I'm about to tell you how satellite TV provider DirecTV Group (NASDAQ:DTV) fared in the fourth quarter of fiscal 2009. But stay tuned after the numbers, because I'll also tell you why long-term investors shouldn't really care.
DirecTV inflated fourth-quarter sales by 13% year over year, landing at $6 billion. Pro forma earnings jumped 49% to $0.48 per share, once you back out $486 million of merger-related charges. Operating margins expanded by 260 basis points, thanks to stricter customer credit policies and higher end-user prices, overcoming the negative effects of a weak economy and a harsher competitive landscape.
Competition from rival satellite operator Dish Network (NASDAQ:DISH) inspired DirecTV to launch a lawsuit against Dish, claiming that a series of its TV ads made false claims. If this slapfight sounds a lot like what Verizon (NYSE:VZ) and AT&T (NYSE:T) have been up to lately, I agree. The telecoms were told to behave but never punished, and I would be surprised if this lawsuit ended any other way.
All told, this was a healthy report, and DirecTV's stock is up more than 4% today. But like I already told you, you really shouldn't care much.
Why? Because DirecTV has had its day. Short-term traders might have some fun with broadcasting stocks for a while, but if you truly do invest for the long term, this is a dead industry walking. That ominous verdict covers both Dish and DirecTV, Comcast (NASDAQ:CMCSA) and Time Warner Cable, as well as the fledgling TV services offered by Verizon and AT&T.
If you look 10 years ahead, cable and satellite broadcasting will look like a dinosaur of a business model. Overrun by nimbler and ultimately more appealing models based on all-digital streams and/or downloads, the likes of DirecTV will seem as appealing to investors as terrestrial radio is today: outdated, uncompetitive, unprofitable. Maybe I'm wrong about the date, though -- this could happen much sooner than 2020.
The overlords of next-generation media will have figured out how to connect consumers with the content they really want to consume. Early contenders include TiVo (NASDAQ:TIVO) and Amazon.com (NASDAQ:AMZN), but there are many other horses in this race. Unless Comcast, DirecTV, and their brethren get serious about the digital space, they will be reduced to mere Internet service providers at best.
So: Nice quarter, DirecTV. Enjoy the good times while they last.
