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DIRECTV (NASDAQ:DTV)

Q1 2013 Earnings Call

May 07, 2013 2:00 pm ET

Executives

Jonathan M. Rubin - Senior Vice President of Investor Relations and Financial Planning

Michael D. White - Chairman, Chief Executive Officer and President

Bruce B. Churchill - Executive Vice President, Chief Executive Officer of Directv Latin America Llc, President of Directv Latin America Llc and President of New Enterprises

Patrick T. Doyle - Chief Financial Officer, Executive Vice President and Member of Proxy Committee

Analysts

Philip Cusick - JP Morgan Chase & Co, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

David Carl Joyce - ISI Group Inc., Research Division

Tuna N. Amobi - S&P Equity Research

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Bryan D. Kraft - Evercore Partners Inc., Research Division

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Operator

Good day, ladies and gentlemen. My name is Brian, and I will be your conference operator today. At this time, I would like to welcome everyone to DIRECTV's First Quarter 2013 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to your host, Jonathan Rubin, Senior Vice President of Investor Relations and Financial Planning. Sir, you may go ahead.

Jonathan M. Rubin

Thank you, operator, and thank you, everyone, for joining us for our first quarter 2013 financial results and outlook conference call. And with me today are Mike White, President and CEO; Pat Doyle, CFO; Bruce Churchill, President of DIRECTV Latin America; and Larry Hunter, our General Counsel. So in a moment, I'll hand the call over to Mike, Bruce and Pat for some introductory remarks, but first, I'll read to you the following. On this call, we make statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual results to be materially different from those expressed or implied by the relevant forward-looking statements. Factors that could cause actual results to differ materially are described in the Risk Factors section and elsewhere in each of DIRECTV's annual reports on Form 10-K, quarterly reports on Form 10-Q and our other filings with the SEC, which are available at www.sec.gov.

Examples of forward-looking statements include, but are not limited to, statements we make related to our business strategy and regarding our outlook for financial results, liquidity and capital resources. And then additionally, in accordance with the SEC's Regulation G that requires companies reporting non-GAAP financial measures to reconcile these measures to the most directly comparable GAAP measure, we provide reconciliation schedules for the non-GAAP measures, which are attached to our earnings release and posted on our website at directv.com.

So with that, I'm pleased to introduce Mike.

Michael D. White

Thanks, Jon, and thanks, everyone, for joining us today. As I think you saw from our release earlier this morning, DIRECTV's off to a solid start in 2013 as both our U.S. and Latin American businesses delivered another strong quarter of operating and financial results entirely consistent with the long-term strategic imperatives we established of maintaining first quartile growth in our industry.

In particular, I'd like to highlight 3 areas. First, we're generating solid top line growth, driven by strong consumer demand for our best-in-class video service all across the Americas. DIRECTV's industry leading revenue growth of 8% continues to confirm the competitive advantages we have, I think, in the rapidly growing Latin American marketplace as well as our ability to profitably grow ARPU in a very competitive U.S. operating environment.

Second, our commitment to strike the right balance between growth and profitability is clearly represented by the margin increase in our adjusted operating profit before depreciation and amortization. Now as explained in our earnings release, the adjusted results exclude the impact of the $166 million pretax charge related to the devaluation of our monetary assets in Venezuela.

And third, we continued to execute on our strategy of aggressively returning capital to our shareholders, which helped fuel a 34% increase in adjusted diluted earnings per share in the quarter.

Now before I turn the call over to Bruce and Pat for a bit more detail on our Latin America, U.S. businesses, let me offer a few of my own observations on each, starting with Latin America. DIRECTV Latin America's first quarter results were right in line with our expectations and the full year guidance that we provided on our last earnings call. The strength of DIRECTV and Sky's premium brands, along with our differentiated suite of products and segmented service offerings, continue to drive tremendous consumer demand across the region.

Consistent with recent results, we're maintaining our momentum in the higher-end A and B households, and we also continued to see solid subscriber growth from the middle market segments. In fact, PanAmericana's net additions were up 50% in the quarter, driven by strong contributions from our prepaid offerings along with healthy postpaid additions in countries including Chile, Venezuela and Ecuador.

Sky Brazil also delivered a great quarter in terms of gross additions. But as Bruce will discuss a bit further in his remarks, higher churn from the middle market segment did have an impact on our net additions. Importantly, we're continuing to ensure our customers receive a best-in-class service experience as we upgrade our infrastructure with a new set of integrated IT systems, and work through some of the challenges we've discussed on prior calls by continuing monitoring our tiered service levels against clearly articulated performance metrics.

Driven by this strong subscriber growth, DIRECTV Latin America's revenues grew 16%, but perhaps more notable, organic revenue, excluding the unfavorable foreign exchange, grew 32% in the quarter. Our adjusted operating profit before depreciation and amortization margin was also strong at a tad over 30%. These achievements are not only consistent with our 5-year vision that we provided at our Investor Day last year, but I think provide further evidence that our Latin America business continues to offer us terrific long-term growth opportunities.

Turning now to DIRECTV U.S., I believe our first quarter results were also strong and reflect our overarching goal to rebalance the top and bottom line so that we can achieve long-term sustainable and profitable growth rates. It's clear that our enhanced focus on the quality, loyalty and profitability of subscribers is having an important positive effect on our financial results.

These benefits are particularly clear when looking at our more than 5% revenue growth that was generated mostly from strong ARPU growth, which I believe speaks to the strength of our brand and in the increasing value of our differentiated services in the marketplace.

In addition, our sharper focus on expense management, combined with a more disciplined customer acquisition strategy, was a clear highlight as our operating profit before depreciation and amortization margin expanded for the third consecutive quarter. This margin improvement is important because it continues to demonstrate the strength of our U.S. business from an operational, competitive and financial perspective, while still providing us with even more confidence that we can continue to achieve first quartile growth in our industry for the next several years.

So in conclusion, first quarter results for both our Latin America and U.S. businesses were solid and consistent with our long-term goals and our financial targets. In Latin America, we continue to deliver on key strategies to maintain our subscriber momentum by reinforcing our leadership position at the higher end with the best advanced services, while also leveraging our scale to further penetrate and profitably serve in the rapidly growing middle market.

In addition, we continue to build a world-class infrastructure to support that explosive growth momentum that we expect to continue for the foreseeable future.

Now in the U.S., we continue to focus on achieving our plans for profitable growth by maintaining a strong financial foundation through initiatives that drive top line sales, maximize subscriber returns, heighten our focus on the overall customer experience as well as effectively manage costs all across our enterprise. And at the same time, we continue to return cash through stock repurchases at an industry-leading clip. With these strengths, I'm confident that we'll continue to deliver superior financial returns to our shareholders for years to come.

So with that, let me turn the call over to Bruce for a bit more detail on our DIRECTV Latin America's results.

Bruce B. Churchill

Great. Thanks, Mike. DTVLA's momentum continued into Q1, delivering strong subscriber growth coupled with solid financial results despite the foreign exchange headwinds and economic challenges we experienced in some countries, particularly Venezuela.

Before discussing our first quarter results in more detail, I would just like to remind everyone that, unless otherwise noted, our results exclude those of Sky Mexico, which we do not consolidate. Our first quarter gross additions of 1,181,000 represented a 14% increase over last year. In PanAmericana, gross additions grew 27% compared to last year, driven by sales of our prepaid product in Argentina and Colombia. Prepaid sales represented approximately 57% of our gross additions in PanAmericana compared to 45% a year ago.

In Brazil, middle market sales increased 20% over last year and represented almost 80% of Sky's gross additions. Middle market subscribers now represent about 40% of our 10.9 million subscribers compared to 30% 1 year ago. Sales of our advanced products were also solid in the quarter. In Brazil, first quarter sales of high-definition to new subscribers grew 6% over last year. When new sales are combined with upgrades of our existing customers, HD subscribers grew 50% over the prior year, and that represents approximately 28% of our Brazilian subscriber base.

In PanAmericana, advanced product subscribers grew nearly 20% versus last year, with those subscribing to HD growing nearly 50%. Now approximately half of our 1.6 million advanced product subscribers in PanAmericana receive our HD service. It's our sense that the adoption of HD will accelerate in Latin America in the years ahead. As a market leader in HD, we believe we're well positioned to take advantage of this opportunity.

Turning to churn. Our postpaid churn in the quarter of 1.74% increased versus the prior year, as higher churn in Brazil was partially offset by lower churn in PanAmericana. As Mike mentioned earlier, the elevated churn in Brazil was primarily driven by the higher number of middle-market customers, which, in some cases, have a higher churn profile along with increased competition, particularly at the entry-level price points.

Approximately 50% of our subscribers in Brazil are middle-market customers. Many of them pay us with cash. So as a group, they're more challenging to manage from a churn perspective. As a result, I expect the churn will remain high or higher than I would like in Brazil as we continue to fine-tune our practices and procedures to ensure that we are achieving the expected returns on the investments we're making in this sector overall.

Our churn issues in Brazil notwithstanding, last month, Sky Brazil was recognized by the Brazilian equivalent of J.D. Power for providing the best customer service in the pay-TV and telecommunications sector. This is the 11th year in a row that Sky Brazil has won this award.

With respect to PanAmericana, we had a very good quarter for churn, continuing the trend we saw in the latter half of last year. I believe we are beginning to see some of the benefits of the operating improvements and investments that we've been talking about over the past year.

With regard to our prepaid services, our recharge rates continue to be strong as our on-prepaid customers increased approximately 80% compared to last year. While I think this reflects the results of the broad effort we have been making across the region to improve recharge rates, we also enjoyed some benefit this quarter from the fact that the quarter end coincided with the end of the long Easter holiday period. And just as a reminder, when I refer to our on subscribers, I'm referring to those subscribers that have paid for and are actually receiving the service and our signal in the last day of the month.

In summary, we added 583,000 net subscribers to our base this quarter, and consistent with the 5-year vision we provided at our Investor Day last March, we maintained or increased our market share, year-over-year, in all of our major markets.

Now turning to financial results. First quarter revenues grew 16% compared to last year or around 32% excluding the impact of foreign exchange, mostly as a result of the 29% increase in our subscriber base. Most of the negative foreign exchange impact is the result of the average Brazilian reais exchange rate in the quarter declining 13% versus the U.S. dollar compared to the same time last year, as well as the devaluation of the Venezuelan bolivar.

Excluding foreign exchange, ARPU was up slightly from a year ago, reflecting a nice balance between general price increases and growth in the advanced product base on the one hand, and strong growth in the lower ARPU middle-market segment on the other. In the first quarter, DTVLA recorded a pretax $166 million charge associated with the revaluation of the net monetary assets of the company's subsidiary in Venezuela at the time of the devaluation of the bolivar in February. Most of the charge arose from revaluing the cash balances on hand.

Excluding this charge, adjusted DTVLA operating profit before depreciation and amortization increased 17% over last year, mostly due to the higher revenues, partially offset by higher programming and other operating costs associated with our largest subscriber base. Adjusted OPBDA margin remained basically unchanged, closing Q1 at a touch above 31% as higher subscriber service expenses in Brazil were offset by lower subscriber acquisition costs in Brazil and lower G&A expenses in PanAmericana.

Cash flow before interest and taxes in the quarter of $102 million increased from $68 million a year ago as higher adjusted OPBDA and lower CapEx more than offset unfavorable working capital. Our unfavorable working capital movement was related to the timing of collections in Brazil and Argentina as well as payments related to soccer rights in PanAmericana and certain prepayments in Venezuela.

And finally, I would like to mention Sky Mexico, whose results were released by Televisa a little over a week ago. Sky Mexico delivered another strong quarter, adding 260,000 net subscribers in the quarter. Similar to DTVLA, Sky Mexico's results reflected strong performance with its middle-market product as well as sales from the traditional A and B segments. Sky Mexico's HD subscriber base grew more than 50% versus the first quarter of last year, and the financial results of Sky Mexico were also strong with double-digit growth in local currency revenue and OPBDA.

So with that, I'll conclude my comments and hand it over to Pat. Pat?

Patrick T. Doyle

Thanks, Bruce. Much like Latin America, I thought our U.S. business also delivered terrific first quarter results as we're generating solid top line growth and strong overall margins.

Looking first at the top line, DIRECTV U.S. revenue growth of 5% continues to demonstrate the strength of the DIRECTV brand in the marketplace and was driven primarily by ARPU growth of 4.4% in the quarter. Consistent with recent trends, the key driver of this growth, other than our annual price increase, was increased penetration of both new and existing customers paying for advanced services such as our new whole-home DIRECTV Genie entertainment experience as well as our policies to reduce credits and discounting.

ARPU also continues to be favorably impacted by strong pay-per-view and premium channel sales. In fact, total pay-per-view revenues were up 20% year-over-year as compelling titles this award season drove movie buys to another all-time high, while revenue contributions from higher event sales in the quarter also provided a generous lift. Partially offsetting these benefits was the absence of 1 week of NFL SUNDAY TICKET revenues in this year's first quarter compared to the prior year.

Turning now to subscribers. Modestly lower gross additions relative to last year were consistent with recent trends and in line with our internal expectations. We were also pleased with our churn rate in the quarter of 1.45% which, as expected, was modestly influenced by subscribers impacted by the lapse of our programming agreement with TVB.

Moving now to the bottom line, where strong cost management was clearly a highlight as operating profit before depreciation and amortization margin expanded for the fourth consecutive quarter, driving OPBDA growth of 8%. Nearly every line on our income statement came in better than our internal forecast due to solid execution of cost containment and productivity initiatives.

Consistent with recent trends, lower spending related to our more selective customer acquisition strategy also helped margin growth. In addition, the subscriber services cost area grew slower than revenues, which reflects efficiencies from productivity improvements as well as early returns from our strategy to transform the customer service experience.

For example, as part of one of our major initiatives to simplify the sales process, last October, we eliminated the programming rebate redemption process for new customers. And the new instant rebate has been a stacked win. Not only has it improved the onboarding experience for new customers, but we're seeing a cost savings driven by a year-over-year reduction in customer call volumes.

Partially offsetting all of these improvements were higher content cost primarily related to annual programmer rate increases as average programming costs per subscriber or ACPU grew at nearly 6%. However, excluding the favorable impact from the lower cost related to the absence of the NFL game in the quarter, ACPU would have increased by 8%.

Lastly, the higher cash SAC rate of $899 in the quarter was in line with our expectations. This increase was driven by higher equipment cost related to sales of our new DIRECTV Genie whole-home DVR, more Connected Home customers, as well as from higher commissions due to additional quality initiatives at our distribution channels.

It's important for me to reiterate that these investments continue to yield significant benefits as we're seeing higher ARPU driven mostly by the associated advanced receiver fee and greater VOD buys as well as lower churn rates among our subscribers taking these new services. We continue to project that these initiatives have increased the lifetime value of new subscribers compared with last year.

Looking quickly at our first quarter consolidated results. DIRECTV continues to generate a solid bottom line growth as adjusted diluted earnings per share increased 34% to $1.43 in the quarter. Free cash flow was 25% lower than the prior year period, as higher OPBDA was partially offset by unfavorable DIRECTV U.S. working capital related to the timing of payments received from our telco partners and higher interest payments due to the increase in debt.

Moving on to the balance sheet. This quarter, we repurchased 26 million shares of DIRECTV stock for $1.38 billion, bringing cumulative repurchases since we began the program in 2006 to approximately 27 billion or nearly 62% of shares outstanding. As discussed on the last earnings call, our actions in the first quarter reflect our efforts to be more opportunistic in the timing of our repurchases. For the full year, we continue to target $4 billion of buyback.

Also in the quarter, we issued $750 million of investment grade notes and increased the amount outstanding under our commercial paper program to $480 million. With these transactions, we closed the first quarter with about $18.4 billion in total debt, bringing our total debt to trailing consolidated OPBDA leverage ratio to 2.4x.

Before wrapping it up, I'd like to make a few comments about the transaction we closed with the Seattle Mariners effective April 16, and our outlook for the remainder of the year. As a result of a renegotiation with the Seattle Mariners regarding our partnership in the Pacific Northwest, DIRECTV Sports Networks now owns a minority interest in the new venture and will oversee the day-to-day management of the network, as well as provide additional programming assets for agreed-upon fee. Additionally, DIRECTV U.S. entered into a long-term affiliation agreement with the channel at favorable rates.

This agreement will result in a noncash pretax charge of approximately $60 million on the Other net line of our income statement in the second quarter, primarily related to the difference between the carrying value of the old regional sports network and the fair value of our minority interest in the new entity.

Next, I thought it would be helpful to review the full year 2013 guidance we provided for DIRECTV U.S. on our last earnings call. We believe that our U.S. business is well positioned for continued operational and financial success and expect to deliver on our mid-single-digit revenue and OPBDA growth targets. As we discussed on the last earnings call, we still believe ARPU growth will be greater in the second half of the year compared to the first half. As a reminder, this is primarily related to the absence of an NFL game and a reduced schedule of premier pay-per-view events in the first half of the year, as well as the favorable impact from a larger price increase on basic, advanced and some new services in the second half of the year.

Specifically, with regards to our second quarter OPBDA growth, year-over-year comparisons will be particularly challenged by another sequential increase in cash upgrade spending. This increase is related to our strategic imperative to rebalance our acquisition and retention spend towards rewarding our most loyal and valuable subscribers. In addition, ACPU growth will be highest in the second quarter due to the timing of some of the larger contracts we signed last year, such as: Viacom, CBS and Time Warner Cable Sports.

Finally, I would like to make a few comments about our consolidated outlook. Let me begin by providing some additional color on our EPS outlook for 2013. Excluding onetime pretax items such as the Venezuelan devaluation charge of $166 million and the noncash charge of approximately $60 million related to the Mariners transaction, our guidance that we provided at our Investor Day in December of 2010 remains intact as we're forecasting earnings per share to be $5 or greater in 2013.

Free cash flow will likely come in lower than 2012 levels due mostly to the higher taxes, the ongoing impact of the Venezuela devaluation and the higher interest payments. And similar to the growth trends that we just discussed for the U.S. business, we're expecting free cash flow to be stronger in the back half of the year relative to the first half due to favorable working capital as well as stronger OPBDA growth, partially offset by higher capital expenditures. I'd also like to reiterate that we continue to expect cash tax rates in the mid to high 30% range.

In summary, I thought we had a really strong quarter as we continue to deliver on the strategies we outlined for our U.S. business on our last earnings call, and remain on track to deliver all of our full year guidance at DIRECTV U.S. And as Bruce mentioned a few minutes ago, we remain bullish about DIRECTV Latin America's full year growth prospects as well. If we continue to execute on these targets, I believe we will continue generating substantial shareholder value by leading the pay-TV industry in revenue and earnings growth as well as returning capital to shareholders.

So with that, I'll turn the call back over to Jon.

Jonathan M. Rubin

Thanks, Pat, and before moving on to Q&A, investors should note that we have members of the media on this call in a listen-only mode. I'd like to remind the media that they're not authorized to quote any participants on this call, either directly or in substance, other than the representatives of DIRECTV. In addition, we are webcasting this call live on the Internet, and an archived copy will be kept on our website. [Operator Instructions] So with that, operator, we are ready for the first question.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go right to our first question from Phil Cusick with JPMorgan.

Philip Cusick - JP Morgan Chase & Co, Research Division

I guess, Bruce, can you talk about that middle market segment in Latin America? Where does that mix go? And what's the churn relative to the rest of the business there? And then, as you think about Brazil in general, that business has been slowing in the last few quarters. Can you talk about what you're seeing overall in the economy?

Bruce B. Churchill

Sure. Well, I'm not going to go and break out churn by segment, but it is -- I think we've said before many times that the churn profile of the middle market segment is a little bit higher than our normal base. It's certainly higher than an A, B household. It's probably also exacerbated by the fact that, because it's growing more quickly in any base, so subscribers -- new subscribers tend to churn more quickly than, obviously, well-established subscribers. So that's a characterization that's true in Brazil as well as PanAmericana. With respect to Brazil, in general, I would say that yes, there does seem to be a bit of a slowing of the economy there. Certainly, if you believe what you read in the press, everybody is either reducing or not -- certainly not increasing their GDP forecast, et cetera. And that may well be starting to have effect on certain segments of the population. And linking it to the churn question, I would say from our perspective, where we do find the most challenges are in the segment of the middle market that are paying us with cash, who are, therefore, probably those consumers which are more on the marginal, the edges of the economy as opposed to those that, even in our middle market, that pay us either with a credit card or an automatic debit. So we are starting to see some noise in there, and that's part of what I think the entire industry experienced. If you were to look at the industry numbers, it was not a super strong quarter for the industry as a whole.

Operator

And next we have a question from Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Two. Pat, domestic ARPU was healthy. Can you walk through the impact of Genie on ARPU given, I would think, most of the Genie customers are coming in on promotion and how the accounting for that works? And then, for Bruce, you emphasized that HD adoption will accelerate in LatAm in the coming years and that you're well positioned for that. And I'm sure it's probably not all that different from context you would have given us 6 months ago or a year ago, but why, specifically, do you think HD adoption will accelerate?

Patrick T. Doyle

Yes, Doug, on the Genie question, yes, I think promotional offer, we have an RC that's $25 for new customers. They do get a discount on that product for the first year. So that, I mean, a lot of the ARPU effect we've seen is kind of the -- a lot of the HD DVR gross adds we've seen over the last few years, and we're also seeing a fairly high demand for our existing customers that aren't HD, DVR or Multi-Room Viewing homes to upgrade. And there are even those that don't necessarily get a discount that are willing to pay upfront fees to get their homes upgraded. So we're really -- it's probably a sign of how popular that product is that we're seeing from our existing base, a lot of demand, and like I said, even a willingness to pay an upfront fee for that upgrade experience.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And Bruce?

Bruce B. Churchill

Yes, so on HD. I think there's probably a few drivers there. One is just the sales of TV sets in today's world, they're pretty much all HD. And some of their research that we've done and anecdotal information we get from the market says that the penetration of HD sets is even -- it's much higher than one might think even in the middle market. So there's a lot of consumers out there who may be first-time adopters for pay television, and they already have an HD set. Secondly, the World Cup is around the corner. That tends to be a big driver of HD adoption. Really, 1 year away, but I was kind of talking about that kind of a time horizon so over the next year or 2. So I think that will be a big driver. And finally, what you're seeing in the market is that people like us and others are starting to offer lower-priced entry-level packages for HD. Now they're not at the low prices for our SD, but were before because all our HD product was really part of a service that included HD DVR. The entry-level price point for an HD service was relatively high. But others, including us and several others, are now moving into the place where it's becoming a little more affordable. So I think those factors will combine to accelerate the growth.

Operator

And our next question comes from Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I wanted to ask about the operating leverage in the quarter and looking out because it was quite strong, and Mike, you've talked a lot about managing churn better at DIRECTV U.S. and also on the retention side, sort of, using retention dollars to manage an impact and drive churn lower. Can you update us on how you're doing there, if you feel like you're on track? You leveraged your retention line this quarter nicely, but I don't know if that was just timing related or part of your overall plan of attack, and if you still think you can get some churn reductions looking out in the U.S. as a result of your initiatives. And Bruce, same kind of question in LatAm. Margins were stronger if you strip out the charge. I even noticed the SAC cost were actually down -- capitalized SAC was down year-on-year despite gross adds. Anything unusual there or can you talk about what's happening in terms of levering the cost base in LatAm?

Michael D. White

Let me start, then, first. I think what you're seeing in the quarter is, really, it is pretty consistent with the plans that we've set in terms of trying to get leverage all through the P&L. I would tell you that certainly the pricing did create an incremental number of calls relative to prior years. So we had some pressure in that regard, but we were able to manage it. And I think we expect to continue to be able to manage it. I think the key continues to be to be disciplined in terms of our discounts and credits, as we've said before; to take responsible price increases, and I felt that we did that in the first quarter. But in addition to that, we have to be very tough-minded on our costs across the board. As you saw, SAC was a little bit higher although elevated, not relative to our expectations, I mean, relative to the prior year, and some of that was commissions. But we expect to get efficiencies out of SAC when you get to the second half of the year, particularly next year because we've got lower-cost boxes coming in that'll help us out there, but probably not before then. And in terms of our subscriber service expenses, I mean, we -- the instant rebate we put in saved 0.5 million calls relative to prior year. I mean, it's a proverbial win-win. If you get -- if we can do things better right the first time, an average new customer to DIRECTV calls us 6 times in the first 90 days. We think we can do way better than that. And -- but it's reengineering our entire enterprise from the technician on back, and that takes time. So that's why we continue to be very optimistic about the goal that I've described of 20-point improvement in Net Promoter Score, a 20% reduction in calls and a 10-point improvement in churn longer term. So I would expect to see that play out over the next 3 years, let's say. But in terms of the operating leverage in the quarter, I think it very much reflects the strategies that we've talked about with you on prior calls.

Benjamin Swinburne - Morgan Stanley, Research Division

Anything on retention, Mike, that you can call out unusual or was this the kind of number you were expecting on the P&L?

Michael D. White

No. I would say it was -- we had a touch -- as Pat said, the TVB kind of thing, but that was expected. Put a little pressure on churn but we had some improvements in in-vol. Again, we have a very, very strong team that takes a very sophisticated approach to managing retention. Our credits were fine. So I felt like we did a really good job. I don't know, Pat, if you'd...

Patrick T. Doyle

Yes, yes, I think the only other thing, Ben, is that -- the thing I mentioned before, we were a little surprised. We had internal expectations of how many of the existing customers that weren't in that group that maybe could get a free upgrade to Genie that we're willing to pay an upfront fee. So we saw both -- more revenue than we thought from the hardware fees of that group, and it pushed up our upgrade and retention a little bit. Net-net, it was kind of a push. But again, I mean, we were actually pleased that our existing base saw enough of the Genie product that, even though not eligible, was willing to pay upfront for that experience.

Michael D. White

But as we've said before, Ben, I do expect higher upgrade in retention spending this year and probably higher than you saw in the quarter. We're rolling out our new enhanced protection plan where, for additional $2 payment in your protection plan, you get a new upgrade every 2 years. That starts in May. So that's going to impact our upgrade and retention spending in the second quarter, but we feel very strongly this is the right strategy long term for our company, and we're very comfortable with where we are. Bruce, you want to touch on Latin America?

Bruce B. Churchill

Yes, I would say that, obviously, operating leverage is something we are very focused on trying to achieve, but candidly it's a very difficult to do when you're growing as rapidly as we. And you're right to point out that the margins were probably particularly strong this quarter. I don't want to go in record saying I'll commit to those for the rest of the year, but I think we benefited a bit from a very efficient marketing spend this quarter. And we also had some lower-than-expected G&A expense in PanAmericana, which contributed to the improved margins. On the SAC side, I would say the biggest driver of the reduction in the SAC is the mix. With a higher proportion of customers in the middle market, be they prepaid or postpaid middle-market customers in Brazil, it just tends to drive the average down, which I think is consistent with what we've spoken about over the years, that there's sort of this constant -- this tension and we -- I think we've guided people down to sort of flat to down SAC because of the mix issue, and you're seeing maybe a little bit more of that from the strength of prepaid this quarter.

Benjamin Swinburne - Morgan Stanley, Research Division

But no change to your CapEx outlook for the year, Bruce?

Bruce B. Churchill

No.

Operator

And we'll go next to Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc., Research Division

A couple of questions. First, Mike you've taken a different stance from DISH on investments in wireless. Now a lot of this has obviously come to a head, more recently with the bidding war for Sprint. What capabilities from a wireless pipe would you need to seek to change your mind about sort of the relevance of bundling it with DTV's product? And then, second question, Pat, on the buyback pacing, in the quarter, nearly $1.4 billion ahead of, I think, anybody's number despite spending most of the quarter looking at a potential acquisition and presumably saving firepower ahead of that. I'm assuming you've dialed up aggressively at -- during the quarter. What are the factors from here that would cause you to dial that up again?

Michael D. White

Jason, let me start. It's always hard to answer these questions in a sound bite, to be as clear as I'd like to be. Look, first of all, there's no question that consumers' use of mobile video will continue to expand significantly. There's no doubt about that, we see that trend, and it's -- we see it with our own customers. At DIRECTV, for 3 years, we've been talking about our TV Everywhere strategy, and I want to be clear that we're fully committed to enable all of our customers to access their content, wherever and whenever they desire it, on a device of their choice, regardless of telecommunications platform, whether it's AT&T, Verizon, Sprint or T-Mobile. And given the diversity of our 20 million subscriber base in the U.S., we think it's important that they ought to be able to ride on any of those highways and be able to do it in a seamless way to access their content as they see fit. I have felt for DIRECTV and our shareholders that a greenfield entry into the wireless business, and let's keep in mind, I think AT&T is spending $20 billion a year on CapEx annually -- was not in our best interest of our shareholders, was not a smart strategic move for DIRECTV nor do I think for DIRECTV's shareholders that acquisition of a wireless company makes sense. We have had to look at it and say, being a scale wireless player, we have some fabulous partners alike AT&T and Verizon and CenturyLink. Being a really strong player in that area requires a lot of things. It requires spectrum, sure. But it also requires backhaul. It requires storefronts. It requires a brand. It requires take-or-pay procurement deals with, in particular, Apple. There are a lot of aspects to that industry when you parse the competitive elements of it, and all I've said is that for DIRECTV, and all I'm -- I'm just speaking to us and our shareholders, that I don't believe it would be in our interest to do a greenfield entry or to try and acquire a smaller wireless company. And I, frankly, don't think that my views in that regard would change. I think our approach has been to partner, and -- but that is not to say we don't see the trend or the importance of having those partnerships. It's why we work so hard to strengthen our alliances with all of our telco partners to ensure that our customers can access what they want when they want it, where they want it.

Patrick T. Doyle

And then, I think, Jason, on the share repurchases, I think what you saw in the first quarter is what we've said, is we are going to be opportunistic. It's not -- we don't plan on kind of peanut butter spreading the share repurchases across the year, particularly when we got off the earnings call and the stock weakened into the 40s and low 50s, I mean, we saw that as a phenomenal opportunity to repurchase the stock. Not surprisingly, when we look at our multiples and particularly growth adjusted multiples, we're very optimistic about the company and its valuation. So if the market gives us those kind of opportunities to get a little heavier on repurchases, we're going to take advantage of it. So again, we're still kind focused on $4 billion for the year obviously if -- who knows if something happened again and showed significant weakness, we don't want to miss those opportunities.

Operator

Our next question comes from Vijay Jayant with ISI Group.

David Carl Joyce - ISI Group Inc., Research Division

This is David Joyce for Vijay. Along some of those same lines, you looked into GVT, and I was wondering if you could now discuss what you liked and what didn't work for DIRECTV, and what sort of asset would make sense from a platform perspective, maybe along the fiber lines or else...

Michael D. White

Well, I don't really want to get into the details on it, David. I think I was pretty clear on the last call that it wasn't one factor. It was a number of aspects. I think it was a good process for us. We learned a lot. We're excited about what we're doing with broadband in Brasilia and expanding that to other cities this year, as well as, perhaps, to other countries. So our strategy has been to be opportunistic, to pick our spots and to build out where we can. But as I've said before, regardless of the kind of acquisition, we have very clear criteria that, strategically, it has to take us someplace we couldn't get on our own; there has to be a sound business case, where you can create significant synergies and shareholder value; and I have to be comfortable with how we would manage it. I mean, those are the kinds of things that we tend to look at on every opportunity that we look at, and we did in that case. But it just -- on a number of fronts, it didn't pass the ultimate test, and that's why we chose to pass.

David Carl Joyce - ISI Group Inc., Research Division

And can you provide any color on traction in satellite-based broadband, then?

Michael D. White

Sorry on? On what, David?

David Carl Joyce - ISI Group Inc., Research Division

On satellite-based broadband, if you can just provide some more color about that.

Michael D. White

You mean the broadband in Brazil?

David Carl Joyce - ISI Group Inc., Research Division

Yes, that'll be great.

Michael D. White

Okay. That's not satellite. Bruce, you want to touch on that?

Bruce B. Churchill

Yes. No, our broadband in Brazil is actually fixed wireless. So it's using, for the most part, 2.5 spectrum for receiving broadband in the home. We -- I think as I've talked about before, we're probably, maybe a year behind where we would like to have been just because we had a little -- some delays with some of the initial equipment and software that was provided to us. But we have a plan to roll it out this year in parts of Brazil, and we're going to be very opportunistic about that and try and pick areas where we think we can win quickly and get subscribers that will probably, for the most part, be existing Sky subscribers. And then as -- measure how that goes and then decide again -- revisit it towards the end of the year, and see how aggressive we want to be going forward. But it's a very different, I mean, competitive dynamic in Brazil than it is in the United States. I mean, obviously, you don't have as much of a high-quality fixed line network that is as broadly distributed in Latin America as you do in the U.S. So something like fixed wireless is a very attractive -- and is very competitive in a lot of our markets.

Michael D. White

Yes, the price performance differentials, I think, we can be very competitive, David, in Latin America for a long time to come. It's quite a different competitive dynamic in the United States for broadband to the home, with DOCSIS in particular or for fiber for that matter.

Operator

And we'll go next to Tuna Amobi with S&P Capital IQ.

Tuna N. Amobi - S&P Equity Research

My first question, Bruce, I think you recently kind of provided some color on the situation in Venezuela. I think you said that at some point, that market should normalize. So in the context of some of the recent political, the current political environment and the -- Hugo Chavez passing away, and a new president, et cetera, I'm wondering what you're hearing and what's your current assessment and if, in fact, how you see that playing out? And any quantification of the amount of currency that you currently hold in that country and possibly utilizing some of that in some of your other faster-growing Latin America regions would be helpful to understand. And I have a follow-up.

Bruce B. Churchill

Okay. I'm not going to prognosticate on the future of Venezuela. I think that for the foreseeable future, it will remain very much -- the situation will remain very much as it is today, which I think means we will continue to manage the business as we had managed it for the last several years, which is to the extent that we're able to exchange local currency for dollars to import boxes, we'll continue to make those kinds of investments and maintain our share and grow the business to the extent that we are allowed to do so. And just -- we do have about, at the end of the quarter, I think we had about USD 420 million of cash on hand expressed at the now official rate of 6.3, I think it is. And we are always looking for opportunities to use that cash locally to fund the business, obviously both locally and even regionally. And an example of that is we have a broadcast center in Venezuela, and we use the broadcast center there to service more than just Venezuela. So to the extent those kinds of opportunities exist and we can use local currency for local kinds of expenditures, we definitely do that.

Tuna N. Amobi - S&P Equity Research

Okay. That's helpful. A question for Mike. On the sports, you deal with Seattle Mariners, I'm just trying to understand here what's the overarching strategy. Is this some playbook that you intend to kind of replicate, and I would imagine, was that motivated primarily by programming cost or can you help us understand how that kind of fits into your overall strategy there?

Michael D. White

Sure, sure. Let me start and then, Pat can talk through the specifics on it, Tuna. Just a reminder, so this is part of our -- the sports networks that we own that is reported down in the other -- is the corporate or the other..?

Patrick T. Doyle

Other, yes.

Michael D. White

Other line, okay, as opposed to kind of a broader based set of what's happening with regional sports networks around there, we had -- the Mariners had an out in 2015 to renegotiate a deal that we have had with them for a number of years, and this is really the culmination of that renegotiation. We feel very comfortable. We're thrilled to be partnering with the Mariners with a long-term horizon without a dramatic increase in subscription fees in this particular case. So we feel like it's worked out very well for our customers. We're excited about the partnership, and look forward to continuing that. I think we've always said that we'd be opportunistic about regional sports network opportunities if they were to arise. But at the same time, Tuna, in this world, we're going to be very disciplined in that area because it's pretty easy to lose a lot of money chasing regional sports networks. So in this case, it was win-win, I think, for the Mariners and for us. Pat, I don't know if anything else you want?

Patrick T. Doyle

Yes, I mean, I think that -- I think, as I said in my speech note, so we went effectively from owning 100% of that business to being a partner and a minority owner. So that the write-off, again, it was noncash. It was really just -- we had some goodwill and other intangibles that go all the way back to the Liberty transaction that just got kind of readjusted to our current ownership level. But as Mike said, the big thing was just making sure where the Mariners could move on in the future and go any direction. We have established now a very long-term relationship with the Mariners. So we're happy about that.

Operator

And we'll take our next question from Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

I have 2 questions. First is for Mike. I'm curious as to your thoughts on how a DISH-Sprint combination could impact the competitive landscape, especially in some of the areas where DIRECTV might have a relationship with the rural telco operators. And then, my second question is for Bruce. Going back to LatAm, it's clear that churn is higher than anticipated but still manageable. Is there a point that would cause you to change your focus and maybe no longer target the middle market segment?

Michael D. White

Marci, I don't really want to speculate on something that's kind of work in process. I mean, that special committee's got its hands full trying to sort through the debt levels and the different proposals and the rest of the aspects of those transactions. Suffice it to say, I mean, our landscape's changing all the time. I saw YouTube announced the subscription deal yesterday for $1.99, and our focus is to make sure we stay agile, and we can adapt and embrace whatever new technologies or new competitive landscape may be out there. I mean, any time companies do an acquisition -- do a merger, you have an awful lot of integration things to work through. I mean, we're focused on our -- as I said, kind of ensuring our customers can ride on all of our partners' highways and make it seamless, and also that's why the Connected Home makes so much sense for us. By the way, we're up to close to 4 million homes now that are connected. We're getting an extra $4 on ARPU out of those customers. And we're building out this year our cloud infrastructure with a pretty substantial capital investment that was embedded in the plans that we provided you in the guidance we've given you for this year. So I think it -- in our case, we're doing everything we can to strengthen our partnership with the wireless companies that we do business with, and we're always looking for further ways to do that to make it an even more seamless experience for our customers. But I guess my only point that I was trying to make earlier is that you've got, really, 3 very different businesses between broadband in the home, wireless mobile phones for the take-or-pay from Apple and spectrum and network backhaul and retail storefronts and so on and so forth than a pay-TV business. And I, for one, think that you will see more and more seamless movement of content across these different areas from the cloud to the -- to a wireless device, to your television set. But in no way, shape or form do I think that that changes the primacy of the big-screen TV in the home to watch the game or the American Idol show or what have you. So we will, however, look for any opportunities we can, and we have a terrific partnership with CenturyLink, as one example, and we're looking to expand on that as well. So -- and we'd be open to other partnerships with rural telcos as well.

Bruce B. Churchill

On the question of the middle market, I guess I would say that it's hard for me to imagine that we would abandon trying to serve the middle market because that's where, obviously, a large part of the growth is. I think what I would probably say is we remain very focused on the return on investment in each -- for each segment of our customers, and we would be looking for ways -- if for some reason those returns are no longer satisfactory, we would probably look for ways to either resegment the market or decide maybe not to serve even parts of certain segments of the middle market. For example, you might say -- you might create different sets of rules for cash customers versus customers who pay on automatic debit or on a credit card, et cetera. So I think there's a lot ways to skin that cat, and I would hope -- I'm pretty confident if anyone can figure out how to do that, we would figure out how to do that. And it seems very unlikely to me that we would abandon the segment.

Operator

And we'll take our next question from John Hodulik with UBS.

John C. Hodulik - UBS Investment Bank, Research Division

Couple of questions. It looks like some of your advertising has shifted in focus from the Genie to the app and your IP-based capabilities. Can you just talk about what you have available now in terms of live programming and pay-per-view and I guess whether or not you think that fits -- that compares favorably to what your competitors offer? And then, secondly, subscriber trends in the U.S. If you could just refresh some of the commentary that you gave us in the last quarter, I think you had suggested you'd be positive in first, but probably turn negative in the second, given the seasonal trends and whether or not you thought you'd be positive for the first half.

Michael D. White

So, John, we vary our advertising every year. I mean, we have different flights that will run. I mean, right now, as you said, we moved from Genie to some of the TV Everywhere features. You'll see us move to NFL SUNDAY TICKET this summer. So that's kind of normal, I would tell you. We're quite pleased with the progress we're making on our TV Everywhere product. Today, we can stream 83 live channels in the home, and we expect to expand that over the next year or 2. Outside the home, it's a more modest number consistent with the rights, mostly with the premium -- like the premium's channels as well as the NFL SUNDAY TICKET product that we have outside the home. As those rights are evolving, we are getting those rights that will, I think, enable us to do a lot more outside the home. But we're pretty much consistent with everybody else, as those deals come up, frankly, digital rights is an integral part of every negotiation. So we expect to continue -- and everybody's on a different time with different deals. So with some of the media companies, we're a bit behind because our deals aren't up. In other cases, we're a bit ahead because our deal was up recently. So I think it's a bit of a mixed bag. We're building out our streaming library. We've got content from 38 networks today. On demand, we're currently offering 70% of our set-top box on-demand library over the Internet, and we expect to see that expand as well. So I'm actually quite pleased. A lot of the capital investment that we're making this year in this whole arena, though, is what I'd call plumbing and wiring an infrastructure to enable us to stream even more down the road. We have a lot of plans in place. We've got some new products. We've got a second-generation Genie due out in the second half with built-in Wi-Fi that'll make a Connected Home even easier. We've also got wireless Genie clients rolling out later this year, and we've got a voice search capability that we're rolling out in early summer that we're very excited about, leveraging the same kind of technology that Apple has. So we have lots of things going on, and we've got a fantastic new NFL SUNDAY TICKET second screen application that we plan to launch this summer that has some fantastic new fantasy football features. So we're very excited about the new products that we have, and I feel good about the progress we're making. But more to do, and there's no question that I think you'll see the entire industry continue to evolve in this space over the next 3 years. So we don't see this as a onetime investment. I think this is a stepped-up level that you can expect us to sustain over the next several years as we expand in that area. In terms of the sub-trends, I feel very good about the progress that we've made this year. In spite of the price increase, we came in pretty well, and I would tell you so far in the second quarter, gross adds are trending very well. Now keep in mind, second quarter is a negative sub quarter for the industry, and it was for DIRECTV last year. If my memory is correct, I think we had about a negative 50,000 last year. So I don't want to speculate. But my guess is we'll be negative in the second quarter, as will the industry. But our gross entrants I'm very pleased with, and our business is performing very well. So churn is well under control. So really, I feel very positive about where we are with our subscribers. North of 20 million is a nice place to be in the U.S. and probably, 16 million, almost 17 million in Latin America now. That's a pretty good place to be.

Operator

Next we have a question from Bryan Kraft with Evercore Partners.

Bryan D. Kraft - Evercore Partners Inc., Research Division

I had 2 questions. Bruce, why did the middle market mix suddenly drive such a large increase in postpaid churn? And has it been more of a gradual shift or was it more of a function of increased competition? And can you elaborate on the change in competitive intensity in Brazil and how you're responding? And then my other question was for Pat. Why did you decide to do the accelerated share repurchase, and has that been executed yet?

Bruce B. Churchill

Look, Bryan, I think you're right. It certainly has been -- something that has been building. We, frankly, had some operational difficulties in Brazil that was -- resulted in probably some self-inflicted wounds in the area of churn management that just had, frankly, a bigger impact on those middle market subscribers that we were able to recover better with some of our other subscribers. So those operational issues will probably continue for the next few months as we work our way through them. But I think broadly speaking, you're right. It's kind of a general trend, and as we have a larger and larger base of middle market customers, keeping the overall churn rates down is more of a challenge. I think the competitive intensity in Brazil continues to grow. But at the same time, I feel like we've been competing in a pretty intensely competitive market for a while now. As I mentioned, I think, in response to one of the other questions, what we are seeing is some more aggressive offers on the HD side where a couple of the competitors are offering entry-level HD packages at prices that used to be really more reserved for, say, mid-level or somewhat higher level standard-def packages. So you are seeing some increased competitiveness in the market, and that probably also has an impact on churn as well.

Patrick T. Doyle

So Bryan, on the ASR, I guess, there were really a couple of reasons. Number one, we find that through those arrangements, we actually get very good pricing, and I think we save money from a cost-effective standpoint versus just doing open market transactions. And secondly, I think as our business matures, I mean, I think we certainly focus on cash flow. But on EPS, we're becoming more and more focused on some of the bottom line metrics. The ASR allows us to retire shares earlier in the quarter and earlier in the year for average weighting and from both kind of free cash flow per share growth and EPS growth. We think now it's kind of a double win, and it's very cost-effective, better than open market, and allows us to retire shares a little bit earlier during the course of the year than otherwise.

Michael D. White

I'll just add, Bryan, I think both our CFO and Treasurer deserve high marks here. And I think this is a natural progression. If you have watched DIRECTV at all over the last, I would say, probably 2 years, we've gotten way more sophisticated in where we diversify our funding sources and being smarter about how we manage the balance sheet and our cash, and I think this is just one other evolution in our financial strategies that we've been using. And frankly, we made money for our shareholders doing it this quarter. So I mean, hats off to Pat and Fazal Merchant.

Operator

And we'll take our next question from Mike McCormack with Nomura Securities.

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Just thinking about the Latin American constant currency ARPU growth. I guess it was a little bit counterintuitive, just given the number of middle market customers coming in. Can you just make a comment on how you're able to take price, I guess, above and beyond the inflation rates there and whether or not that was also a driver of churn? And then secondly, just any thoughts on bad debt trending in Latin America given the, again, the higher percentage of middle market?

Bruce B. Churchill

We do take price increases. I would say -- and I don't believe we can -- we've taken them anywhere, really, above the inflation rate. We tend to try and match as close to inflation as we can. In some cases, in some markets, that's somewhat restricted either by regulation or sort of competitive dynamics, et cetera. So therefore, given whatever price increases we put through really work more consistent with inflation. I don't think price increases, per se, were unusually a contributor to churn this year. With respect to bad debt, I think, again, that is an issue that I alluded to earlier when I talked about probably the economy in Brazil slowing down a bit. I think it does affect people on the margins more quickly. Those tend to be our cash customers, and so it is becoming -- that's part of -- that's one aspect of managing the churn in Brazil that just makes it a little more difficult. It definitely is more of an emphasis on the involuntary churners than it is on the voluntary, that's for sure.

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Great. And then, Pat, can you just frame the programming and tie it to the NFL. Is it just simply dividing the total cost by 17 games, and that's the impact for Q1?

Patrick T. Doyle

Yes. So yes, whenever we have an individual game, the way the accounting works is both the revenue and the cost matches up on a -- yes, like I said, the total cost and total revenue divided by the number of games.

Operator

And our next question comes from Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

I guess I have a slightly longer-term question, sort of, in the 1- to 3-year time frame for Mr. Doyle. I think in -- while your aggregate leverage is sort of in the mid-2s, you're really effectively managing your leverage sort of on U.S. EBITDA and not thinking about leveraging LatAm because of the lack of free cash. To the extent that we -- that you hit your plan over the next 3 years and Latin America begins to generate free cash, is it possible that your leverage goes up? Or do you think the right way we should think about it is even if LatAm is generating sort of significant free cash, your leverage will still stay at mid-2s?

Patrick T. Doyle

Yes. I think -- yes, I think I would just view the 2.5 as kind of the consolidated leverage level that the company is comfortable with and I know the board is comfortable with. I mean as, and like I said, if you look at it now, the leverage on the U.S. EBITDA is much higher when you look at it independently versus Latin America, and we're certainly keenly aware that right now, Latin America is not producing cash flow because we're taking the monies generated down there and reinvesting in this growth. So I mean, it's part of our strategy of over the next, like you said, the next couple of years before we see Latin America begin to generate a substantial amount of cash on their own. But right now, I mean, I wouldn't want to steer away from anything more than -- we're kind of comfortable in that 2.5 consolidated EBITDA range.

Operator

And we have time for one final question today, and we'll take that question from Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I have a couple of sports-related questions. First on the NFL, can you drive any more value from exclusivity in your next go round or if not, how should we think about the cost once this current deal expires?

Michael D. White

We have an excellent relationship with the NFL. As I think we've told you, we have probably on the order of 2 million paying subscribers. But we've been using it very effectively as a promotional vehicle as well, and so I think we're up to close to 4 million viewing subscribers. And so it plays an important role for our company and for our customers, Jessica. So I think the challenge you always have, if you want to look at other ideas that open it up -- and we've done some of that, by the way, I mean, we've dabbled a bit with PlayStation. We didn't go broadly with it or kind of do a big push, marketing it to nonsubscribers because you've got that kind of pull and tug as to how you think about it. But I'm very optimistic that we have a good relationship. We want to continue that relationship. We still got 2 more seasons to go, by the way. So let's keep in mind we've got a ways to go here. But I would say, it is a pretty mature product as well, so.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Okay. So just switching gears a little bit to RSN. Have you rolled out the surcharge in all the markets that you planned to? And maybe more specifically on one market -- slightly different question, but on L.A., can you talk about how your, kind of, the threshold for pain for carrying Time Warner Cable's Dodgers RSN? It's one of your largest markets, but -- and you guys just talked about like it being math, how many people are watching. But it's obviously a really big brand and it's an important market, so maybe can you just give us some color on how you're thinking about that?

Michael D. White

Sure. I think the whole -- this whole world is changing. Just as every negotiating round with a typical media company has now changed, where it is increasingly data based, Jessica. So we look at cost per subscriber per game, and we look at ratings, and we compare all of the RSNs in America to that. And then we look at the number of subscribers that we have on our set-top box data that are actually watching. And then, we will make an assessment about how much churn that might imply, and then we'll make a decision. And I'm not going to get into the specifics on it, but it's going to be, from our side, a very rational science-based process, a database process. It has to be. I mean, just because somebody wants you to triple their fees doesn't mean you're going to triple their fees. And frankly, we've done some additional work with consumers asking them their opinion as to whether putting a $3 surcharge or more than that, how many would vote for that? And I can assure you that most are against it. So I'm trying to do the best thing I can for the 20 million subscribers who pay us their bills every month, and we will be kind of open-minded as and when we're approached. We have not been approached, by the way, yet. But it is going to be a science-based, data based discussion about ratings and about cost per subscriber per day and what is reasonable. And frankly, also, what our different customers in different states have an interest in watching, and whether they're interested in paying those fees or not because at the end of the day, I strongly believe that we work for our customers. And increasingly, I think we have to see what our customers think when it comes to such a radical change in the economics out of the norm of what anybody else is getting paid, and so we'll see. I haven't seen a proposal yet, but I can tell you that's how we will be looking at it.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And then, just that last part about the RSN surcharge, has that been rolled out everywhere you intend to?

Michael D. White

I believe it's now rolled out to all of our existing customers, Pat, if I'm not mistaken?

Patrick T. Doyle

Yes.

Michael D. White

So yes, it's about 20% of the country, Jessica, as I recall. And it's those areas where, frankly, it only covers a fraction of what the incremental costs are right now in regional sports. Regional sports are growing double digits, content cost-wise.

Operator

Thank you very much, ladies and gentlemen. This does conclude today's DIRECTV Group's First Quarter 2013 Earnings Conference Call. You may now disconnect your lines, and we wish you a pleasant afternoon.

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