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DIRECTV (NASDAQ:DTV)

Q2 2013 Earnings Call

August 01, 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 Ventures

Patrick T. Doyle - Chief Financial Officer and Executive Vice President

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

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

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Vijay A. Jayant - ISI Group Inc., Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Craig Moffett - Moffett Research, LLC

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Tuna N. Amobi - S&P Capital IQ Equity Research

Richard Greenfield - BTIG, LLC, Research Division

Operator

Good day, ladies and gentlemen. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to DIRECTV's Second 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 begin.

Jonathan M. Rubin

Thank you, operator. And thank you, everyone, for joining us for our second quarter 2013 financial results and outlook conference call. With me today on the call are Mike White, our President and CEO; Pat Doyle, CFO; Bruce Churchill, President of DIRECTV Latin America; and Larry Hunter, General Counsel. 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. 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 are posted on our website at directv.com.

So with that, I am pleased to introduce Mike.

Michael D. White

Thanks, John. And you get to read that faster every time I hear it. And thanks, everyone, for joining us today.

Look, on balance, I think DIRECTV's second quarter consolidated results were solid. In the U.S. business, our results continue to reflect our goal to smartly balance top line sales and bottom line profitability through various strategic initiatives that heighten our focus on quality and the profitability of our subscribers, the overall customer experience and, of course, cost management all across the enterprise.

In Latin America, even with the macroeconomic and operational challenges, which I'll touch on briefly more in a moment, we're continuing to see robust demand for DIRECTV and Sky's differentiated products and services. And these results across both the U.S. and Latin America, coupled with our share repurchase program, drove mid- to high single-digit revenue and earnings per share growth along with solid free cash flow growth in the quarter.

Now before I turn the call over to Bruce and Pat for a more detailed review of Latin America and the U.S. businesses, let me offer just a few observations. Let me begin with Latin America, where, as I said, strong consumer demand for DIRECTV and Sky's leading brands, attractive products and segmented offers drove gross additions in the quarter to a DIRECTV all-time high. Consistent with recent trends, this record performance was driven by strong growth from our middle market segments as well as continued momentum in the higher-end -- what we call A and B households.

However, as we previously disclosed in our 8-K filing in June, higher churn in the quarter did drive net additions below expectations in Brazil. We attribute this increase in churn to several factors. First, there was a churn of something on the order of 200,000 subscribers related to the termination of Sky Brazil customers who got retention credits during late 2012 and early 2013 that were inconsistent with authorized policies. Second, a combination of a slowing economy overall in Brazil and continued competition is placing upward pressure on churn, most especially among the middle market subscribers. To address the improper credits issued in Brazil, we've already taken appropriate disciplinary action for the management that was involved and put new rigorous control procedures in place. In addition, we are, of course, tightening our credit screens and reviewing our programming and packaging strategies to better align our offers with consumer income levels and behavior patterns.

Now I should point out, we also took the opportunity to review our practices in PanAmericana, and we're confident that all of our subscriber retention and churn policies continue to be property followed throughout the region. Although unfortunate, I'm confident that Sky Brazil will come out of this process as a stronger company with a smarter management team with a higher-quality and more profitable subscriber base.

Now also, over the last few months, we have seen increased volatility in the global currency markets, which present foreign exchange headwinds, particularly in Venezuela, Brazil and Argentina. However, keep in mind, in local currency, DIRECTV Latin America's top line growth of more than 20% in the second quarter remains very strong and continues to reflect the strength of our leading brands and advantaged competitive position.

As Bruce will cover a bit further, the fluctuations in foreign exchange, coupled with some onetime and ongoing operating cost issues, as well as the subscriber challenges that we spoke about earlier, did unfavorably impact our dollar-reported profit results for the quarter. That said, I believe we're doing a good job navigating through this operating environment, and DIRECTV Latin America is still on track to have a very solid year in terms of net subscriber additions in local currency, revenue and OPBDA growth.

Moving on to DIRECTV U.S. Overall, I thought our U.S. business delivered another good quarter, highlighted by solid revenue, earnings and cash flow growth. As we've seen in recent quarters, the benefits from our initiatives to focus on high-quality, loyal and profitable subscribers are represented in our more than 5% revenue growth, which was generated mostly from strong ARPU growth. In terms of margins, Pat will go into a bit more detail, but the benefits we're generating from our cost containment and productivity improvements are also notable, particularly since many of our key cost areas are growing slower than our revenue growth.

Having said that, rising programming costs, particularly related to large resets and excessive increases in retrans and sports fees, continue to be a significant challenge for our industry overall. We'll continue to do everything we can to fight on behalf of our customers to keep their bills down and slow these unsustainable cost increases.

Turning to churn. Our second quarter churn rate of 1.53% reflects the continued success of our disciplined customer acquisition strategy. In addition, we continue to enhance our churn-mitigation efforts through ongoing initiatives aimed at improving the overall customer experience.

Recently, our hard work was recognized in the results of the American Customer Satisfaction Index survey released in May. Not only did DIRECTV's ACSI score improve over last year, but our results exceeded many of our competitors' scores for each of the 3 components: customer satisfaction, perceived quality and customer loyalty. Although we're clearly in the early innings of our journey on this customer experience effort to drive higher loyalty levels, I think the survey shows that we're already beginning to make progress. But it also highlights the opportunity we see to continue to take our game to an even higher level to achieve our longer-term goals to reduce churn.

It's important to point out that our success in achieving these long-term goals will be influenced by macro factors, whether it be the economy or competitive landscape. And certainly, to that point, steep discounting and cash-back incentives, which became increasingly common late in the quarter, are just not that profitable or sustainable for the industry as a whole over the long term. They diminish the perceived inherent value that pay-TV offers consumers. They erode profit margins. They eventually have to lead to major price step-ups, which we know further impair customers' loyalty to our industry as a whole.

With that said, I think it's worth highlighting that the core economics of the U.S. business remain solid. We continue to be extremely disciplined in how we manage the business, and we remain on track to meet all of our U.S. full year guidance for net adds, revenues and OPBDA.

In summary, I remain confident in our growth prospects for both the U.S. and Latin American businesses. In the U.S., we'll continue to focus on driving profitable growth through brand leadership, innovative product excellence, world-class customer service and execution and financial discipline. And in Latin America, we'll continue executing on our key strategies by leading the higher-end markets with the best advanced services, while also continuing to profitably grow the middle market segment as we go forward.

Finally, I'd like to mention that we look forward to offering you a much deeper dive into our strategies and financial priorities on December 12 when we look forward to hosting our DIRECTV Investor Day at the Roosevelt Hotel in New York City.

So with that, let me turn the call over to Bruce Churchill, who'll review our Latin America results in more detail.

Bruce B. Churchill

Great. Thanks, Mike. As Mike mentioned, in spite of the challenges we faced with churn and foreign exchange, I believe DTVLA had a solid quarter, delivering strong sales and respectable financial results across the region. In terms of sales, our middle market products continue to outperform our expectations, resulting in yet another record quarter.

Before discussing our second quarter results in more detail, I would like to take a few minutes and provide some additional comments on the recent events in Brazil. As we disclosed in the 8-K we filed on June 27, we experienced unusually high churn in Brazil this quarter due to the fact that in previous periods, certain customers had received retention credits that were inconsistent with our authorized churn policies. Once Sky ceased issuing these unauthorized credits, a large number of these subscribers left the platform. As Mike said earlier, we have taken disciplinary action against those involved, and we've made changes to our policies, procedures and our organization to prevent another incident like this from occurring again. No doubt, part of the reason we encountered the trouble we did was the fact that parts of the Sky organization were trying to respond to an increasingly challenging economic environment in Brazil, particularly as it affects certain segments of what is now a large base of middle market customers. The changes I referenced earlier are all focused on better managing a higher-risk group within that segment, and we continue to believe that our middle market strategies in Brazil and PanAmericana are the right ones for maintaining profitable growth. But the execution of these strategies is not without its challenges.

So turning now to the quarter, I would like to remind everyone that, unless otherwise noted, my following comments on our results for Q2 exclude Sky Mexico, which we do not consolidate. Gross additions of just under 1.2 million represented a 6% increase over last year. In PanAmericana, gross additions grew 10% compared to last year, driven by sales of our prepaid product in Argentina and Colombia. Prepaid sales represented 59% of our gross additions in PanAmericana compared to 49% a year ago.

In Brazil, middle market sales represented 17% over last year, representing almost 81% of Sky's gross additions. Across the region, middle market subscribers now represent 40% of our 11.1 million subscribers compared to 32% last year.

Sales of our advanced products were also solid in the quarter. In PanAmericana, advanced product subscribers grew 18% versus last year, with those subscribing to HD growing 47%. Now more than half of our 1.6 million advanced product subscribers in PanAmericana receive our HD service. In Brazil, second quarter sales of HD to new subscribers grew 13% over last year. When combined with upgrades of our existing customers, HD subscribers grew more than 40% over the prior year, now representing approximately 31% of our Brazilian subscriber base.

Turning to churn. Our higher churn in Brazil unfortunately offset very low postpaid churn in PanAmericana, which is 1.33%, down from 1.4% last year on churn improvements in Argentina and Venezuela. With regard to our prepaid subscribers in PanAmericana, we saw an increase of almost 70% of our on subscribers compared to last year, reflecting our strong sales and continued improvement in reconnection rates.

As a reminder, when we refer to our on subscribers, we are only referring to those subscribers that have paid for and are receiving our signal on the last day of the quarter. In summary, we added 165,000 subscribers to our base this quarter. And in spite of the churn issues in Brazil, we maintained or increased our market share year-over-year in all of our major markets.

Now turning to our financial results. Second quarter revenues grew 12% compared to last year or about 26% excluding the impact of foreign exchange, mostly as a result of the 22% increase in our subscriber base. The negative FX impact is a result of the weakening currencies in Venezuela, Brazil and Argentina versus the U.S. dollar. Excluding foreign exchange, ARPU was mostly flat, reflecting a 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. This balance is one we've often talked about and entirely consistent with our expectations and our long-term guidance for ARPU, which is expected to be flat to down on local currency terms.

DTVLA OPBDA increased 2% to $455 million, as the higher revenues were mostly offset by higher programming and other operating costs associated with our larger subscriber base. OPBDA margin declined to 27% from approximately 30%, due in part to the recent events in Brazil that resulted in higher subscriber service expenses, higher bad debt expense and increased administrative costs. In addition, contractual price increases of certain programming agreements and the launch of a nationwide advertising campaign, both in Brazil, pressured our OPBDA margin in the quarter.

In PanAmericana, our OPBDA margin declines mostly reflected our higher prepaid sales versus last year. Cash flow before interest and taxes in the quarter of $7 million declined from $89 million a year ago as higher purchases of subscriber-related equipment and unfavorable working capital movements more than offset lower nonsubscriber-related capital outlays. You may recall that last year, we had made a significant down payment on our new office building in Venezuela. Our unfavorable working capital movement was mostly related to the timing of vendor payments in Argentina and Venezuela.

I would like to mention Sky Mexico, whose results were released by Televisa a little over 3 weeks ago, Sky Mexico delivered another strong quarter, adding 233,000 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 nearly 40% in the past year. And financial results at Sky Mexico were also strong, with double-digit growth in local currency, revenue and OPBDA.

Finally, I would like to make some comments regarding the outlook for the remainder of the year. With regard to Brazil, consistent with what we are seeing today, we expect our middle market churn to improve over the coming months as many of the churn-reduction initiatives that we have implemented take hold. That said, I do not believe we can recover the subscribers lost to churn over the past several months, so net additions in Brazil will be down almost 50% from our previous expectation of roughly 1 million.

PanAmericana is somewhat ahead of where we expected it to be year-to-date, but it will not entirely offset the shortfall in Brazil. Therefore, total net additions for the year should be in the range of 1.5 million to 1.75 million.

On the financial performance side, unfavorable FX rates continue to be our biggest challenge and our biggest unknown. If currencies stay where they are today, total revenues for DTVLA should grow in the 10% range for the year and OPBDA in the mid-single digits, excluding the Venezuela currency charge that was taken in the first quarter. In addition, I expect that our total capital expenditures will be in the range of $1.8 billion, somewhat below the $2 billion figure I gave earlier in the year.

And finally, I would like to add that in spite of the events of this most recent quarter, our fundamental long-term view of the market and the financial potential of DIRECTV Latin America has not changed from the one we laid out early last year. I look forward to updating that story with all of you at our Investor Day later this year.

And with that, I'll hand it over to Pat. Pat?

Patrick T. Doyle

Thanks, Bruce. Overall, I thought that DIRECTV U.S. had a good second quarter, highlighted by solid revenue, earnings and cash flow growth.

Looking first at the top line. DIRECTV U.S. revenues increased 5% to more than $5.9 billion and were primarily driven by a solid ARPU growth rate of 4.6% in the quarter. In addition to the usual lift we receive from price increases, ARPU growth benefited from increased penetration of both new and existing customers paying for advanced services, such as our whole-home Genie entertainment experience. Pay-per-view movies, ad sales and commercial also contributed favorably this quarter, as each grew at a double-digit clip year-over-year.

Pay-per-view movie buys through DIRECTV CINEMA and our Connected Home strategy represented the best second quarter performance in at least 4 years. We now have more than 4 million subscribers with a Connected Home, or 55% more than a year ago, paying us on average an incremental $4 per month compared with HD DVR subscribers who are not currently connected.

The higher advertising revenue in the quarter was generated mostly by greater contributions from both our new local and addressable categories, as well as from the national sales. Finally, strong commercial sales were driven principally by our new pricing and packaging strategy, which has increased both our market share and penetration of new and existing subscribers paying for sports, particularly in bars and restaurants. Partially offsetting these benefits were softer pay-per-view event revenues related to a reduced schedule of premier boxing events.

Turning now to subscribers. The modestly lower gross additions relative to last year is consistent with our guidance and reflects our greatest -- our greater focus on quality and profitability of subscribers in the increasingly mature pay-TV marketplace. Our second quarter monthly churn of 1.53% was solid, as we're continuing to see favorable involuntary churn trends related to our more selective acquisition policies. These benefits were somewhat offset by a slight uptick in voluntary churn, primarily due to the greater-than-average price increases we implemented this year, along with an increase in promotional activity across the competitive landscape.

Moving now to the bottom line. Second quarter operating profit before depreciation and amortization margin was relatively flat at about 28%, and OPBDA growth of 4% was solid. Consistent with recent trends, OPBDA growth benefited from our selective customer acquisition strategy, solid cost-containment initiatives across the enterprise and improved productivity from prior year capital investments. As a result, many of our key cost areas, including subscriber services, broadcast operations and G&A, grew slower than revenues. Partially offsetting these improvements were increased content costs, primarily related to annual programmer rate increases, as average programmer costs per subscriber, or ACPU, grew at roughly 8.5%. That said, ACPU is coming in a touch better than we had expected this year, as we remain extremely disciplined in our negotiations and with our approach towards launching new channels.

Cash upgrade and retention costs were also higher in the quarter, as we expanded our upgrade offers to improve loyalty and manage churn. We continue to believe that greater investments in our more valuable subscribers yield strong returns. As such, we now expect that our full year cash upgrade and retention spend will increase by approximately $300 million compared with the 2012 levels, rather than the $200 million we talked about on the last earnings call. It's also important to point out that this increased spend is consistent with our full year DIRECTV U.S. OPBDA and CapEx guidance.

Looking quickly at our second quarter consolidated results, net income was 7% lower than the prior year period, as higher OPBDA was more than offset by increased depreciation and amortization expense related to higher capital expenditures associated with the record gross additions in Latin America, as well as increased demand for advanced services at DIRECTV U.S. The higher depreciation at DIRECTV Latin America was also due to the write-off of capitalized installation and equipment costs associated with the higher churn at Sky Brazil.

Also impacting net income in the quarter were 2 items recorded in "other net" in our consolidated P&L. First, our agreement with the Seattle Mariners to transfer and deconsolidate our majority interest in the Pacific Northwest resulted in a noncash pretax charge of $59 million in the quarter. The charge is primarily related to the difference between the carrying value of the old Regional Sports Networks and the fair value of our minority ownership in the new entity. Second, we recorded a functional currency loss related to the changes that the Brazilian real had on our U.S. dollar-denominated liabilities in Brazil, which currently includes an intercompany loan of approximately $200 million and a satellite lease obligation of about $200 million. In the quarter, the real depreciated against the dollar by roughly 10%, resulting in a pretax noncash charge of $39 million. That said, earnings per share grew 8% to $1.18, as the lower net income was more than offset by our share repurchase program. Free cash flow also remained strong, increasing 12% to $526 million in the quarter.

Moving on to the balance sheet. In the quarter, we repurchased 10 million shares of DIRECTV stock for $620 million, bringing cumulative repurchases since we began the program in 2006 to nearly $28 billion or nearly 63% of shares outstanding. As discussed on prior earnings calls, our actions in the second quarter reflect our efforts to be more opportunistic in the timing of our stock repurchases.

Year-to-date, we've repurchased 37 million shares of DIRECTV stock for $2 billion, which is right on track with our full year target of $4 billion of buybacks in 2013. Also in the quarter, we completed a EUR 500 million 10-year senior notes offering, furthering our cost-effective funding diversification strategy. In addition, we had $275 million outstanding under our commercial paper program at the end of the second quarter. As a result, we ended the quarter with just under $19 billion in total debt, bringing our total debt to trailing consolidated OPBDA leverage ratio to about 2.5x.

In summary, I thought we had a very solid quarter as we continued to deliver on the long-term strategies we outlined for our U.S. business and remain on track to deliver full year mid-single-digit revenue and OPBDA growth at DIRECTV U.S. And as Bruce mentioned a few minutes ago, DIRECTV Latin America is on track to deliver a solid year in terms of subscriber and local currency growth. So if we successfully execute on these goals and continue to be disciplined in managing costs, I'm confident that, excluding onetime items such as the Venezuela devaluation charge, we will deliver on our full year earnings per share target of $5 in 2013.

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

Jonathan M. Rubin

Thanks, Pat. 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 are 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] We'll go first to Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

Bruce, can you talk about -- sort of looking at both PanAmericana and Brazil. In PanAmericana, the ARPU seems to have inflected a bit as you guys have gone more towards prepay. Is the trajectory here now more to see declines going forward on an organic basis x currency, now that the business mix continues to shift? I think you had a price increase -- I think you were comping a price increase in that market. And then in Brazil, I'm just curious, what kind of churn rate, if you sort of cut through some of the credit cleanups, do you think we should be expecting as we move into the back half? I'm sure we can pull it back. I know it's based on your subscriber guidance, but I'm just trying to get a sense for what the business looks like now.

Bruce B. Churchill

On the ARPU question, I wouldn't say we've reached any kind of inflection point. I don't think anything dramatically different has changed -- has occurred. We'll continue to try and find that balance between the growth in the middle market, which does tend to have a dragging effect on the ARPU, and selling HD and advanced products and upgrading customers were appropriate to help offset that. We do have a couple of price increases we expect to put through in PanAmericana for the balance of the year, so I think that will help in some regard. So I don't -- again, I don't think there's any inflection point or anything that's terribly different than the long-term guidance that we've talked about before. And with respect to Brazil churn, look, it was really ugly this quarter. I don't deny that. I'm not going to sugarcoat it. Having said that, we're working hard to get it back down to sort of those historical levels. And I think, before, I've kind of talked about 2% being kind of the sweet spot for us overall in the market, and I think that's where we'll try to get to. I don't think we're going to get there in 1 quarter, but it's certainly where we try -- look to get to as we move into the fourth quarter and into next year, if you're talking about Brazil, that is.

Operator

And we'll move to Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

A question for Mike and a question for Bruce. Mike, I'm curious about the company's interest in Hulu and whether there's anything you can or should do in terms of partnership with them, with an acquisition off the table, or others or build yourself in that regard? And Bruce, I'm still trying to square up the performance in Brazil in 2Q and your comments about tougher economy and tougher competition, particularly in the middle markets, versus your confidence in the long-term outlook in the middle market strategy. I mean, is there any more details you can give behind the changes that you've made and what engenders the confidence that you still have in Brazil, particularly in the middle market there?

Michael D. White

So thanks, Doug. I'll start on the Hulu thing. Hey, look, no question, we were very interested in the asset. And we're certainly disappointed in the decision that was made to pull it off the market. We made what we thought was an aggressive and attractive bid for it, and we had done a lot of work internally to develop a strategy. With that said, look, we've had a digital group that we created about 18 months ago here under Tony Goncalves that reports directly to me. That group has really helped us accelerate our TV Everywhere strategy. We've added both on-demand and live streaming, both in the home and a little bit out of the home, to our mix, and we'll continue to accelerate in that area. We've also, through that group, been able to drive aggressively to improve both our .com experience, as well as the common look and feel for our user interface across all of these platforms. So there's still lots to do. I would also tell you that I think, obviously, post-Hulu, we've had to kind of take a step back and look at other ideas that will probably be more targeted. So we are certainly looking at some subscription VOD ideas. And obviously, when I'm ready to announce those, I'll share them with you. But for competitive reasons, I'll keep them to ourselves right now. But certainly, we continue to believe that there are opportunities for DIRECTV in that space, and we'll continue to be opportunistic in looking at them. Bruce?

Bruce B. Churchill

Yes. So in the Brazil long-term question -- I mean, first of all, bear in mind that pay-TV penetration in Brazil is still below 30%. So we still believe there's a big opportunity and a market to serve there. So it's all about figuring out how to serve the segments that don't currently have pay television. And I think the kinds of things that we're doing are really looking -- taking the middle market segment and probably segmenting it even further. And we look at it in lots of different ways. For example, method of payment is one way, and we're probably going to look at changing the way we treat customers who pay us with cash as opposed to those who pay with credit card or an automatic debit. The kinds of things that we're doing, I think, also fall into 2 broad categories. There's sort of a set of actions you would do that affect the customers that -- before they come on the platform. So that's such things as raising the credit score thresholds for those people that you give multiple boxes to, for example; changing the offer, probably, for those that do intend to pay -- that have low credit scores and intend to pay you for cash; and we're even becoming a little more sophisticated in terms of how we give upgrades. Whereas before, we didn't really do a lot of checking on the credit scores of our existing customers, we just relied on their own -- their payment track record with us, what we have found is that in some cases, in the time between people become customers -- our customers and the time they ask an upgrade, their financial situation may have tightened up a bit. So we're starting to examine that and change our policies on the upgrade side. So there's a lot of things, I think, we're doing to change the mix of customers within the middle market and making sure that we treat them appropriately based on the risk profile. Then there's a whole other set of other things we're sort of doing within the company that I think will make us more effective at managing churn, both in terms of how we use a lot of the great data that we already have in our business intelligence unit that helps us able to predict churn and identify customers that do want to churn. We're going to, I think, be more effective at sharing that information around the company than we were in the past. I mentioned the credit policies. We're also revising our collection policies, tightening up our execution on box retrieval. So a lot of these operational things are the kind of things that I think will help us get our churn back to the levels that I mentioned. And as said, fundamentally, yes, I do think the market is a little tougher, more driven by economics than competition, frankly. And we just need to be smarter about it as we move into this somewhat new territory.

Michael D. White

Doug, let me just add to what Bruce said, too, a couple of comments of my own. First of all, I think -- so the issues that we had in the second quarter in Brazil were neither competitively driven nor strategic in that sense. So I don't -- we haven't changed our view on the strategy or our competitiveness of our platform down there. And the second thing I would say is I continue to believe that, in the long run, that Brazil is a tremendously attractive emerging market between their natural resources, a rising young population and the size and scale of the country and the underpenetrated aspect of our pay-TV business. But there's no question that the Brazilian government and the macros are -- have kind of seen some headwinds this year. And I think those things -- it kind of goes with the territory. China has seen a slowdown, and I think that's partly impacting Brazil as well. But I continue to be very optimistic about the long haul there. And lastly, I think some of the things Bruce is talking about, the reason I'm confident we'll get it straightened out is, first of all, we've already seen churns start to drop significantly in July in Brazil. So as we've taken these actions, we're getting it -- we're well on our way to getting it back where we'd like it to be. And I would say, in some ways, perhaps, there are some more lessons from our U.S. business, which has more sophisticated tools and data in managing some of these parts of the business than Latin America. But we can borrow those tools, we can adapt them to the Latin America environment, and we'll be fine in the long run. And rest assured, the team is focused on making those adjustments as we go.

Operator

And we'll now move to John Hodulik with UBS.

John C. Hodulik - UBS Investment Bank, Research Division

Maybe another question for Bruce. During the call, you talked a little bit about some of the drivers that impacted margins in the second quarter. Could you go through those again? It seemed like you have a mix of sort of onetime issues, but then some other things that might affect margins for the longer term in terms of new initiatives. If you could quantify things around those issues, that would be great.

Bruce B. Churchill

Yes. I'm not sure I'm going into details of quantifying each one. I mean, I think part of it is -- first of all, in the PanAmericana side, for example, we had a very successful quarter in terms of prepaid sales. In the case of prepaid, that hits the SAC expense because we actually expensed the entire SAC in the case of prepaid, unlike in -- for postpaid, either in PanAmericana or Brazil. I think the other thing -- the other, then, big drivers were we had some increased bad debt expense, administrative costs and the like associated with the issues that we were addressing in Brazil -- and subscriber service expense. So those tended to compress margins as well kind of on the Brazil side. I think those are the big drivers. And again, I think that going forward, we're trying to -- I think we've always talked about a 30% OPBDA margin, which is something we continue to believe in. And we continue to work pretty hard, particularly in the area of subscriber service expense to make sure we maintain the scale that we -- the economies of scale that we've been able to achieve, even with low-priced or low-ARPU subscribers. And that probably continues to be the area -- our largest challenge, but something I'm confident we're making headway on.

John C. Hodulik - UBS Investment Bank, Research Division

Do you think you can get back to those type of levels by '14?

Bruce B. Churchill

We can't predict '14, but those are the levels I think we said we're going to get to in the long term, and I'm not changing my long-term outlook.

Operator

And we'll now move to Bryan Kraft with Evercore.

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

Just wanted to ask you, on the cost in the U.S., it looks like you're running ahead of the outlook you had previously provided for programming costs. I know you said that the upgrade and retention spend will be up, and I think you've got some savings coming on the Genie boxes in the second half of the year. So is it correct to assume that programming costs will probably come under the previous guidance, and is the funding for the increase in upgrade and retention coming from that and SAC savings? And will you realize that SAC savings from the box savings?

Michael D. White

Pat, do you want to...

Patrick T. Doyle

Yes. I mean, I think on the SAC question, we do expect -- we've got the new generation of Genie box that's -- it's a meaningful cost down from the prior generation. In the second quarter, we had a little bit of a mix of both. And soon, in the second quarter, we'll be 100% of the second generation with the HR44 box. So that will certainly help us on the equipment side of SAC in the second half. Upgrade and retention, I think we mentioned on the last call, we had started out with a strategy of really trying to make sure we upgraded our best customers to the best products. We found that even those customers that required to pay a fee up front, that the popularity of the Genie product really created more demand for those upgrades than we had anticipated. But again, these are our best customers, our longest-term customers, and we're confident that the returns on those investments make sense. So, yes, I think overall, we're still confident in the guidance we gave of single-digit revenue and OPBDA growth, even with kind of a little bit of a mix here of some of the changes.

Michael D. White

And I would say, Brian, look, we're trying to manage the portfolio as a whole. So we tend to make opportunistic trade-offs as we go during the year. ACPU was a touch better, but it's not so much better that I'm going to have a party, to be honest with you. It's still an enormous headwind for the business overall. It just happens to be a little better than we expected. But I'd say, structurally, it's still at a heightened level and continues to look to be that way, not just this year but in the years ahead. So I wouldn't get too excited about that. But we're taking the opportunity to fine tune some of our tools and still feel comfortable we can deliver our full year guidance.

Operator

And we'll move to Matthew Harrigan with Wunderlich Securities.

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

On the programming cost side, it looks like if you take the composite -- or consolidated numbers in the U.S., you can pretty much back into the Latin numbers. And it looks like they're actually down a few basis points as a percentage of sales. No issues there. I know you've got everything in local currency, and I know a lot of the programmers are motivated to get volume on the middle market side. But do you see anything changing there on the glide path over the next 5 years? Because it still looks like you've got an amazingly benign situation down there relative to what everyone has to face stateside. And then secondly, can you comment at all on NFL and Pac-12?

Michael D. White

Okay. Bruce?

Bruce B. Churchill

On the Latin America question, let's just not say that too loudly. I think we are lucky that we don't face a lot of the issues that DIRECTV U.S. faces. I mean, I think structurally, the 2 biggest differences are, at least to date, we don't have the issues with retransmission, the retrans issues, and you don't really have the phenomenon of Regional Sports Networks. So even though -- while sports costs are going up in Latin America like lots of other places, in general, it's not hitting us, I think, with the same degree that it is in the U.S. Looking out, crystal ball, very hard to say, but I'm not -- there's nothing specific that I am aware of that I think is going to fundamentally change the programming dynamic in Latin America.

Michael D. White

So, Matthew, on the 2 sports-related questions, in terms of -- I'll take them in the reverse order. And in terms of the Pac-12, look, we've continued to have dialogues with them. But frankly, as long as they want to insist that you put more in the bundle that's already too big and tax all of the customers at a rate that we don't believe is fair for the customers that don't care about it, and are unwilling to entertain any discussion of letting the customers choose, we probably won't be able to carry it. So I would say, those are just the tough decisions you have to make when you look at a bundle that's gotten too big, frankly, I think, in the eyes of most of our customers. In the case of the NFL, look, we've had a very long and very positive and, I think, mutually beneficial relationship with the NFL. And by the way, we've still got 2 more seasons to go on our current deal. So we continue to work hard. We're, frankly, mostly focused right now on getting ready to launch our new ads and our new promotional offer around NFL SUNDAY TICKET. We've got some great new features on the iPad app that folks, I think, particularly Fantasy Football fans, will be excited about. We're always in a dialogue with the NFL about how things are going and how we can continue to improve and build the franchise, and we've had those discussions as well this year. We continue to have very constructive discussions with the NFL. I continue to be optimistic that we're great partners together and that DIRECTV SUNDAY TICKET will stay with us for the long haul.

Operator

And we'll go to Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

I just had a longer-term question, I guess, which is similar to my question last quarter for Mr. Churchill. I think you took down the guidance a smidge on the OCF growth in Latin America for the year. And I'm just looking back at the historic growth rates, and they -- they're healthy, but not nearly as robust as you'll need to hit that sort of $3 billion-ish number in -- I think it's '16. So in light of sort of the adverse effects, moves and some of the issues that affected the quarter, are you still comfortable with that sort of $3 billion-ish number a few years down the road?

Bruce B. Churchill

Yes. Look, I -- again, I'm not fundamentally changing what we're saying. I'm not exactly sure -- OCF is -- what are you...

Jason B. Bazinet - Citigroup Inc, Research Division

EBITDA, I'm sorry. EBITDA. Your EBITDA.

Bruce B. Churchill

Oh, EBITDA. Okay. Yes, I think -- look, it's very difficult, obviously, to predict exchange rates over the long term. My view is, if you think about Mike's comments about where Brazil is going to -- is as a country over the long haul, I don’t see that, while there may be some volatility in the currency, particularly in the short term and maybe in the interim, over the long haul, I think the currency is kind of in that 2-ish range that we thought it would be in when we made those -- when we gave that guidance a little over -- whatever it was, about 1.5 years ago. That's the currency that has the biggest single effect on our business. Some of the other ones may be a little more volatile, but I think that our -- when we've done that work, we really see that Brazil will be an important component, obviously. In the meantime, we believe Colombia will grow as a country and be as -- more important to us. So while there may be some ups and downs, it is the advantage of having a portfolio of countries that we operate in. And I think fundamentally, I would stick to the numbers that we talked about.

Operator

And we'll go to Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I guess, 2 questions. Would you give us your current views on M&A in the pay-TV sector? I mean, given the potential of cable consolidation and lack of wireless partners, at least to date, for DISH, I'm just wondering if you could give us your current thoughts.

Michael D. White

Sure, Jessica. Look, there have been a number of comments, not the least of which by my good friend, John Malone, about industry consolidation. And I don't think that's, in some ways, a new topic for me. I mean, I think I've been pretty clear, and I certainly haven't changed my views on this topic in terms of what I've said before. And I first of all believe that the times are different for the industry as a whole in that, frankly, the balance between content providers and distributors is out of whack. And therefore, further industry consolidation does make sense to help address what I think are unsustainable cost increases for the average customer. In that sense, John is 100% correct. Scale matters. And so I haven't changed my view on that, to be honest with you. Probably, I've felt that way for a little while because of the elevated content cost increases. So given our particular situation, we are a regulated industry. And therefore, the options on consolidation for DIRECTV are rather few. But I really don't have any other comment to make than that. I think it always takes 2 to dance, and frankly, the kind of options that you would normally think about are committed on other ideas and strategies, at least at the moment, as best as I can tell, that would be somewhat different directionally from our views on strategy. But you never say never, and we'll be opportunistic when the right moment arrives.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And my second question kind of is -- leads right into that, which is exactly what you were talking about, the programming cost pressure. I mean, retrans and sports cost pressure is not going away. As you look out over the next couple of years, assuming things are status quo, what do you -- what should we expect in terms of programming cost growth for you?

Michael D. White

Well, I think, again, I -- again, I probably haven't changed my view on that. I think you've got to assume it's going to be elevated. I don't think we can afford double digits. So it's somewhere between -- I don't know how I'd describe it. Mid-upper to upper single digit is probably the ballpark you're looking at. And I think we've done a terrific job here with our rebalancing over the last couple of years navigating our way through that. But it's not easy, and it requires the team constantly to adjust on-the-fly. Again, I think no different than probably has been written. The longer it goes on for the entire industry, the more, I think, frankly, issues it's creating with customers. I mean, I've seen more customer complaints this year about the price increases that we took than other years. So there's no doubt that customers are noticing and aren't happy about it. I suspect that's why you're seeing more noise with some of our competitors who are also having to take tough stands on content costs. So my own view is, it's not going to change in the short run, Jessica. It is what it is. But it's pretty clear to me, this is not sustainable for any length of time beyond the next couple of years. I mean, something's going to have to give.

Operator

And we'll go to Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Two questions. I think you mentioned programming pressure in LatAm. So first is, can you just give us color on where that's coming from? And then the second, on the U.S. business. Any comment on the competitive environment? It sounds like U-verse may have gotten a little bit more competitive. I don't know if you're feeling that at all.

Bruce B. Churchill

On the Latin America side, we had some price increases from programmers in Brazil that put some pressure on this quarter. I think it's something that is probably -- we hope to at least more partially mitigate it with some own price increases that we expect to put through in the second half of the year. So again, fundamentally, long term, I don't think the programming margin for us is going to change dramatically.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

So is it fair to say that was a onetime?

Bruce B. Churchill

No. The programmers put through annual increases. It's been -- has a bit more with the timing of the increase, I would say, than anything else. Typically, programming contracts in Brazil are linked to the inflation rate.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Okay. And then on the U.S. business? Any color there?

Michael D. White

Yes, Marci. On the U.S. -- and I think both Pat and I mentioned it in our comments. Certainly, in the second 2 months of the quarter, in May and June -- April was pretty benign. But in May and June, we certainly saw an increase in the competitive intensity, particularly around the $200 to $300 cash-back offers and 24-month price locks, which, when your content costs are growing double digits, at least from what I can tell on a lot of our competitors, is kind of crazy. But that's the nature of the beast, is -- this has always been a very competitive industry. I expect it will continue to be competitive. And we'll continue to fine tune our own tools, as we said, along the way to manage both our gross adds and our churn. But certainly, I would say, you probably have seen a little more aggressiveness on the part of the telcos and some of the smaller cable operators that are turning around their business -- or trying to.

Operator

And we'll go to Vijay Jayant with International Strategy & Investment Group.

Vijay A. Jayant - ISI Group Inc., Research Division

Mike, given the prospects in Latin America given the economic trends there, and as well as the ForEx pressures, is 2.5x leverage still the right leverage in the medium term? Is it too early to sort of change that? And second, given the consolidation comment that came up earlier on, do you really believe, in the current administration, you could get a potential DISH-DIRECTV transaction approved with concessions?

Michael D. White

Pat, you might want to -- I mean, the short answer on the leverage is, yes, we are comfortable, and that's where we're going to stay. But Pat, you might want to comment there...

Patrick T. Doyle

Yes. I mean, obviously, the FX fluctuations or volatility in Latin America provide a little bit of a twist to our 2.5x consolidated. But the fact of the matter is, still, the vast majority of our EBITDA is generated from the States. And again, we don't really see the fluctuations down there having really any kind of material impact on our decisions on the 2.5x leverage or -- or even if there were something that were meaningful down there of making any short-term changes in our outlook on leverage.

Michael D. White

We tend to look at it multiple ways, Vijay. Just from a risk-management standpoint, we also look at if all of the debt was kind of up against the U.S. EBITDA, and we create guardrails around that to ensure that we're being prudent in terms of how we look at leverage. But I don't see us taking that leverage ratio up beyond the 2.5x. That's -- I think we're comfortable that we've got the right risk assessment and posture for the business there. I don't think it's probably productive for me to speculate on what regulators may or may not do, but I certainly believe that the industry landscape is dramatically different than it was 10 years ago on any number of dimensions and that, frankly, if you care about consumers and customers, which I do, the single biggest issue facing customers in many ways is the rising cost of content and, frankly, the inability of a customer to choose whether they want to pay for it or not because we're locked into these gargantuan bundles, tied in by penetration rates and so on and so forth, that will inevitably drive up consumers' bills without something changing. And so I don't -- I wouldn't speculate on what regulators would or would not do in this administration or any other administration. But I certainly think, and I think I've said this, that I'm pro-consumer. And frankly, rising bills is a problem for consumers in an economy that continues to improve, but improve slower than one would have hoped, and in which there is still a significant chunk of the population in the bottom income quartiles that is struggling. And in that sense, I think there's certainly room to make the case that the world has changed.

Operator

And we'll go to Phil Cusick with JPMorgan.

Philip Cusick - JP Morgan Chase & Co, Research Division

First, a housekeeping issue. Can you tell us the depreciation impact in Brazil from the churn issue that you wrote off to those customers? And then second, can you get into your sort of ambitions on home security?

Bruce B. Churchill

Okay. Starting on the depreciation question, I think as we discussed in our 8-K, it was a $25-million figure with the kind of 200,000 subs that really, are subscribers, I think, that came off the platform or were terminated, if you will, that maybe should have been terminated from prior periods. So in addition to that, I would -- we still had churn, and for a lot of the other reasons I've already talked about, in the quarter as we get our arms around this issue of the middle market subscriber and how we deal with them. So I would say, within this quarter, that it -- on top of that $25 million, there might have been another $10 million or a touch above that of additional depreciation that came from terminating those subscribers rolling off the platform.

Michael D. White

Phil, on home security, look. We see it as an attractive add-on sale opportunity. LifeShield is a small company. They've only got about 100 employees with 22,000 subscribers, and we think that as we gear up -- and probably, you won't see it until next year. We're kind of trying to make sure we get all of the ducks in a row here executionally. But our ability to both sell using kind of our direct marketing capability, as well as to install and service kind of as an opportunity with our existing subscribers and create a mini-bundle is a terrific opportunity for us to provide a value-added service to our customers. It's also -- home security is a very fragmented industry. The market is underpenetrated. I think it's only 20% penetrated. And LifeShield is a very innovative company with an IP-based wireless home security system that's easy to install and use, even in -- in most cases right now, the customer installs it themselves. So -- but suffice it to say, we'll have a very segmented strategy in defining where we think this particular product would best fit, and you'll see us talk more about that probably in December and as we get towards bigger news in terms of how we would roll it out and market it in 2014. It's a nice add-on that'll help our ARPU as well.

Operator

And we'll move to Craig Moffett with Moffett Research.

Craig Moffett - Moffett Research, LLC

Two questions, if I could. One is for Latin America. I know we've asked this in the past, but has your perspective changed on the sensitivity of that business to the possibility of a meaningful recession, particularly in Brazil? I think in the past, you've said you didn't think that those middle market customers would be particularly macro-sensitive. I'm wondering if recent developments have changed that? And then in the U.S. business, if I could follow on with some of the discussions of what you might do with DISH Network, absent a full merger, has your appetite for a fixed wireless broadband network remained reasonably high? And if the limitation there is spectrum, is there any way that you could partner with DISH to develop something in broadband without having to go in the direction of a full merger?

Bruce B. Churchill

Well, if the question is, "Will there be a meaningful recession in Brazil?" I guess I'm not going to speculate on that. Obviously, if there's a deep economic downturn of some kind, I don't expect everybody to be unaffected. But I think our view is really one that -- again, it goes back to what Mike said a little earlier. We really take the long-term view on a country like Brazil. And when you look at the macros and you look at whether it's the natural resources that the country has, the young population, the emergence of the middle class, I think all of those fundamentals remain in place. And we remain, in the long term, very optimistic about the country. So yes, we've hit a bit of a rough patch. I think we're going to be smarter about how we segment parts of the middle market. We still think we can get them on the platform. We still think we can put together attractive offers for them and serve them in a profitable manner. So I think we'll get back on course. But fundamentally, the course hasn't changed.

Michael D. White

And I would just add, too, Craig -- look, the business model in both PanAmericana and Brazil, but particularly in Brazil, is a highly leveraged model with relatively low assets and relatively few employees and relatively low fixed costs. So you can never say -- no economy goes on a straight line forever. Is it likely that, in a kind of an economic slowdown, some of the middle market customers might pull back spending? Sure, it's possible. But frankly, you've got a business down there that's very levered with variable costs up and down. I mean, all of our call centers are outsourced. So it's pretty variable. And in that sense, I don't think, as a business model goes, it's going to be all that -- that particularly sensitive to whatever may happen from a macro standpoint. But, hey, look. Just look at the last U.S. recession. No one's immune from changes in the macroeconomic environment. But we're managing the business for the long haul to ensure that we can deliver great shareholder value with a balance of growth, profitability and long-term cash flow in the way we're trying to manage Latin America. In terms of the U.S. fixed broadband to the home, we've studied that extensively. And I'm not going to get into a lot of comments on the call here. Some of what we -- our research is proprietary. But we experimented with what we call a cantenna with one of the telcos 2.5 years ago, and so we have a pretty good knowledge base of what it would take to do fixed broadband to the home. And I think it's not -- it's not an idea that we don't think about. But it isn't just about spectrum. There'd be a substantial buildout cost, and you'd then have to ask whether the price/performance, from a customer standpoint, in a world where speeds are rapidly moving from 5 to 10 to 25 to 50 megabits a second to even higher, can you build out -- if you're going to go spend billions and billions of dollars building out a fixed broadband to the home, you'd have to have a lot more conviction about what the product is going to look like and what speeds you think you can achieve and what parts of the country you'd do it in than I have today. Frankly, I have no idea what DISH's plans are in that regard. I guess we'll all see at some point.

Operator

And we'll move to Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Just a couple quick ones. First, on buybacks. Pat, you talked about being opportunistic. You had a chance, obviously, to do that in the first quarter and probably less of a chance in the second quarter. Are you still targeting $4 billion for the year? I think that's what came up on last quarter's call. And then second, Bruce, just back on LatAm, the subscriber acquisition costs had been declining for quite a while as a result of the move to the middle market with cheaper channels, but it spiked again this quarter. Maybe you can just help step us through the driver of this?

Patrick T. Doyle

Yes. On your first question, yes. We're still targeting the $4 billion for the full year.

Michael D. White

We took -- I mean, in the first quarter, obviously, I want to give credit to our treasury function, who -- and Pat, that were very opportunistic in seeing an opportunity, with our stock price being down at levels we thought were a bargain. And so we got very aggressive on -- with a number of tools to buy ahead. And you saw that in the second quarter, with the Hulu thing, we were out of the market a little bit, but we're managing again to our full year guidance.

Bruce B. Churchill

And on the question of SAC, obviously, when you calculate the stock numbers, you're using sort of the investment in SAC over the period that may or may not actually correspond to the number of sales and installed units, which is really more what I look at, or what I call unitary SAC. So it was -- there's a bit of a spike in the figure that you're using, largely because it was a bit of a buildup in inventory. We were somewhat opportunistic in a couple of territories to use local currencies to build up some inventory, and so that spiked it a bit this quarter.

Jason Armstrong - Goldman Sachs Group Inc., Research Division

And so, Bruce, you'd expect that to move back down the next couple of quarters?

Bruce B. Churchill

Yes. Yes.

Operator

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

Tuna N. Amobi - S&P Capital IQ Equity Research

So I guess my first question is a housekeeping for Pat. So can you provide a little color on the sequential progression of the gross adds in the U.S.? Certainly, it seems like the churn was decent, so I don't know if it's correct to infer that it kind of got a little bit worse between April and June. So any color on that? And then for Mike, I'm just kind of going back on some of your earlier comments about programming costs and the industry environment. Certainly, you have very strong views on that. So just kind of wondering if you feel that this could perhaps justify your ongoing tests in the integrated over-the-air tuner? Any update on that? And do you feel like you can get to a point where the cost trade-off may justify a broader rollout of that initiative? And any comments on potential timing on that would be helpful.

Michael D. White

Okay. Pat?

Patrick T. Doyle

Yes. So on the gross adds for the quarter -- I mean, if you look at the quarter as a whole, as I said in my notes, it's fairly consistent with the trends that we've been expecting year-over-year, particularly as we focus on quality. Yes, if I had to look at the quarter as a whole, we saw probably a better April and not as strong of May and June. But I would say, kind of looking at July, it's kind of back to our overall expectations set of kind of year-over-year change. So nothing -- whether you're looking at the quarter as a whole or in between or kind of post the quarter, it's been -- it's pretty consistent with our expectations.

Michael D. White

Tuna, I think, in terms of the question of antennas, which really specifically gets at the broadcast retransmission fee issue, look, as those fees go up, there is a point at which, for a customer, it might be more attractive to have an antenna and not pay retrans fees. And that's a customer that may well say that. But sitting here today, we continue to do R&D on the whole subject of tuners. We used to have them built into the box. We've looked at what Aéreo is doing. We'll see how their legal case progresses, but we are doing some longer-term R&D because if the costs get to a certain point, I'd have to say everything's on the table. At this particular point in time, it's probably premature. I mean, we don't have any kind of imminent idea on what we do with the antennas in the short run, I would tell you, but -- because I mean, you've still got to figure to roll a truck and put an antenna up on the roof, it's probably $150. So it's probably not yet as attractive as it needs to be, but it's more attractive as an alternative than it used to be. So we'll see how the costs evolve.

Patrick T. Doyle

Yes, Tuna. I mean, I think it kind of goes back to the, the overall theme is that as the programming costs rise and certain categories rise, as a prudent business, we're going to kind of look at all of our options to try to mitigate that. And it's not something we would have even thought about 2 or 3 years ago. But as the industry has moved and content costs have risen, it's -- we've got almost an obligation to kind of look at whatever type of mitigation strategies we can to slow down this cost.

Tuna N. Amobi - S&P Capital IQ Equity Research

And, Mike, is there a legality issue for you? I didn't think there was, and you just mentioned something like that. Was that one of the potential issues or not?

Michael D. White

No. No. The legality issue I mentioned, Tuna, has to do with Aéreo and its litigation, because of its dime-sized field antenna, with the content companies. That's more what I was referring to. No, no, no. For us, when you're talking an individual antenna, it's not. No.

Operator

And we'll go to our final question from Rich Greenfield with BTIG.

Richard Greenfield - BTIG, LLC, Research Division

On the last conference call, you were asked a question about mobile video, and you responded that it seemed very important to you, and you were focused on it as part of your TV Everywhere strategy. The follow-up that wasn't addressed, or that didn't get asked, was how do you think about offering mobile video given the very low caps that the mobile operators put on their service -- on usage for mobile devices and how they might advantage their own products versus your own products? And the same question really relates to what's happening on the terrestrial front or land-line front, where we're seeing managed services start to launch, whether it's 2 iPads in the home or Roku with 2 boxes in the home, where various ISPs can offer -- who are also NVPs can offer these services and it not count against bandwidth caps, whereas anything you did would count against the bandwidth cap. So just trying to think about how you think about that, both in a wireless and wired world?

Michael D. White

Look. It's an evolving space, Rich. No question about it. And I would tell you, I think even in terms of usage, you hear more hype about watching video on mobile devices. But actually, most of it is either WiFi or streamed in the home versus out of the home so far. But I don't think there's any question that -- we just completed a study on streaming, and it was almost kind of by the time we got done with the study, I said to the team, I said it's kind of like they were trying to tell me about a segment of our customer base that streams, and I said, "It's everybody that streams today." I mean, we're -- and sure enough, they came back and it was over 70% that do streaming in some sort. But streaming what, and in which -- in-home, out-of-home and so on and so forth. Look, I think it will evolve. Clearly, there's no question that there are spectrum limitations. Even if you wanted to do television in the home, over the Internet, you did 3 TVs, you're going to have a problem. Okay? I mean, if they're all HD, I mean, you're just going to have a problem with the Internet, and you're going to have a huge increase in your broadband charges from your broadband provider. So frankly, every time I look at this subject, there are all kinds of tradeoffs, and when you net it all out, I mean, I could -- in theory, I could put DIRECTV over the Internet. We don't have the rights to do that, but in theory. And you'd end up having to double your broadband charges roughly, I suspect. And by the time you got done, you'd be at the same price points, and it wouldn't matter. You'd kind of be six of one, half-dozen of the other because the satellite is still a pretty efficient way to deliver signal. But clearly, as these different caps, usage-based pricing and all of these things evolve, to the extent they were to become discriminatory or become kind of mainstream and get used in a discriminatory fashion, I'm sure we would have a point of view in Washington D.C. that we would raise with the SEC, as others have. But up to this point, that hasn't been a big issue for us given our scale. We're able to negotiate bundle deals with our CDN networks. And for the usage so far, it hasn't been an issue up to this point. But we'll continue to watch it as it goes.

Operator

This concludes today's DIRECTV Group Second Quarter 2013 Earnings Conference Call. You may now disconnect your lines, and have a pleasant afternoon.

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