Concerns by pessimists that the brisk subscriber growth of U.S. satellite television services is ready to start conking out are contradicted by the continuing surge in sales. Indeed, DirecTV showed again last week that it still is notching record quarterly subscriber gains and showing no indication of a slowdown. DirectTV’s gross subscriber gains, outside the National Rural Telecom-munication Cooperative’s (NRTC) territories, totaled a record 1,077,000 during third-quarter 2004 to mark a 33-percent jump from the same quarter last year.

On the other hand, DirecTV found last week that it might be pushing too aggressively to add new subscribers. Monthly churn rose to 1.67 percent in the company’s owned and operated areas during the third quarter of 2004, compared with 1.6 percent for the third quarter of 2003. Churn caused those whopping gross subscriber numbers to end up being just 484,000 on a net basis during third quarter 2004, compared with 326,000 net new subscribers for the same period a year ago.

“We clearly have much to do in areas such as reducing our churn,” acknowledged Chase Carey, DirecTV’s president and CEO, in a conference call last week.

EchoStar Communications [DISH] CEO Charlie Ergen likes to joke on his quarterly conference calls with analysts that he might begin having his call-center staffers give out DirecTV’s phone number to low-end subscribers who tend to request customer service excessively, to the point that they are unprofitable. Maybe Ergen wasn’t kidding.

The heightened churn number occurred despite DirecTV spending $260 million on retention during the third quarter of 2004. Certain customers are probably better to let go, especially if they fail to pay their bills.

“Anytime you are bringing on a million new customers in a quarter, you are prone to take on proportionately a higher percentage of bad debt customers,” says Bob Marsocci, DirecTV’s vice president of corporate communications. DirecTV’s management plans to balance subscriber growth with customer creditworthiness.

DirecTV now will focus more on high-quality subscribers rather than on the raw gains. It is a strategy DirecTV had pursued in the past prior to News Corp. [NWS] buying the largest U.S. satellite TV service and boosting its sales efforts. However, DirecTV had shown no appreciable problem with increased churn until this quarter. It now might be time to scale back and grow a bit more slowly if that’s what it takes to keep churn from ramping up.

Sales Incentives

One source of new growth where customers with proved credit quality might tend to exist is through partnerships with telephone companies. Those alliances are reflecting strong potential. In addition, the telephone companies have the leeway to be creative and enterprising in how they sell DirecTV services.

One example is Atlanta-based BellSouth [BLS] offering its employees interesting incentives to hawk DirecTV as part of a new bundled service to the regional telephone company’s customers. The employees at BellSouth’s 27 call centers in nine states have been given an opportunity to win internal sales contests that reward the victors with unusual perquisites. Employees who have the best sales numbers receive a chance to pose for photographs with the mascot or cheerleaders of the nearest NFL football team. Another inducement allows the top 10 sales people at each call center during any given day to net a NFL jersey of the local team. An upcoming enticement will reward top sellers of the bundled packages with a chance to have their portrait drawn and placed on the body of a superhero, such as Superman, Spiderman and Wonder Woman.

Motivated Employees

“Employees were psyched up,” said Jim Rozier, BellSouth’s senior director/video services.

“It is one thing to say to sell DirecTV but it is another to demonstrate it through your marketing and your promotional efforts,” Rozier said.

The playful team mascots have proved to be even more popular companions for the photographs than the cheerleaders, Rozier said.

“Our employees fell in love with them [the mascots],” Rozier said. “They were dancing in the aisles. The employees were really entertained.”

If DirecTV’s subscriber growth stays up but its churn rate goes down, its management might start dancing, too.