DIRECTV 2005 Annual Report Download - page 7

2005 was a year of significant accomplishment for DIRECTV. Now, as we move into our third year since
News Corporation’s 34 percent acquisition of this company, we are better positioned than ever to deliver
the best television experience to our customers and maximize value for our shareholders.
A Message to Shareholders
Our 2005 results speak for themselves. In October,
we crossed the 15 million customer threshold.
DIRECTV U.S. once again led the cable and satellite
industry in customer growth, adding 1.2 million net
customers. We are now the second largest pay-TV
provider – a testament to the competitive strength
of our business. Average revenue per subscriber, or
ARPU, showed healthy increases. We also improved
our profit margins and made real progress in con-
trolling key costs, such as subscriber acquisition
costs. One lingering problem was churn, which
was unacceptably high last year. We took steps to
address this problem and believe we will correct
it in 2006.
Financially, DIRECTV continues to make real
progress. Last year, DIRECTV U.S. revenues reached
$12.2 billion – up 25 percent over the prior year.
Operating profit before depreciation and amortization
climbed to more than $1.5 billion, nearly three
times the 2004 level. And free cash flow – a criti-
cal measure of a company’s value – increased to
a record $536 million. These 2005 numbers are just
a beginning; we expect free cash flow to increase
dramatically over the next few years.
Our number one priority at DIRECTV is excellence
in television. While we recognize that we compete
in a broader media and communications industry
where technology, corporate restructuring and other
forces are changing the business with increasing
speed, we continue to believe that the foundation
for our success is leadership in television. The
three pillars that will define leadership in television
are technology, content and service. DIRECTV is
a leader today in these three areas, but we must
aggressively continue to build on them to achieve
our vision.
Cutting-Edge Technology
2005 saw many of our technology initiatives come
to market. One of the most important is high
definition, or HD television. We launched two
satellites and introduced our new MPEG-4 set top
box, enabling us to begin broadcasting the major
broadcast networks and their local affiliate stations
in HD. Twelve major local HD markets were added
late last year and by the end of 2006 we will have
added enough markets to reach more than two-thirds
of U.S. consumers. Two more satellite launches are
planned for early 2007, giving us the capacity to
deliver over 150 national and all local HD channels
to nearly every home in America. With these capa-
bilities, DIRECTV will have the most extensive and
compelling HD service in the United States.
Another key initiative in 2005 was the fourth
quarter launch of our new digital video recorder.
The DVR will be central to the consumer television
experience of tomorrow, and it is critical that our
DVR be the best on the market. Our DIRECTV Plus®
DVR already is a market leader in terms of storage
capacity and speed. During the coming year, we will
continue to improve the DVR experience by adding
improved search functionality and the ability to
program it from remote locations via cell phones
and other devices. This DVR is also an important
driver of future growth, as we improve our video
on demand and advertising services.
While much of our technology work is geared to
enhancing what the customer sees on the screen,
we are also developing technologies that will improve
the efficiency, reliability and quality of the overall
experience. New software will enable us to determine
if a dish is not properly pointed at the satellite
without a technician’s trip to the home. Telephone
back channels will become easier to install and more
reliable. And TVs will have DIRECTV technology
embedded inside, making for easier placement in
locations like kitchens and bedrooms, where set
top boxes may be impractical.
Even more exciting and innovative is our drive
to move the video experience beyond the traditional
TV set. In January 2006, we announced landmark
agreements with Intel and Microsoft that will allow