DirecTV in the News

Slow DirecTV Sales Blamed on Weak Economy

NEW YORK - June 12, 2001 - (The Hollywood Reporter) --- Leading satellite television provider DirecTV said Monday that its subscriber growth will drop from previously forecast levels because of a slowing economy, sluggish sales in rural areas and a change in its marketing strategy in Latin America.

In a conference call with investors, management of DirecTV parent Hughes Electronics Corp. also conceded that their involvement in ongoing negotiations over a possible merger of the company with News Corp.'s Sky Global Networks satellite assets had distracted attention from operational management of the business.

DirecTV said it now expects to add about 1.3 million additional subscribers during 2001, taking its year-end customer count to 10.8 million. It previously estimated that it could add 1.5 million-1.7 million new subscribers this year to take its service into 11 million-11.2 million homes.

DirecTV's confirmation of a slower expected growth rate came as smaller rival EchoStar Communications said it had passed the 6 million subscribers mark after adding 1 million subscribers during the past seven months.

Claiming to be "the fastest-growing U.S. pay television provider," EchoStar said it expects to add a total of 1.7 million new subscribers this year to take its total subscriber count to close to 7 million.

EchoStar, which has said it is preparing a rival plan to merge with DirecTV, added 460,000 subscribers during the first quarter.

Hughes Electronics CEO Jack Shaw said DirecTV's earnings will actually be higher than previously forecast as "the lowered subscriber projections result in lower subscriber marketing expenses."

The El Segundo, Calif.-based Hughes forecast that its full-year earnings before interest, tax and other financial charges will come in at $575 million-$650 million. Previously, it expected the lower range of its earnings could be $550 million.

Shaw said a factor in the likely slowing of subscriber growth was the poorer performance of partnerships with such electronics retailers as RadioShack, Best Buy and Circuit City. He said the company will take "aggressive steps" to improve service and equipment sales through the retailers.

Another factor Shaw acknowledged was the "complexity and drawn-out nature" of talks with News Corp. to form a worldwide satellite TV alliance worth more than $60 billion, which had proved a "major distraction" to management.

Shaw said he asked DirecTV executive vp Eddy Hartenstein "to jump back to an additional oversight role of the DirecTV business."

Hartenstein has been a key figure in the negotiations with News Corp.

In Latin America, where DirecTV has 1.43 million subscribers, projected subscriber growth for the year is expected to slow to 350,000 from 500,000 previously. Shaw said high churn rates were a major factor holding back the Latin American operations, and as a result, DirecTV is changing its marketing strategy to be "more selective in our pursuit of new subscribers."

Hughes now expects Latin American 2001 operating loss to come in at $100 million, compared with a previously forecast range of $90 million-$130 million.

In major Latin American markets, DirecTV competes directly with News Corp.-controlled Sky Latin America. The efficiencies expected from combining the competing Latin American satellite operations are a significant factor in the Hughes-Sky Global merger talks.