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DirecTV Profit Lags Estimates After First U.S. Customer Loss

DirecTV (DTV), the largest U.S. satellite- television provider, reported second-quarter profit that trailed analysts’ estimates after posting the company’s first net decrease in U.S. subscribers.

Net income rose 1.4 percent to $711 million, or $1.09 a share, from $701 million, or 91 cents, a year earlier, the El Segundo, California-based company said today in a statement. Analysts had estimated $1.14 on average, according to data compiled by Bloomberg. The company also said it bought back $1.35 billion in stock last quarter.

Chief Executive Officer Mike White said earlier this year that DirecTV was refocusing its strategy on customer retention, rather than acquiring new subscribers. The company reported a loss of 52,000 subscribers in the quarter, more than the 22,000 average of 14 analyst estimates compiled by Bloomberg. DirecTV made gains in Latin America, adding a record 645,000 users, although average revenue per user declined 11 percent there.

“The metrics show clearly the implications of moving down market in Latin America,” said Paul Sweeney, an analyst at Bloomberg Industries. “Net additions are up, while ARPU declines.”

DirecTV shares fell 2.6 percent to $48.80 at the close in New York. The stock has gained 14 percent this year.

Middle-Market Homes

DirecTV is expanding in Latin America by marketing less expensive versions of its video product to middle-market households. A weakening currency in Brazil also contributed to the ARPU decline. DirecTV reported a $43 million pretax non-cash loss associated with the revaluation of U.S. dollar denominated liabilities.

The customer additions in Latin America were up from a gain of 472,000 in the year-earlier quarter.

Total sales increased 9.5 percent to $7.22 billion, in line with the average estimate. U.S. average revenue per user rose 4.2 percent to $94.40, compared with an estimate of $93.93.

The increase in U.S. ARPU is a validation of DirecTV’s strategy of focusing on selling current customers more services, rather than acquiring new users with discounts and promotions, said Vijay Jayant, an analyst at ISI Group in New York.

DirecTV is cutting the price of its Sunday Ticket football package by about 40 percent for existing customers this season to entice more signups. Current customers can buy access to all Sunday NFL games for $199.95, down from about $325.

Viacom Deal

Last month, DirecTV forged a new deal to broadcast Viacom Inc. (VIAB) programs on its service, following a 10-day blackout that prevented customers from seeing MTV, Comedy Central, Nickelodeon and other networks. The two sides had sparred over Viacom’s demand for higher programming fees, which DirecTV said were excessive.

DirecTV will have higher third-quarter churn than a year ago because of the Viacom dispute, White said on a conference call today, although he said he still expects churn for all of 2012 to be the same or lower than 2011.

DirecTV is paying Viacom more than $600 million a year for seven years following the July 20 deal, according to a person with direct knowledge of the matter.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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