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DirecTV Posts Profit, Misses Subscriber Growth Estimates

DirecTV Group Inc. (DTV), the top U.S. satellite television operator, on Thursday posted a quarterly profit vs. a year-earlier loss, but its shares slipped on disappointing subscriber growth and customer loss rates.

Shares in DirecTV (search) fell more than 1 percent after it posted a record rate of dropped customers, weighing on subscriber growth, amid stiff competition from cable operators.

"They were somewhat lackluster results in that the financials and the customer adds were somewhat below expectations," said Thomas Eagan, analyst at Oppenheimer & Co. (search).

The company said it added 263,000 subscribers in the quarter, short of Eagan's forecast of 275,000 new subscribers. Eagan, who rates the stock a "buy," said the company's 11 percent operating margin was also well below his view of 12.5 percent.

DirecTV aims to counteract that trend by offering higher-cost packages with special services, reducing its rate of subscriber losses and entering new ventures with fellow companies controlled by Rupert Murdoch's News Corp. (search).

Third-quarter net profit totaled $95 million, or 7 cents per share, compared with a net loss of $1 billion, or 73 cents per share, one year ago. Results for the third quarter of 2004 included a charge of more than $900 million for an abandoned Internet services project.

Revenue grew 13 percent to $3.23 billion. Analysts on average had forecast earnings per share of 5 cents, on revenue of $3.25 billion, according to Reuters Estimates.

DirecTV aims to counteract a trend of tapering subscriber growth by offering higher-cost packages, reducing its rate of subscriber losses and entering new ventures with fellow companies controlled by Rupert Murdoch's News Corp.

Chief Executive Chase Carey said on Thursday the company would work with "an array of partners" to bring its video programming to devices other than television sets, a day after Sprint Nextel Corp. unveiled a venture with four top cable companies to bring TV to cellphones.

"That is going to be how you continue to expand the DirecTV experience ... beyond simply television," Carey told analysts on a conference call. He add that the company would have "a fair amount of devices of our own."

RECORD CHURN RATE

DirecTV will offer new digital video recorders (DVRs) using technology from NDS Group Plc later this year and launches in January an original program series with Internet network MySpace.com. Both NDS and MySpace are controlled by News Corp.

Carey said the new DVR shipments would begin on Monday.

DirecTV said its churn — the rate at which customers drop the service — remained "unacceptably high" but should improve in the fourth quarter and into 2006 as it weeds out subscribers with riskier credit profiles.

Average monthly churn rose to 1.89 percent in the quarter from 1.82 percent a year before.

"They had the highest churn in their history, and that's a clear disappointment even in the face of low expectations," said Craig Moffett, analyst at Sanford C. Bernstein.

DirecTV expects to lower churn to about 1.7 percent in the fourth quarter and is on track to sign on 1.25 million or more new subscribers for all of 2005, Carey said.

Average monthly revenue per subscriber (ARPU), an industry benchmark, rose to $68.65 from $66.46 a year ago, while the average cost to bring in new subscribers rose to $626 from $617. Carey said average subscriber costs would rise about $30 in the fourth quarter with its new DVR and high-definition platforms on top of increased holiday marketing.

DirecTV shares are down about 14 percent since the start of 2005, performing well below the Standard & Poor's 500 Index , which has gained about 1 percent in the same period.

News Corp. is the parent company of the FOX News Channel, which operates FOXNews.com.