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direc tv group The DIRECTV Group, Inc. Investor Day direc tv group The DIRECTV Group, Inc. Investor Day Document Transcript

  • Investor Meeting Presentation Title Slide February 28, 2008 Speaker Name Title (change point size to 16pt) 1 Jon Rubin Presentation Title Slide Senior Vice President Investor Relations and Financial Planning Speaker Name Title (change point size to 16pt) 2 1
  • Agenda Welcome Jon Rubin – SVP, IR & Financial Planning Opening Remarks Chase Carey – President & CEO Financial Overview Pat Doyle – Chief Financial Officer Technology Romulo Pontual – Chief Technology Officer Content Overview Derek Chang – EVP, Content Strategy & Development DIRECTV Entertainment Eric Shanks – EVP, DIRECTV Entertainment Sales & Marketing Paul Guyardo – EVP, Sales & Chief Marketing Officer Break Customer Service Operations Mike Palkovic – EVP, Operations DIRECTV Latin America Bruce Churchill – President, DIRECTV Latin America Closing Remarks Chase Carey Q&A Lunch / Demos 3 Cautionary Statement This presentation includes certain statements that may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These forward-looking statements generally can be identified by words such as “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee,” “project” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. Such risks and uncertainties include, but are not limited to: economic conditions; product demand and market acceptance; ability to (a) improve customer service or create new and desirable programming content and interactive features; government action; political, economic and social uncertainties in many Latin American countries in which DTVLA operates; foreign currency exchange rates; competition; the outcome of legal proceedings; ability to achieve cost reductions; ability to renew programming contracts under favorable terms; technological risk; limitations on access to distribution channels reliance on satellites as a significant part of our infrastructure and we may face other risks described from time to time in periodic reports filed by us with the SEC. Non-GAAP Financials This presentation includes financial measures that are not determined in accordance with GAAP, such as Operating Profit before Depreciation and Amortization, Free Cash Flow and Cash Flow before Interest and Taxes. These financial measures should be used in conjunction with other GAAP financial measures and are not presented as an alternative measure of operating results, as determined in accordance with GAAP. DIRECTV management uses these measures to evaluate the profitability of DIRECTV U.S.’ subscriber base for the purpose of allocating resources to discretionary activities such as adding new subscribers, upgrading and retaining existing subscribers and for capital expenditures. A reconciliation of these measures to the nearest GAAP measure is posted on our website and is included at the end of this presentation package. 4 2
  • Chase Carey Presentation Title Slide President & CEO Speaker Name Title (change point size to 16pt) Overview Recap Recent Results / Trends Overview of Key Operating Areas 3-year Outlook 6 3
  • Unique Position of Strength Brand / Content / HD Technology Direct Sales Improved tools / efficiencies Key cost reductions 7 Opportunities to Improve Service quality / efficiency Upgrade spending Niche / target subscriber growth Fix / address weak pockets Develop new revenue streams 8 4
  • Competitive Market Challenged competitors FiOS HD leadership VOD solution Bundle Develop / sell options Use distribution strength 9 5
  • Financial Overview Presentation Title Slide Pat Doyle Chief Financial Officer Speaker Name Title (change point size to 16pt) Agenda Financial Overview Subscriber Highlights Key Financial and Operating Metrics Balance Sheet 12 6
  • Building a Foundation for Growth Extended DIRECTV’s video leadership HD Sports Interactivity Advanced equipment Exerted greater financial discipline Stricter credit policies Improved segmentation Greater cost controls Enhanced Sales and Marketing Attained higher-quality subscribers Strengthened brand Optimized subscriber channels and increased Direct Sales 13 The DIRECTV Group 2005 - 2007 Financial Results 2005 2006 2007 Revenue $13.2B $14.8B $17.2B Operating Profit Before D&A $1.49B $3.39B $4.17B Operating Profit Before D&A Margin 11.3% 23.0% 24.2% Diluted EPS $0.24 $1.12 $1.21 Capital Expenditures $924M $1.99B $2.70B Cash Flow Before Interest & Taxes $386M $1.31B $1.48B Free Cash Flow $283M $1.19B $953M Share Repurchases - $2.98B $2.02B 14 7
  • DIRECTV U.S. 2005 - 2007 Financial Results 2005 2006 2007 Customers Gross Additions 4.2M 3.8M 3.8M Monthly Churn % 1.70% 1.60% 1.51% Net Additions 1.2M 0.8M 0.9M Cumulative, Year-end 15.1M 15.9M 16.8M Financial Revenue $12.2B $13.7B $15.5B Operating Profit Before D & A $1.50B $3.22B $3.85B Operating Profit Before D&A Margin 12.3% 23.4% 24.8% Capital Expenditures $782M $1.81B $2.33B Cash Flow Before Interest & Taxes $776M $1.42B $1.46B 15 DIRECTV U.S. Subscriber Highlights Over-indexed in key areas including: Income Education Home ownership Geographically diverse Broadband penetration consistent with cable Profitably growing International segment 16 8
  • Improving Subscriber Quality Gross Additions 10% 15% 28% Higher Risk Lower Risk 72% 85% 90% 2005 2006 2007 17 Adding Higher Value Subscribers HD and/or DVR Subscriber Additions (M) 2005 2006 2007 Advanced Gross Additions 0.6 1.0 1.7 % of Total Gross Additions 14% 28% 47% Advanced Upgrades 0.9 0.9 0.9 Advanced Churn (0.2) (0.3) (0.6) Churn Rate 0.6% 0.7% 0.8% Net Advanced Additions 1.3 1.6 2.0 Cum Advanced Subscribers 3.0 4.6 6.6 % of Cum Residential Subscribers 21% 30% 41% 18 9
  • Strong ARPU Growth Monthly Subscriber Revenue (ARPU) 2005 2006 2007 Key Drivers Packages / Premiums / Average price increase $55.70 $58.50 $60.30 of ~4% Sports / PPV Advanced sub-penetration Advanced Services / increased from 21% to 41% Equipment / 8.90 9.70 12.20 Average boxes / home Lease Fees increased from 2.27 to 2.53 25% Ad Sales growth / Other / Ad Sales 5.00 5.50 6.60 fewer credits / Telesat / Commercial / Protection Plan Total ARPU $69.61 $73.74 $79.05 CAGR = 6.6% 19 Driving Lower Monthly Churn Total Churn 1.70% Stricter Credit Policies 1.60% 1.51% Mandatory credit cards, social security numbers New fraud management system Voluntary 1.03% 0.99% 0.99% Longer Term Commitments Basic equipment: 12 18 months 0.71% Advanced equipment: 24 months 0.57% 0.52% More Advanced Subscribers Involuntary Improved Customer Service 2005 2006 2007 20 10
  • Declining Set-Top Box Costs OEM Costs* Q1 2005 Q1 2006 Q1 2007 Q1 2008 Basic $80 $55 $50 $45 DVR 245 200 180 150 HD 260 250 210 130 HD-DVR 520 480 430 260 * Excludes security card, middleware and other fees 21 Subscriber Acquisition Cost (SAC*) Investing in Advanced Products and Targeting High Value Customers Results in Higher ARPU and Lower Churn 2005 2006 2007 Advanced Equipment $55 $85 $140 Basic Boxes 200 160 120 Installation 165 160 165 Dealer Commissions / 225 235 265 Marketing TOTAL $642 $642 $692 * Includes both acquisition expense and capitalized set-top box costs 22 11
  • Major Upgrade Cycle Peaking Upgrade and Retention Costs* 2005 2006 2007 HD / DVR Upgrades $330M $570M $795M Basic Boxes / Local Upgrades 310 210 250 Movers 260 270 270 Other Marketing 200 200 235 Sub-Total $1.10B $1.25B $1.55B MPEG4 for MPEG2 HD Swaps - 75M 190M Total $1.10B $1.33B $1.74B Equipment Revenues $230M $230M $370M * Includes both upgrade and retention expense and capitalized set-top box costs 23 Stabilizing Programming Margins Programming Expense* Recent Margin Erosion as a % of Revenues Due To: Total Older contracts / 40.0% 39.6% 38.6% early years of newer improved contracts Addition of many new Packages/Premiums / PPV channels, particularly sports Fox News and NFL Network increases in 2007 7.8% 8.1% 7.1% End of purchase Sports** accounting treatment for Showtime contract in 2006 2005 2006 2007 * Excludes non-programming cost of sales ** Includes a-la carte packages, RSNs and NFL Network 24 12
  • Other Operating Costs Costs as a % of Revenues 2005 2006 2007 Key Drivers Higher service costs related to advanced products and new call Subscriber Services 7.7% 7.7% 7.3% centers offset by efficiencies and cost controls Lower bad debt expense; General & 6.6% 5.5% 5.0% efficiencies and cost Administrative controls Local-into-Local and Broadcast Operations 1.2% 1.3% 1.4% HD build-out 25 HD Infrastructure Mostly Complete Capital Expenditures ($B) Basic HD and local build-out $0.8 3 satellites $0.8 $0.7 Ground infrastructure Satellites Set-Top Boxes Implemented lease program HD Infrastructure Increased advanced product penetration Sustaining Richer mix of more expensive boxes 2005 2006 2007 Set-top Boxes - $1.1 $1.5 Total CapEx $0.8 $1.8 $2.3 26 13
  • Strong Balance Sheet $2.3B net debt position as of YE 2007 Cash and Cash Equiv. $1.1B Total Debt 3.4B Net Debt $2.3B .6x Net Debt to OPBDA Comfortable with current credit rating 27 Summary DIRECTV is poised for profitable growth and increasing cash flow Leading digital multichannel TV service provider Unique and exclusive programming Most comprehensive HD programming New products / services expected to further differentiate Strong revenue, OPBDA, and subscriber growth Increasing margins due to cost controls and operating leverage Strong balance sheet with substantial liquidity 28 14
  • Technology Update Presentation Title Slide Rômulo Pontual Speaker Name President Executive Vice Title (change point size toOfficer & Chief Technology 16pt) 15
  • Technology Update and Plan Space segment Consumer premise equipment Capitalize on technology leadership Use of home network (demos) 31 Space Segment Optimum orbital slots Reduces obstructions and effect of rain Allows single-dish solution for all customers 101° 103° 99° 32 16
  • Space Segment Young satellite fleet 9 DIRECTV satellites plus 7 Intelsat transponders 12+ years average remaining estimated life Two satellites under construction D11 launches March 2008 D12 backup for D10 or D11 Will launch D12 Growing importance of HD warrants its use to expand national capacity Launch expected late 2009 33 Space Segment Young satellite fleet 9 DIRECTV satellites plus 7 Intelsat transponders 12+ years average remaining estimated life Two satellites under construction D11 launches March 2008 D12 backup for D10 or D11 Will launch D12 Growing importance of HD warrants its use to expand national capacity Launch expected late 2009 34 17
  • Channel Expansion During the last two years Added 92 national channels, 74 in HD Launched 77 HD local markets (76% USHH) Added 7 local markets in SD (94% USHH) Added 31 International channels In 2008, will continue HD leadership Capacity for 150 HD national channels At least 100 HD local markets (84% USHH) D12 will support further expansion Capacity for more than 200 HD national channels 35 Channel Expansion During the last two years Added 92 national channels, 74 in HD Launched 77 HD local markets (76% USHH) Added 7 local markets in SD (94% USHH) Added 31 International channels In 2008, will continue HD leadership Capacity for 150 HD national channels At least 100 HD local markets (84% USHH) D12 will support further expansion Capacity for more than 200 HD national channels 36 18
  • Consumer Equipment Video Slide Presentation Title Speaker Name Title (change point size to 16pt) Set-Top Box – Product Strategy HD DVR Whole HD DVR HD DVR Home HD DVR DVR DVR HD Basic HD Basic HD Basic Basic Basic Basic 2004/5 2006/7 2008 2009/10 38 19
  • Set-Top Box – Product Strategy HD DVR Whole HD DVR HD DVR Home HD DVR DVR DVR HD Basic HD Basic HD Basic Basic Basic Basic 2004/5 2006/7 2008 2009/10 39 Set-Top Box – Product Strategy HD DVR Whole HD DVR HD DVR Home HD DVR DVR DVR HD Basic HD Basic HD Basic Basic Basic Basic 2004/5 2006/7 2008 2009/10 40 20
  • Set-Top Box – Product Line 2008 DVR convergence Mid-2008, all DVRs are MPEG4 and HD capable Model used in SD installs has 100 hours SD storage Model used in HD installs has 100 hours HD storage OEM Costs Q1 ’08A Q1 ’09E Basic $45 $40 DVR $150 $170 HD $130 $95 HD DVR $260 $220 41 Single Wire Installation DIRECTV service using a single cable Wire is also used for return path Integrated antenna to be launched Q2’08 Benefits Simpler and faster to install Improved installation reliability Upgrade from basic to DVR via drop shipment Easier for consumer to relocate box within home One box connected to back channel connects all 42 21
  • MDU Distribution Unique solution supports reception of all DIRECTV services including HD and International channels Two technologies available One optimized for vertical MDUs Another for garden-style MDUs 43 Efficiency Improvements Installation Monitoring connected boxes and proactively correcting existing installs Reduced set-top box boot times Single antenna with simpler installation Broadband as return channel Set-top box software Validating signal strength at install Improved self-test with suggested actions Remotely initiated resets 44 22
  • Capitalize on Technology Leadership DIRECTV serves specialized high-end segments with unique top-of-the-line products 45 Live DIRECTV Everywhere You Go DIRECTV® Sat-Go Automobiles & boats Aircraft Recreational vehicles 46 23
  • Professional DVR Rack-mountable chassis Optical fiber HDMI output HR21 PRO 100 hours HD recording IR remote port, RS-232 control 47 Interactive Platform Across All Products 48 24
  • Home Ecosystem Video Presentation Title Slide Speaker Name Title (change point size to 16pt) Review of Demonstrations DVR Scheduler DIRECTV on Demand DIRECTV Media Share Personal content on TV Internet content on TV DIRECTV content on PC DIRECTV Latin America 50 25
  • DVR Scheduler (Web & Mobile) Schedule DVR recordings from directv.com Use any browser to book programs when away from home Enabled from mobile phones Linear & On Demand Programming 51 Streaming Over IP Infrastructure s uter mp o al C son es Per hon lP Cel 52 26
  • DIRECTV Movies Now (Q2 Launch) Selected movies pushed to DIRECTV Plus® DVRs for on demand viewing Available to all DIRECTV Plus® DVRs 53 DIRECTV On Demand (in Beta) Relies on satellite and Internet for delivery Integrated with linear channels 3,000+ titles today 60+ programmer pages 54 27
  • DIRECTV Media Share (in Beta) Consumers can view personal content & Internet content (photos, music and video) in the living room Internet Music Video Photo s 55 DIRECTV Media Share (coming in 2008) Consumers can view personal content & Internet content (photos, music and video) in the living room and view recordings Internet on a PC at home Music Video Photo DIRECTV on PC s 56 28
  • DIRECTV Latin America Synergies with DIRECTV U.S. Box costs Box features Software updates L12 LR16 HD service later in 2008 HD DVR LHR21 57 29
  • Content Overview Presentation Title Slide Derek Chang ExecutiveNamePresident Speaker Vice Content Strategysize toDevelopment Title (change point and 16pt) Agenda Content strategy Opportunities and challenges Sports leadership DIRECTV on Demand Ad Sales 60 30
  • Content Strategy Extend content leadership Breadth of programming HD Differentiated content 61 HD Superiority 62 31
  • DIRECTV vs. Competition Time Cablevision Comcast DIRECTV Dish Warner New York Philly 2/21/08 2/7/08 New York 1/22/08 1/23/08 1/22/08 National HD channels 58 27 17 18 14 VOOM* channels ----- 15 15 ----- ----- 24/7 HD RSNs 11 ----- 4 1 4 HD PPV channels 15 5 ----- ----- 1 HD DNS / locals 8 4 9 8 7 Total HD national 92 51 45 27 26 channels Games-only HD RSNs 15 22 ----- ----- ----- Total with 107 73** 45 27 26 Games-only RSNs Note: Source for channel counts is company websites, which may contain some discrepancies *VOOM consists of 15 HD-only channels: Animania HD, Equator HD, Family Room HD, Film Fest HD, GamePlay HD, Gallery HD, HDNews, Kung Fu HD, Monsters HD, Rave HD, Rush HD, Treasure HD, Ultra HD, WorldCinema HD and WorldSport HD **Last official full channel count was 76, however, only 73 can be accounted for on the Dish website 63 Programming Opportunities Optimize programming packages Maximize value to customer DIRECTV® HD EXTRA PACK Targeted segments Local International Leverage existing programming relationships to create unique content Manage costs 64 32
  • Programming Challenges Sports Costs New networks Retransmission consent New distribution models Regulatory environment 65 33
  • DIRECTV Entertainment Presentation Title Slide Eric Shanks ExecutiveNamePresident Speaker Vice DIRECTV Entertainment Title (change point size to 16pt) Sports Leadership Interactive Interactive Interactive Interactive Interactive 68 34
  • 69 35
  • Original Entertainment on The 101 New for 2008 Returning / Continuing in 2008 71 The DIRECTV User Experience DVR Scheduler Control DIRECTV DVR through web or mobile Moving content around the house Photos and music today Video to and from the PC by Q2 ’08 quarter Designing new user interface for 2009 DIRECTV on Demand Launched in Beta in October 60+ programmers 3,000+ titles 72 36
  • Ad Sales Leverage new technology and upscale demographic to create new revenue streams Interactive campaigns at 20% click-through rate Guide banners Targeted placement Local ads placed on DVR Telescoping 100,000 Home Panel for new ratings service Partnership with TNS Media Research 74 37
  • Sales & Marketing Presentation Title Slide Paul Guyardo Executive Vice President Sales Speaker Name & Chief Marketing Officer Title (change point size to 16pt) 38
  • Overall Continue to position DIRECTV as the best in television entertainment Utilize this positioning to attract and retain most profitable customers 77 Targeting for Profitability Leverage data on existing customers to find like prospects 38% of customers Attract more customers who look like account for the 38% who represent 63% of profit 63% of profit Profit Tiers % of Subscriber Base % of Profit 5 15% 34% 4 23% 29% 3 33% 28% 2 20% 8% 1 9% 1% 78 39
  • Targeting for Profitability (cont’d) Most profitable customers are married, 35+, wealthier, better educated who live in single- family homes TIER 5 Index Demographics 15% Customers 120 Men 35+ 34% Profit 125 Married 121 Homeowner 130 Income >$70K TIER 4 23% Customers 145 College/Grad School 29% Profit 79 National Advertising Video 40
  • Brand Awareness DIRECTV unaided brand awareness hit a new high of 50% DIRECTV approaching near-universal total brand awareness at 93% Total advertising awareness significantly higher than Dish (61% vs. 47%) and now equal to cable 81 Local Marketing Attack competitive weaknesses MSO buy-out / transition issues Outages, repackaging or programming changes Customer service issues Maximize competitive strengths HD local superiority Exclusive programming 82 41
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  • 2007 Local Marketing Campaigns January February March April May June July August September October November December CAMPAIGN 1 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 3 10 17 24 1 8 15 22 29 5 12 19 26 3 10 17 24 E M 4th L T C MLK Superbowl (4 Markets) Competitive Issue (2 Markets) Competitive ( Markets) Turn Around Campaign (3 Markets) St. Louis, Cardinals (7 Markets) Tigers MLB (2 Markets) Digital Conversion Transition (3 Markets) Competitive Customer Service (1 Mkt) Users Interface Changes (1 Market) Rural Markets (28 Markets) Cable Consolidation (3 Markets) Customer Service Issue (1 Market) Cable Outage (1 Market) Competitive (4 Markets) Digital Tier Transition (3 Markets) Competitor (10 Markets) HD (10 Markets) Digital Tier (1 Market) Big Ten (6 Markets) Stadium Trays & Events Outage (1 Market) Outage (1 Market) Customer Over-bills (1 Market) MASN (5 Markets) Competitive Advantage (10 Markets) Service Interruption (1 Market) NFL Network (5 Markets) Exclusive Channels (13 Markets) HD Advantage (23 Markets) 86 43
  • Sales Distribution Trends Conscientiously grow Direct Sales 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 2008 Direct Sales Independent Telco CE Other 87 Direct Sales Composition Gross Additions 2005 2006 2007 Targeted Marketing 367K 476K 732K directv.com 214 380 429 1-800-DIRECTV 364 354 403 Other 87 79 60 88 44
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  • Sales Channels Channels work together in a complementary fashion Channel Reason for Being In-house, national direct marketing Direct Sales Quick to market, targeted, flexible, in-control Extends DIRECTV’s “share-of-voice” National Dealers Pursue more entrepreneurial opportunities (e.g. mall kiosks, door-to-door) Face-to-face sale Local Dealers International, in-language expertise Rural Telco DIRECTV’s bundle play 91 National Dealers Extend DIRECTV’s “share-of-voice” 92 46
  • BellSouth Recovery Plan More aggressive Direct Sales efforts in region Engage strongest local dealers within BellSouth region with unique offer Sell the bundle ourselves 93 Jump-start Opportunistic Businesses Commercial MDU Más / WorldDirect 94 47
  • Driving Lower Monthly Churn 1.70% 1.60% 1.51% 0.99% 1.03% 0.99% Voluntary Churn 0.71% 0.57% 0.52% Involuntary Churn 2005 2006 2007 95 2007 Churn Initiatives Improved customer analytics Created a “true” customer retention group (CRG) within Customer Service Initiated proactive retention marketing 96 48
  • 2008 Churn Initiatives ICU for “at-risk” customers Reduce initial 30-day churn Address customers rolling off commitment Unique treatment in high-risk geography Attack causes of telco channel churn Continue to improve Hispanic churn True CRG expansion 97 Maximize Return on Retention Spending Almost 60% of spend is focused on top two value segments Customer % Customers % Spend Value Segment Top 2 Tiers 38% 58% Bottom 3 Tiers 62% 42% 98 49
  • Customer Service Operations Title Slide Presentation Speaker Name Mike Palkovicto 16pt) Title (change point size Executive Vice President Operations 50
  • Customer Service Operations Call Centers Field Services Supply Chain and Logistics Service Calls and Equipment Replacement Program (ERP) 101 Major Objectives for 2008 Improve the quality of the service experience for all customers, existing and new, at all points of customer interaction Improve the cost of providing service by being more efficient, handling interactions properly the first time and making investments in places that directly impact the quality of our service Finally, the result of this focus on the quality side of the business should and will increase customer satisfaction which in turn also improves our profitability 102 51
  • Customer Care Call Center Network 103 Call Centers – Key Metrics Calls Offered (M) Cost/Customer/Month 139 138 $3.33 $3.17 $3.02 124 2005 2006 2007 2005 2006 2007 Average Handle Time (sec) Self Care (% of Total Contacts) 493 38% 457 437 34% 34% 2005 2006 2007 2005 2006 2007 104 52
  • Call Centers – Issues / Challenges = Opportunities Improve agent quality – tenure, training, attrition Lower contact rate 1st call resolution Transfer rate Increase / improve customer self care Improve / simplify billing Reduce agent handle time, without increasing contact rate 105 Call Centers – Initiatives Align call types with agent skills and tools Improve training environment Wage adjustment / incentives tied to tenure / attrition / performance Launch IM for agent / supervisor interaction Better use of analytical tools to mine data / comments 106 53
  • Self Care – Initiatives Options directv.com IVR / natural language Initiatives / Accomplishments Customer email addresses >40% DVR Scheduler – online, cell phone Improve account management, redesign dashboard Improve order process – fewer clicks “Green” focus – paperless bill, auto bill pay Overall goal is more options, consistent experience 107 Home Service Provider Map 108 54
  • Field Services – Issues / Challenges = Opportunities Reduce repeat service calls Focus on quality vs. just quantity Improve completion rates – without risk to quality Simplify installation process, even with more advanced products Automate activation process Re-evaluate HSP economic relationship 109 Field Services – Initiatives Implement quality-based incentives / penalties for HSPs Implement hand-held devices across the network Redesign ODU to simplify installation Standardize connectors, cables – centralize procurement Owned and operated – buy vs. build 110 110 55
  • Supply Chain / Logistics – Initiatives Lower cost of recovered boxes Multi-pack kit HSP pick-up Revamp repair process Implement auto testers Built-in Self Test (BIST) Remove cables from boxes Full production of recycled cards Ramp to 400-500K cards per month 111 111 Service Calls / ERP – Issues / Challenges = Opportunities Improve equipment quality Boxes ODUs Connectors Switches Improve field technician quality Dish pointing Trouble shooting skills in the field Repeat visits Unnecessary truck rolls Diagnostic capability Simplify complexity of the equipment / installation 112 112 56
  • Service Calls / ERP – Initiatives Box specific issues – downloads Automation – remote reset, auto cancel, BIST Re-design ODU, simplify, new mounts Standardize connectors, cables Revamp repair facilities Double / triple case management – 3rd down to 2nd 113 113 57
  • DIRECTV Latin America Presentation Title Slide Bruce Churchill President DIRECTV Latin America Speaker Name Title (change point size to 16pt) 2007 – A Milestone Year First full year of consolidated operations Executed on our key operational goals Completed integration of Brazilian businesses Grew PanAmericana to scale +400k net adds in 2007 +1.7 million YE subscribers Expanded content and technology leadership Updated satellite fleet Solidified our financial performance 116 58
  • Content Leadership Exclusive programming La Liga, EPL Concerts, special events Enhanced / interactive applications NFL SUNDAY TICKET® NASCAR HotPass™ MLB Strike Zone Expanded coverage U.S. Open Tennis 117 Technology Leadership Leverage DTVUS’ scale and technology Speed to market Superior product Lower cost 118 59
  • Update Satellite Fleet IS 16 IS 11 Online January 2008 Estimated H2 2009 Expanded capacity Shared back-up for IS 9 and IS 11 18 transponders ~250 video channels Expanded capacity for Mexico Replaced failing IS 6B Co-locate with Same orbital slot IS 9 at 58° 24 transponders Improved performance 119 Financial Results - 2007 May Selected Financial Information (in US$ millions) Outlook Actual Revenue ~$1,600 $ 1,719 OPBDA ~$350 $ 394 Operating profit ~$120 $ 159 CapEx SAC related ~$175 $ 296 Non-SAC related ~50 40 Sub-Total ~$225 $ 336 Cash flow before interest and taxes ~$165 $ 140 End of period subscribers (000's) ~3,100 3,279 Gross additions (000's) ~900 1,080 Net additions (000's) ~400 588 ARPU (US$) ~$46 $ 48.33 Monthly churn ~1.35% 1.38% SAC (US$) ~$380 $ 361 120 60
  • 2008 and Beyond Strategy Continue to enhance TV experience Exclusive programming Enhanced features Maximize growth opportunities Expand Pre-paid in key markets Increase multiple set-top box penetration Continue focus of delivering superior financial results 121 Enhance “TV Experience” Enhancement in PanAmericana Game Lounge Mix channels SMS functionality Cartelera Expanded interactivity in Brazil EPG, games, self care Expand local markets in Brazil Solidify key programming contracts 122 61
  • Maximize Growth Push “whole home experience” Increase DVR penetration and mirrors Launch HD PanAmericana – H2 2008 Brazil / Mexico – H2 2009 Expand Pre-paid offer Mexico Brazil PanAmericana - Colombia, Chile 123 Venezuela 124 62
  • Pre-Pago DIRECTV - Venezuela Enter PIN # Self Enter PIN # Self to activate Installation to activate Installation Buy scratch card Buy kit Enjoy DIRECTV experience Customer Proposition Packages PREFERENCIAL 71 Channels 14 Channels # of Channels 40 Channels Local content only NEW Prices ~$7 ~$29 ~$42 VAT included 125 Pre-Pago DIRECTV - Venezuela High familiarity with pre-paid 95% of cell phone market is pre-paid Completely cash based Favorable economics Minimum net SAC No bad debt Minimum on-going subscriber costs 80% reactivation behavior after first 3 months 126 63
  • Pre-Pago DIRECTV - Venezuela ‘Diario El Universal. Caracas. Venezuela’. 127 SKY Mexico Presentation Title Slide Speaker Name Title (change point size to 16pt) 64
  • Operational Highlights - Mexico Deliver best exclusive and non-exclusive programming content La Liga Local soccer Reality shows (e.g. Big Brother, El Bar) Launch SKY operations in Costa Rica and Dominican Republic Increased multiple set-top box penetration 129 Financial Highlights - Mexico Actual Actual Actual Selected Financial Information (in US$ millions) 2005 2006 2007 Revenue $ 550 $ 684 $ 752 OPBDA $ 231 $ 326 $ 364 CapEx SAC related $ 90 $ 84 $ 108 Non-SAC related 19 7 14 Sub-Total $ 109 $ 91 $ 122 Cash flow before interest and taxes $ 103 $ 204 $ 269 End of period subscribers (000's) 1,250 1,430 1,585 447* 408 * Gross additions (000's) 380 Net additions (000's) 248 180 155 ARPU (US$) $ 39.50 $ 40.90 $ 41.90 Monthly churn 1.2% 1.0% 1.1% SAC (US$) $ 350 $ 370 $ 423 * Includes acquired subscribers of 110K in 2005 and 20K in 2007 130 65
  • DIRECTV Latin America Presentation Title Slide Speaker Name Title (change point size to 16pt) 132 66
  • Financial Information Outlook (in US$ millions) 2007 2006 Outlook Actual 2009 Revenue $ 1,013 ~$1,600 $ 1,719 ~ $2,000 OPBDA $ 244 ~$350 $ 394 ~ $600 Operating profit $ 79 ~$120 $ 159 ~ $400 CapEx SAC related $ 130 ~$175 $ 296 Non-SAC related 49 ~50 40 Sub-Total $ 179 ~$225 $ 336 ~ $250 Cash flow before interest and taxes $ 0 ~$165 $ 140 ~ $400 Note: Excludes Sky Mexico 133 Key Metrics Outlook 2007 2006 Outlook Actual 2009 Subscribers (000's) 2,711 ~3,100 3,279 ~ 4,000 ARPU (US$) $ 41.71 ~$46.00 $ 48.33 ~$48 Monthly churn 1.45% ~1.35% 1.38% ~1.3% SAC (US$) $ 371 ~$ 380 $ 361 ~$395 Note: Excludes Sky Mexico 134 67
  • Chase Carey Presentation Title Slide President and CEO Speaker Name Title (change point size to 16pt) 68
  • U.S. Pay TV Market – Net Additions Cumulative Net Adds 2006 Projection 2008 Projection For 2006 - 2008 for 2006 - 2008 Satellite 4 – 5M <5M Telco 2 – 3M <3M Cable/Other (1)M <(1)M 137 DIRECTV Prior 2008 Outlook Cum Subscribers ~18M Churn Steady Improvement Revenues Double-digit CAGR ARPU 5%+ CAGR SAC $650 - 700 Upgrade & Retention $1.2B (excluding swaps) Cash Flow Before $3B Interest & Taxes 138 69
  • HD and DVR Subscribers Yield Strong Returns New Customers 2006 2007 Projection for Actual 2008 ARPU $83 $95 Variable Margin 43% 44% Churn 1.0% 0.8% SAC* $685 $757 IRR 48% 53% * Net of upfront revenues 139 DIRECTV Prior 2008 Outlook Cum Subscribers ~18M Churn Steady Improvement Revenues Double-digit CAGR ARPU 5%+ CAGR SAC $650 - 700 Upgrade & Retention $1.2B (excluding swaps) Cash Flow Before $3B Interest & Taxes 140 70
  • Solid Subscriber Growth Continued focus on quality customers Increased penetration of HD and DVR subscribers 50% penetration at year-end 2008 70% at year-end 2010 Direct Sales strength Attack key niches Cum net adds of 1.5-2.0M over three years 141 Churn Improvement Focused on quality customers Limit risky subscribers HD and DVR penetration Improved customer service Continued steady improvement 142 71
  • Strong ARPU Growth Increased advanced products Modest price increases Build emerging revenues streams Challenges Increased offers Reduced hardware revenues 5%+ CAGR 143 Stabilize Subscriber Acquisition Costs (SAC) Increased pressure Demand for advanced products Technology investments Offsets Continued box cost reductions Use of refurbished boxes Streamline installation Improve sales channels’ efficiencies Optimize dealer / installer compensation structure $700+ SAC 144 72
  • Reduce Upgrade Investment Costs Reduced pent-up demand Box cost reductions + refurbished boxes Technology improvements Reduce truck rolls and box replacements Target the right customers Incentives to upgrade at acquisition Maintain spending below the 2007 level 145 Margin Improvement for Other Key Costs Programming Expenses 2008 programming expense increases 5% / subscriber Subscriber Services Expenses Drive call center costs to $3 / subscriber / month G&A Continued margin improvement 146 73
  • Capital Expenditures (excluding set-top boxes) Nearing end of satellite expansion plan HD ground infrastructure completed in 2008 2008 spending down $200M Sustaining CapEx target of $500M 147 DIRECTV U.S. Financial Overview Revenues of $20B in 2010 OPBDA margin approaches 30% Cash Flow Before Interest and Taxes 2008 over $1B higher than 2007 2010 ~$4B 148 74
  • The DIRECTV Group Non-GAAP Financial Measure Reconciliation Schedules (Unaudited) Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit Twelve Months Ended December 31, 2007 2006 2005 (Dollars in Millions) Operating Profit Before Depreciation and Amortization $4,170 $3,391 $1,486 Subtract: Depreciation and amortization expense 1,684 1,034 853 Operating Profit $2,486 $2,357 $633 Revenue $17,246 $14,755 $13,164 OPBDA M argin 24.2% 23.0% 11.3% Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities Twelve Months Ended December 31, 2007 2006 2005 (Dollars in Millions) Cash Flow Before Interest and Taxes $1,480 $1,313 $386 Adjustments: Cash paid for interest (230) (243) (240) Interest income 111 146 150 Income taxes paid (408) (30) (13) Subtotal - Free Cash Flow 953 1,186 283 Add Cash Paid For: Property and equipment 2,523 1,754 489 Satellites 169 222 400 Net Cash Provided by Operating Activities $3,645 $3,162 $1,172 150 75
  • DIRECTV HOLDINGS LLC (DIRECTV U.S.) Non-GAAP Financial Measure Reconciliation (Unaudited) Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit Twelve Months Ended December 31, 2007 2006 2005 (Dollars in Millions) $3,850 $3,221 $1,500 Operating Profit Before Depreciation and Amortization expense 1,448 873 698 Operating Profit $2,402 $2,348 $802 Revenue $15,527 $13,744 $12,216 OPBDA Margin 24.8% 23.4% 12.3% Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities Twelve Months Ended December 31, 2010 Outlook 2008 Outlook 2007 Actual 2006 Actual 2005 Actual (Dollars in Millions) Cash Flow Before Interest and Taxes ~$4,000 over $2,455 $1,455 $1,418 $774 Adjustments: Cash paid for interest* - ~(200) (211) (215) (229) Interest income 69 69 26 Income taxes paid ~ (1,300) ~(900) (730) (728) (36) Subtotal - Free Cash Flow ~2,700 over $1,355 583 544 535 Add Cash Paid For: Property and equipment 621 504 381 762 599 - Subscriber leased equipment - subscriber acquisitions 774 473 - Subscriber leased equipment - upgrade and retention Satellites 169 222 367 Subtotal - Cash Paid for PP&E ~1,800 ~2,000 2,326 1,798 748 Net Cash Provided by Operating Activities ~$4,500 over $3,355 $2,909 $2,342 $1,283 Outlook for 2008 and 2010 nets interest income and interest expense as well as combines all capital into Property and Equipment 151 DIRECTV Latin America Non-GAAP Financial Measure Reconciliation (Unaudited) Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit Twelve Months Ended December 31, 2007 May 2009 Outlook 2007 2006 Outlook (Dollars in Millions) Operating Profit Before Depreciation and Amortization $600 $350 $394 $244 Subtract: Depreciation and amortization expense 200 230 235 165 Operating Profit $400 $120 $159 $79 Revenue $2,000 $1,600 $1,719 $1,013 OPBDA M argin 30.0% 21.9% 22.9% 24.1% DIRECTV Latin America Reconciliation of Cash Flow Before Interest and Taxes and Free Cash Flow to Net Cash Provided by Operating Activities Twelve Months Ended December 31, 2007 May 2009 Outlook 2007 2006 Outlook (Dollars in Millions) Cash Flow Before Interest and Taxes $400 $165 $140 $0 Adjustments: Cash paid for interest (27) (12) Interest income 18 16 Income taxes paid * (100) (25) (51) (14) Subtotal - Free Cash Flow 300 140 80 (10) Add Cash Paid For: Property and equipment 250 220 336 175 Net Cash Provided by Operating Activities $550 $360 $416 $165 *Outlook data combines interest received, interest paid and income taxes paid under income taxes paid 152 76
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