I got a piece of junk mail from DIRECTV the other day, inviting me back to the service with a steep one-year discount deal. "Someone new switches to DIRECTV every 8 seconds," the flier says. And then DIRECTV Group (Nasdaq: DTV) reported third-quarter earnings to prove its own marketing materials wrong.
The North American arm of DIRECTV added 1.1 million gross subscribers in the quarter. I'm talking about just the new additions here before subtracting people who left in the same period -- not about gross customers. That works out to a new DIRECTV subscriber born every 7 seconds.
On the other hand, about 960,000 subscribers left the DIRECTV fold, too, either by canceling an age-old subscription or by saying "Thanks, but no thanks" after trying the service for a while. That's one every 8 seconds. So DIRECTV got its numbers a little bit backwards. Regardless, with 18.4 million total subscribers, DIRECTV is a force to be reckoned with.
And the business behind that hunt for high-quality subscribers is good. Sales increased 10% year over year to $5.5 billion, and on the bottom line, there was 12% higher diluted earnings per share at $0.37. And $634 million of free cash flow is nearly double the year-ago haul.
A flood of new gross subscribers often leads to plenty of new net subs, too, but I would much rather focus directly on the net figure. A new subscriber who doesn't stick around has just cost the company hundreds of dollars in marketing, hardware, and installation costs without giving much back. Any subscription-based service faces the same issue, albeit in varied degrees. Netflix (Nasdaq: NFLX) doesn't worry much about installation costs; AT&T (NYSE: T) and Verizon (NYSE: VZ) Wireless get to recoup their handset subsidies if you cancel your plan early; and Sirius XM Radio (Nasdaq: SIRI) strikes a balance between professional installations and home installs, thanks to a healthy presence in the car industry. But the TV dudes from DIRECTV and DISH Network (Nasdaq: DISH) to Verizon's FiOS or Comcast (Nasdaq: CMCSA) worry about everything, including installation services and hardware they might not get back in a timely or efficient manner.
As you can see from the subscription figures, DIRECTV lands a new customer who sticks around once every 56 seconds or so. That is still a very respectable growth rate, and two-thirds of the newcomers tend to sign up for high-margin extras like DVR boxes or high-definition service. That makes sense because DIRECTV prides itself on having more HD content than the competition and shouts it from the rooftops. Management points to the high-end service and a marketing partnership with AT&T as the drivers of this quarter's growth.
Read up on broadcasters of all stripes:
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