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You might think that the average consumer would pull back on entertainment spending when times are tough. So far, you'd be wrong.
DirecTV (Nasdaq: DTV ) just reported 460,000 net new subscribers in the first quarter -- its largest such addition in four years -- on 7% year-over-year revenue growth that brought sales to $4.9 billion. If consumers are scaling back on their entertainment budgets, they seem to do it somewhere else, while signing up for a nice TV programming package. Earnings per share fell 38% to $0.20 per share, owing to heavy investment in promotional offers to recruit new customers. However, that expense should pay off in the coming quarters and years.
The same story is playing out throughout the industry of TV-signal wranglers. Comcast (Nasdaq: CMCSA ) recently reported that it lost 2% of its standard cable customers since last year, but that it more than made up for that loss with 8% growth in its digital cable customer base. Verizon's (NYSE: VZ ) FiOS service is growing by leaps and bounds, being the newest, smallest, and most high-tech kid on the block, and we'll see about DirecTV's direct competition when DISH Network (Nasdaq: DISH ) and the spun-off EchoStar (Nasdaq: SATS ) report earnings next week.
Throw in healthy growth for video-rental expert Netflix (Nasdaq: NFLX ) , and it looks like most of us try to beat the blues with a heavy dose of mindless entertainment. That begs the question of whether these gains will be sustainable when the good times start to roll again. By then, many depression-era customers may stick around simply because they enjoy the service.
Evidence shows that those who sign up for on-demand services, triple-play package deals, high-definition programming, and other fancy extras tend to stay around longer, and that's where the growth happens to be these days. "We believe that these new subscribers in aggregate are highly profitable and will increase cash flows over the long term," said DirecTV CEO Chase Carey. The new sign-ups come with high credit ratings, and "they continue to have a rich appetite for HD and DVR services."
Sounds like a recipe for sustainable growth, Chase. Congratulations on striking that rich vein, and keep on trucking down that road.