. Revenue ballooned by 17% despite just about a 5% increase in customer count -- that's the magic of getting us to upgrade to high-def and DVR services. Monthly churn is down to 1.36%, a 10-year low that compares very nicely to other customer-centric subscription services:

Company	Latest Subscriber Count (millions)	Monthly Churn (%)
Verizon (NYSE: VZ) Wireless	67.2	1.19
DirecTV	17	1.36
Netflix (Nasdaq: NFLX)	8.2	3.9
TiVo (Nasdaq: TIVO)	3.95	1.5

DirecTV has invested a lot in its HD infrastructure, and it looks like the strategy is paying off now. All those satellite launches and beefier set-top boxes that can handle more efficient video compression standards were necessary in order to fuel the current high-def revolution.

Competing with established TV service providers like Comcast (Nasdaq: CMCSA) while staving off newcomers such as Verizon's FiOS and AT&T (NYSE: T) U-verse is not easy, especially in a highly stressed overall economy. But it looks like DirecTV's high-margin, low-risk customer policy is working, turning yesterday's capital expenditures into the profits and cash flows of today -- and tomorrow.

Further Foolishness:

• HD-DVD Meets Betamax
• DIRECTV Plays Defense on Demand
• 5 More Top Growth Stocks