July 24, 2008 / 2:13 PM / in 9 years

DirecTV pushes premium brand, even in weak economy

NEW YORK (Reuters) - When comedy talk show host Jimmy Kimmel acts as a pitch man for DirecTV this summer, he joins a list of celebrities the U.S. satellite television provider has engaged to promote itself as a premium brand.

A focus on high-definition programming has helped DirecTV Group Inc DTV.O drive subscriber growth, but it could become a liability as consumers tighten their purse strings in the face of rising gas prices and the weak economy, analysts say.

“There is the possibility that being a premium brand at the high end of the pay-TV market may end up being negative for DirecTV,” said Kaufman Bros analyst Todd Mitchell.

DirecTV’s growth is expected to have slowed in the second quarter, when it is forecast a gain of 100,000 to 150,000 net customers, according to three analysts polled by Reuters. That compares with 275,000 additions in the first quarter.

But growth is still seen better than that of rival DISH Network Corp (DISH.O), which positions itself as a low-cost provider of satellite TV and has suffered operational missteps compounded by the poor economy. The analysts expect DISH to have added between 19,000 and 75,000 net subscribers.

DirecTV has been more successful than other U.S. pay-TV operators in building a reputation for high-definition and exclusive programming, including football’s NFL Sunday Ticket, which Kimmel will promote.

It has the highest average video revenue per user in the U.S. pay-TV market, at around $80 a month. In second place is cable company Comcast Corp (CMCSA.O) with $76, while DISH generates $68.

The strategy to build a premium brand was adopted by DirecTV Chief Executive Chase Carey in conjunction with Chief Marketing Officer Paul Guyardo early in 2006. They decided to raise credit requirements for people signing up to the service and to focus on the best-paying customers.

That decision initially led to a fall in subscriber growth, which unnerved some investors.

    Then customer cancellations -- known as churn -- began to improve as DIRECTV attracted higher quality subscribers, who paid their bills on time and were less likely to default. And in the last two quarters, DirecTV has shown a stronger ability to attract consumers than DISH.

    Wall Street has taken note. DirecTV’s shares have outperformed other pay-TV providers, rising 16 percent so far this year. DISH shares have fallen 17 percent, while Comcast’s stock has risen 8 percent, for example.

    “The competition tries to sell television as a commodity therefore the only thing they have to talk about is price,” Guyardo told Reuters in an interview. “We have put our stake in the ground as a premium service,” he added.

    His marketing team has signed up celebrities like pop star Beyonce and actress Pamela Anderson for memorable ads to resonate with over 35-year-old family man customer base.

    “DirecTV has done a pretty good job in the HD propaganda war, convincing people that they have 100 channels and that’s far superior,” said Tuna Amobi, an equity analyst at Standard & Poor‘s. “It’s all about perception.”

    Editing by Steve Orlofsky

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