DirecTV and EchoStar face slower growth in 2007
NEW YORK (Reuters) - U.S. satellite TV operators DirecTV Group Inc. DTV.N and EchoStar Communications Corp. (DISH.O) are expected to report steady subscriber growth in the fourth quarter, but face a slowdown this year due to increased competition from cable, analysts said.
Analysts at Goldman Sachs forecast DirecTV will have added a net 210,000 subscribers in the last three months of 2006, with customer cancellations, known as churn, at 1.6 percent.
For the smaller EchoStar, Goldman forecasts 260,000 additions and churn of 1.6 percent.
"The critical test for satellite is how successful they are at maintaining subscriber growth in the face of a slowing housing market and competition from cable," said Craig Moffett, an analyst at Sanford Bernstein.
Together, DirecTV and EchoStar have around 28 million subscribers, having spent the last decade winning customers from cable companies with a mix of exclusive programming and competitive pricing.
But cable has fought back with so-called 'triple play' bundling of television, high-speed Internet access and digital phone in attractively priced packages and analysts say they are winning subscribers from satellite TV.
Comcast Corp. (CMCSA.O), the largest U.S. cable operator with around 24 million subscribers, said it added 110,000 basic subscribers in the fourth quarter. Time Warner Inc.'s (TWX.N) cable unit also added 29,000 basic subscribers.
Todd Mitchell, an analyst at Kaufman Bros, said DirecTV has been poor on executing strategy compared with EchoStar, leading to weaker subscriber growth. But he said the figures will not look so bad on a year-on-year basis.
"I think DirecTV will have a positive comparison, but that's only because last year's fourth quarter was terrible," said Mitchell.
Analysts on average expect DirecTV to post a 14 percent increase in revenue to $4.08 billion and net profit to more than double to $334.55 million, or 28 cents per share, helped by an accounting change, according to Reuters Estimates.
The expectation for EchoStar is revenue growth of 16 percent to $2.52 billion, with net profit growth of 19 percent to $157.66 million, or 32 cents a share, according to Reuters Estimates.
DirecTV shares have risen nearly 80 percent over the past 12 months, while EchoStar shares have risen nearly 50 percent, helped by subscriber growth and investor expectation of merger and refinancing activity this year.
DirecTV is currently in the process of a change in controlling ownership from Rupert Murdoch's News Corp. NWSa.N to John Malone's Liberty Media Corp. (LCAPA.O).
Merrill Lynch analyst Jessica Reif Cohen said in a note there is expectation that Malone will "financially re-engineer" the business, such as through a significant share repurchase, a one-time dividend, or even a partial sale to a third party.
But Cohen and other analysts said most of the positive news has already been factored into DirecTV's share price.
For EchoStar, the expectation it might one day be taken over by telecommunications partner AT&T Inc. (T.N) still remains a factor, said analysts.
AT&T has started to roll out its own television service, fueling expectation it might take control of EchoStar.
DirecTV will report quarterly results on Wednesday. EchoStar has yet to announce its earnings date.
