DirecTV Only Wants the Big Spenders

Convenience is king. But satellite TV provider DirecTV (Nasdaq: DTV  ) has figured out how to get around the convenience of the cable industry's triple-play conveniences and build a selling platform that's uniquely DirecTV's.

In the second quarter of 2009, DirecTV saw sales soar to $5.22 billion, 9% above the comparable 2008 period. Earnings stayed flat at $0.40 per share, but free cash flow exploded to $550 million -- 47% higher than last year. Subscriber growth is accelerating, and DirecTV added 224,000 fresh U.S. customers in the quarter, net of churn.

DirecTV has more than 24 million customers across North, Central, and South America. The company likes to target high-quality subscribers who choose services based on quality rather than price, leaving lower-margin business largely to rival DISH Network (Nasdaq: DISH  ) and to cable companies like Time Warner Cable (NYSE: TWX  ) or Comcast (Nasdaq: CMCSA  ) .

The satellite guys are always at each others' throats, and the barbs they sling at each other paint a clear picture of their respective goals:

  • DirecTV claims to be No. 1 in customer satisfaction, with the most full-time high-definition channels and the juiciest sports packages available. Some DirecTV customers have true-blue TiVo (Nasdaq: TIVO  ) DVR boxes rather than some plain-Jane Motorola (NYSE: MOT  ) job. Motto: "Good TV. Better TV. DIRECTV."
  • Dish fights back from a lowest-price position, pointing out that Dish offered full-HD 1080p programming before DirecTV did, and that even DirecTV's introductory offers will cost you in the long run. Dish is fighting TiVo to the pain in court over the right to sell non-TiVo digital video recorders. Battle cry: "Same TV. Lower Price. Better Value."

Judging by DirecTV's results, the quality-over-value strategy is paying dividends even while consumers are pinching their pennies. Really good entertainment providers do seem to make it through recessions OK -- just watch Netflix (Nasdaq: NFLX  ) floating through this one unscathed.

The broadcasting industry is changing rapidly in response to the Internet video threat and a proliferation of new diversions jockeying for the consumer dollar. But it looks like DirecTV is holding its own in the high-end niche it created.

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Fool contributor Anders Bylund is a longtime Netflix shareholder and subscriber, but he holds no other position in any of the companies discussed here. He has tried DirecTV, Comcast, and Time Warner Cable, but is sticking with FiOS for now. What's your choice? Discuss below. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On August 16, 2009, at 2:11 AM, GeorgeAndGracie wrote:

    DirecTV just lost my $100/month business after 14 years of being a loyal customer.

    Their customer service has gone from bad to worse, and they no longer offer customers incentives to stay with them. I predict a lot of high-value customers will be dropping their service this year in favor of providers able to deliver a hassle-free, high quality experience.

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