Satellite Pay-TV Operators Post Mixed Results In Third Quarter

[11-21-07 – Satellite News] Satellite pay-TV operators DirecTV and EchoStar continued to post subscriber gains in the 2007 third quarter, even as new competition from alternative pay-TV sources begins to ramp up. The main European direct-to-home (DTH) operators, already facing formidable competition from other sources, posted mixed results in the most recent quarter and are hoping for a positive performance in the final three months of the year, traditionally the strongest quarter for pay-TV operators.

United States

DirecTV and EchoStar have more than 29 million subscribers combined, with EchoStar adding nearly 950,000 subscribers and DirecTV more than 880,000 subscribers in the 2007 third quarter. While EchoStar may have appeared to have gotten the better of it in terms of subscriber performance over the last year, some analysts were distinctly unimpressed with their performance in the last three months.

U.S. DTH Platform Performance

    Spencer Wang, a media equity analyst at Bear Stearns highlighted the poor churn figure in EchoStar’s latest set of numbers. “Subscriber results were weak, with net additions of 110,000, less than half of our forecast for 264,000 net adds and short of consensus expectations of 258,000,” Wang said in a research note. “Gross additions of 904,000 were also below our expectations for 977,000 and consensus of 970,000. In addition to lower than expected gross adds, churn of 1.94 percent also pushed net adds below [Wall] Street expectations.”
    EchoStar also has been the subject of mounting speculation that AT&T may look to acquire the operator, particularly as EchoStar intends to spin-off its pay-TV and infrastructure and technology businesses into two separate companies. Bryan Kraft, a media equity analyst at Credit Suisse is unsure whether such a move makes sense for AT&T. “The bull case for Echostar is that AT&T acquires the company and/or the spinoff of EchoStar’s equipment and FSS businesses unlocks value,” he said in a research note. “We do think the spin will unlock value, but we don’t think AT&T should acquire EchoStar when it already enjoys the majority of the benefits of ownership through its partnership with Echostar.”
    DirecTV’s figures were above analyst expectations. “DirecTV U.S ARPU (average revenue per user) was robust, with growth of 8.3 percent year over year to $78.79, above our $77.10 forecast, and helping revenues grow by just over 14 percent,” Wang said. “Excluding the effect of the extra NFL game on the platform’s NFL Sunday Ticket package, ARPU growth would have been closer to 7 percent. Having said this, DirecTV has rarely seen ARPU growth that is this high. The company has only had three other quarters of 6.8 percent growth or better since the beginning of 2004. ARPU growth was driven by a combination of price increases, higher fees from multiple boxes, and HD-DVR fees.”
    Competition in the U.S. pay-TV market is beginning to heat up, as Verizon and AT&T are pushing hard with their TV services. At the end of September, Verizon had nearly 720,000 subscribers for its Fios TV service. AT&T said at the end of September it had 126,000 customers for its next generation IP-based video service, U-Verse.

Europe

    In Europe, operators continue to offer a mixed bag in terms of performance. Sky Italia and BSkyB continue to pace the growth of DTH operators, adding a combined 820,000 subscribers in the year that closed at the end of September. In other countries, the performance is not as strong.
    BSkyB ended September with nearly 8.7 million subscribers, adding 83,000 subscribers in the 2007 third quarter. While BSkyB’s gains were at the top end of many analysts’ estimates, the real story may be how the operator continues to diversify and move away from being simply a standalone DTH provider. BSkyB now has more than 1 million broadband customers in the United Kingdom, and in October, the company unveiled plans to enter the digital terrestrial TV market in order to offer non-satellite customers a mix of broadband, telephony and TV services.
    France’s Vivendi did not disclose Canalsat’s numbers for the end of the September, but the company, which has included the operations of rival DTH operator TPS since January, closed March with 5.2 million subscribers, and that figure most likely has held steady in a competitive pay-TV market.
“The competitive landscape is changing very fast here,” Maxime Saada, Canalsat’s managing director, said. “The change was already in place when we acquired TPS, and that is what we told the regulator. You have cable with a single big player called Numericable. You have numerous DSL operators. There appears to be a new DSL operator every day providing TV. There has been consolidation in the French TV market. We acquired TPS, Numericable acquired cable assets, and there has been consolidation in the telecoms space. But still there are a number of players in the market today. It is a very competitive market. French DTT has been phenomenal success and has impacted our business.”
    It has been a successful quarter for German pay-TV operator Premiere, which reported more than 3.5 million subscribers at the end of September, an increase of close to 60,000 subscribers in the quarter. The operator saw a slight increase in overall revenues, with revenues for the quarter coming in at 247.5 million euros ($359.2 million), an increase of around 8 percent compared to the previous quarter.
    Sky Italia, which operates in the market that has the least pay-TV competition, added 410,000 subscribers in the 12 months that closed Sept. 30 September, making it the strongest performing DTH operator in Europe. In the Nordic region, Canal Digital and Viasat (owned by the Modern Times Group) added only 11,000 new DTH subscribers in the last year
In Spain, Digital+ actually lost subscribers for the second consecutive quarter. At the end of September, it had 2 millino subscribers, down nearly 20,000 subscribers in the last two quarters. The IPTV threat is growing in Spain, as Telefonica added about 20,000 subscribers in the quarter to bring its total to nearly 500,000 subscribers or about 15 percent of the market.

European DTH Platform performance

*This was the last figure given before Canalsat merged with its DTH rival, TPS hence the huge subscriber increase from December to March

** Viasat’s numbers include premium and basic DTH customers