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David Connell
Despite a slightly higher than normal churn rate during the third quarter - reaching 1.7% rather than the customary 1.5% - DirecTV says the rollout of digital cable systems in urban areas has had no effect on its subscriber growth. In fact, the company says, its business is booming in areas where digital cable has been introduced.
"We've crunched and re-crunched the numbers and have found no statistical correlation between our growth and the presence of digital cable," Roxanne Austin, CFO for DirecTV parent Hughes Electronics, says. "In fact, in those markets where digital cable is most advanced, we're seeing our greatest growth."
Austin notes that, during the third quarter, DirecTV's growth rate was more than 50% versus last year's numbers, in cities such as New York, Los Angeles, San Francisco, Cleveland and Boston, where digital cable systems have become more prevalent.
"The only conclusive data we've seen so far is that the roll-out of local-into-local more than offsets any impact from digital cable," she says.
Some analysts have expressed fears that the increase in churn might signal a leveling off of DirecTV's subscriber growth, and Austin attempted to ease those fears.
"We see nothing to indicate any slowing in the overall demand in our core markets," she says. "In fact, year-to-date our net additions in DirecTV's core urban and suburban markets ... are up 37% over the last year."
She adds that DirecTV's growth rate is meeting and exceeding its targets.
Despite the rosy news on subscriber growth, DirecTV's earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2000 fell to $36 million from $86 million during last year's third quarter. Hughes blamed the fall on higher marketing costs and the impact from the completion of the Primestar conversion process.
"As a result of the Primestar conversions, DirecTV no longer receives the revenues from the Primestar by DirecTV customers who either discontinued service or who converted but live in NRTC territories," Hughes said in their report. "DirecTV receives only a small percentage of revenues from customers in these territories, thus reducing the revenues and EBITDA."
Hughes senior EVP Eddy Hartenstein says the increased churn rate was caused by a recent subscription rate hike.
However, he adds that churn should be back to normal levels during the fourth quarter, and DirecTV executives say the fourth quarter will be the best period for subscriber growth in the company's history. Hartenstein cites a full inventory and installation capacity, a heavy advertising schedule, the new Blockbuster distribution deal and a free installation offer as reasons for a promising fourth quarter.
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