DIRECTV Management Discusses Q3 2012 Results - Earnings Call Transcript

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DIRECTV (DTV) Q3 2012 Earnings Call November 6, 2012 2:00 PM ET


Good day, ladies and gentlemen. My name is Bryan, and I will be your conference operator today. Today's conference is being recorded. At this time, I would like to welcome everyone to DIRECTV's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to your host, Jon 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 third quarter 2012 financial results and outlook conference call. And 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'll 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

Examples of forward-looking statements include, but are not limited to, statements we make related to our business strategy and regarding our outlook for our financial results, liquidity and capital resources. Additionally, in accordance with 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

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

Michael D. White

Thanks, Jon. Thanks, everyone, for joining us today. The strength of DIRECTV and SKY's premium brands, combined with early success from executing our long-term strategic initiatives that we established earlier this year, maintained first quartile growth, delivering healthy third quarter results. I think there are probably 3 main takeaways from my perspective for our quarter as you look at it.

First, we're generating solid top line growth, driven by strong consumer demand for our best-in-class video service across the Americas. Our industry-leading revenue growth of 8% continues to demonstrate our competitive advantages in the rapidly growing Latin America marketplace, as well as our ability to grow ARPU in a challenging U.S. operating environment.

Second, we continued to enhance our focus on achieving operational excellence through disciplined expense management and productivity initiatives. The benefits from these initiatives were clearly represented in the financial results of DIRECTV U.S., with our margins improving due in part through effective cost containment all up and down the P&L. We're also making good progress addressing some of the cost challenges in Latin America that we talked about on our last earnings call.

And third, the strength and stability of our cash flow continues to create significant value for shareholders. Share repurchases of $1.2 billion in the quarter fueled a 29% lift in diluted earnings per share to $0.90, and our year-to-date free cash flow is up 35% to $1.7 billion.

Now before I turn the call over to Bruce and Pat for more detailed comments on both our Latin America and U.S. business, let me share a couple of observations. First, starting with Latin America.

DIRECTV Latin America's third quarter results were in line with our expectations and the guidance that we provided you on our last earnings call. Our competitive advantages and operating strengths continue to drive healthy market share gains throughout the region.

Consistent with recent results, we're maintaining momentum in the higher end A and B households, and we continue to see strong subscriber growth from the middle market segments. This subscriber performance drove DTVLA's revenue growth of 16% even in spite of currency headwinds, primarily from the Brazilian reais.

And on a local basis, excluding the impact of foreign exchange, ARPU was up slightly, which I think is quite notable, given that our growth remains very strong in the lower-ARPU middle-market segment. I think this speaks to the continued strength of our brand as we continue to offer popular value added services across Latin America.

Turning to the bottom line, DIRECTV Latin America's OPBDA margin was consistent with our overall expectations. As we discussed on our last earnings call, short-term profitability continues to be impacted by both higher gross additions, as well as some of the increased expenses associated with digesting the tremendous growth that we've seen in our subscriber base over the last couple of years.

Importantly, we're making really good progress working through these, with ongoing initiatives aimed at improving overall customer service levels. For instance, we're in the process of upgrading our IT systems and centralizing our network management structure to ensure consistent service levels and greater productivity.

We've implemented a series of tactical changes to reduce billing cycle costs, and we're opening new call centers outside of greater São Paulo, with a focus on delivering superior customer service at a more affordable cost across the diverse market segments in our subscriber base. With these achievements, we continue to expect to see margins improve. You'll see it in the next quarter, and I remain confident that we'll deliver our OPBDA margin target of about 30% this year. But more importantly, our 5-year vision to profitably double our subscriber base from 8 million to 16 million, as we shared with you in March, while delivering significant cash flow growth, remains right on track as we continue to see exceptional subscriber returns.

Moving on to our U.S. business. Overall, I thought our DIRECTV U.S. business had a solid quarter and, to a large degree, the results do reflect our goal of rebalancing top and bottom line as we described earlier this year. It's clear that our enhanced focus on both the quality and profitability of subscribers is having a very positive impact on our financial results. These benefits are especially evident when you look at our more than 6% revenue growth, which was generated mostly from strong ARPU growth where we're doing a great job aligning the increasing value from our differentiated services with the expanding needs of our high-quality subscriber base.

In addition to that, our heightened focus on cost management across the enterprise was a clear highlight, as operating profit before depreciation and amortization margins expanded for the second quarter in a row. We're now seeing the benefits also from prior year capital investments as many of our key cost areas are growing slower than revenue.

Now the one obvious negative in the quarter was our programming dispute with Viacom, which did impact both churn and profitability. However, I continue to believe that it was critically necessary as our analysis highlighted the importance of staying disciplined to minimize increased cost to our overall subscriber base, as well as to ensure that we negotiated a fair deal.

With all that said, rising programming costs, as I've said before, is clearly the most significant issue facing distributors today. And I continue to believe that all of us in the industry, both in the content and distributor side, need to spend more time focusing on our customers and the affordability of our product, particularly in this challenging economy.

Our customers bear the brunt of these exorbitant price increases, and it's just not sustainable. And all of us at DIRECTV are going to continue to stand up for what we believe to be is the right long-term decision for our business in each of these disputes, putting our customers always first.

Another top priority for us at DIRECTV is to continue to transform and innovate our video experience, both inside and outside the home. Our new Digital Entertainment Products group and our outstanding engineering teams have collaborated on a new and exciting product roadmap to revolutionize the DIRECTV entertainment experience across all screens.

Now home is still the heart of the vast majority of our customers' TV experience, and the recent launch of our new DIRECTV Genie DVR grants a compelling next-generation entertainment experience for the large screen. As we've said, the most powerful benefit of our Genie's massive hard drive is its ability to record 5 different high-definition programs simultaneously without any conflicts. Genie also includes a sophisticated intuitive search and discovery functionality, with an opt-in feature that will recommend personalized programming available to watch instantly. In addition, the new RVU technology allows our DVR service to be enjoyed on every TV in the home without the need for an additional DVR receiver at every TV.

And over the coming months, we expect to deliver a seamless best-in-class user experience across multiple screens, with a particular focus on expanding our customers' access to high-quality content, advanced searches and discovery, as well as enhanced social sharing and interactive features with our TV Everywhere initiative. With these advancements, we expect to maintain, if not extend, our leadership position in providing the best and most compelling television experience.

Now before I close, I would like to thank everyone in our DIRECTV community for our quick response to take care of our colleagues and our customers during super storm Sandy, as well as our collective efforts in beginning to deal with the aftermath of the storm. I've been impressed and truly inspired by the efforts of our operations and customer care teams, as well as our partners -- our technician partners, home service partners. And I hope you also noticed the coverage that I think our dedicated 24/7 Hurricane Sandy information channel provided for DIRECTV viewers nationwide, which kept them up-to-date. We've been working hard to restore service to our customers that were impacted with the service outage, and we're currently back up and running in all of the 50 markets that were impacted by the storm.

In these affected markets, we now have more than 350 out-of-market technicians prepared to move in once power is restored on a customer-by-customer basis. We're also still evaluating the impact from the storm, but I don't anticipate our fourth quarter results to be materially impacted.

And finally, to support our colleagues and customers in the impacted region where we have a lot of employees as well, DIRECTV has pledged a cash donation to the American Red Cross and is matching employees' donations to various relief organizations dollar-for-dollar.

In summary, DIRECTV's third quarter results for both our Latin America and U.S. businesses reflect continued execution of the operating and strategic initiatives we've put in place to maintain our long-term growth while delivering an unparalleled customer experience across the Americas.

In Latin America, we continue to deliver on our key strategies, maintaining subscriber momentum by profitably increasing market share across the diverse market segments, both the high end and the middle market. And in the U.S., we've been very disciplined in executing our long-term strategy of rebalancing top and bottom line growth, and we're well positioned to meet all of our full year 2012 guidance for revenue, OPBDA and cash flow.

With these winning strategies in place, I'm even more confident that we'll continue to generate substantial shareholder value increases in the future by delivering first quartile growth for years to come.

So with that, I'll turn it over to Bruce to talk about our DIRECTV Latin America's results. Bruce?

Bruce B. Churchill

Great. Thanks, Mike. Overall, I think it was a strong quarter, with DIRECTV Latin America not only delivering well-balanced growth and strong financial results, but also executing on several of the key initiatives that we set out for ourselves earlier this year.

Before I get to the numbers, I thought I would highlight a couple of them for you.

As I mentioned in the past, one of our mainstays is using content as a differentiator to our competition. In August, I believe we delivered unprecedented coverage of the Olympics in PanAmericana, offering not only multiple live and simulcast feeds, all of which were in HD, but also broadcasting live any medal event that included a Latin American athlete. Mike and I happened to be traveling in the region at the time, and we heard a lot of positive feedback not only from our extensive coverage, but also the focus on local athletes.

Also in the quarter, we made good progress on improving and updating our infrastructure. As we mentioned back in March, along with managing the tremendous growth we have experienced, we've been hard at work making investments in our core broadcast and IT infrastructures, most of which are well on track. Although we still have much to do, we expect that these investments will come online and begin generating returns in the near future.

With that, let me give you a summary of the quarter. And as a reminder, unless otherwise noted, our results exclude those of SKY Mexico, which we do not consolidate.

In the quarter, we had growth additions of 1,081,000, an increase of 13% over last year. In Brazil, while middle-market sales increased 6% over last year and represented 70% of growth additions, decline in sales of our traditional standard definition packages resulted in a 5% decline in overall gross additions. This reflects the fact that we made a conscious decision earlier this quarter to strike a more optimal balance between growth and profitability by being more selective with our promotional offers. Given that recent Anatel data shows that we are the market leader in 14 of Brazil's 27 states and #2 in 12 of the 13 remaining ones, we feel our strong market position affords us this luxury.

In PanAmericana, gross additions grew 36% compared to last year, with sales of our prepaid product in Argentina and Colombia leading the way. Prepaid sales represented approximately 54% of our gross additions in PanAmericana compared to just less than 40% last year. Middle-market subscribers now make up 34% of our 9.7 million subscribers, compared to about 27% a year ago.

Looking at our advanced products, which include our DVR and HD products, in Brazil, sales of HD to new subscribers grew 25% over last year. When combined with upgrades of our existing customers, approximately 27% of our base in Brazil subscribes to our industry-leading HD product.

In PanAmericana, sales of HD to new subscribers grew more than 20% over a year ago. Currently, 14% of our subscribers in PanAmericana subscribe to our HD product.

Overall then, approximately 28% of our 9.7 million consolidated subscribers now have an advanced product, including nearly 2 million HD subscribers.

Turning to churn. Our postpaid churn in the quarter of 1.54% increased significantly versus the prior year as higher churn in Brazil was partially offset by lower churn in PanAmericana. In Brazil, a combination of our increased penetration of the middle market and an uptick in churn attributable to these middle-market subscribers drove the increase.

With regard to our prepaid services, our recharge rates continue to be strong as our active, or what we call on-prepaid subscribers, increased approximately 75% compared to last year. As a reminder, when we refer to an on-subscriber, we are only referring to those subscribers that have paid for and are receiving our signal at the end of the month, or at that moment in time.

In summary, we added 543,000 net subscribers to our base this quarter, increasing our market share year-over-year in all of our major markets. Also worth noting that we achieved a couple of milestones in the quarter as our subscriber base in Colombia now exceeds 600,000. And we've become the market share leader in Ecuador, a market that we have only been focusing on for about 4 years now since re-obtaining a license there.

Turning now to our financial results. Revenues increased 16% compared to last year, or around 35% excluding the impact of foreign exchange, mostly reflecting a 33% increase in our subscriber base. Most of the negative FX impact is a result of the average Brazilian reais exchange rate in the quarter, declining more than 25% versus the U.S. dollar compared to this period last year.

Excluding foreign exchange, ARPU was mostly unchanged. The impact of higher penetration of middle-market subscribers in Brazil offset price increases implemented in PanAmericana, as well as a greater penetration of advanced products across the region.

Consolidated OPBDA increased 5% over last year, mostly due to the higher revenues, offset in part by a combination of higher subscriber service cost, as well as higher subscriber acquisition cost, reflecting the increasing growth additions. In particular, prepaid sales in PanAmericana. In addition, in PanAmericana, higher programming costs associated with our Olympics coverage and higher general and administrative costs negatively impacted our margins.

As I mentioned in our last quarterly call back in August, we continue to experience localized inflationary and regulatory pressures on labor costs and continue to have some higher-than-normal incremental spending that we feel is necessary to maintain service levels during these periods of high growth. We continue to believe that through scheduled price increases and internal efficiency initiatives, we will offset a good portion of these pressures throughout the remaining part of the year. However, there is a balance between controlling costs and delivering the quality service that our subscribers expect, so it is a work in progress. That said, we are on track with our expectations, and our full year guidance remains intact.

Cash flow before interest and taxes of $80 million increased from $32 million a year ago as higher OPBDA, lower subscriber-related CapEx and lower satellite payments more than offset lower dividend receipts and unfavorable working capital. Much of the lower CapEx resulted from a higher proportion of prepaid sales in the quarter compared with the prior year period. Our unfavorable working capital movement was mostly a reversal of a favorable working capital charges earlier in the year.

With regard to Venezuela, we continue to be able to repatriate only modest amounts to cover certain U.S. dollar costs at official rates through the approved exchange control process. As of September 30, we had approximately $540 million of cash on hand in Venezuela, expressed using the official bolivar rate of VEB 4.30 per U.S. dollar.

Turning to SKY Mexico, whose results were released by Televisa a couple of weeks ago, SKY Mexico delivered another record quarter, adding 333,000 net subscribers, reflecting not only strong performance with their middle-market product, [indiscernible], but also sales through the traditional A and B segments. In terms of financial results, SKY Mexico once again delivered double-digit growth in local currency, revenue and OPBDA.

Before I turn the call over to Pat, I thought I'd provide you with a quick update on our broadband initiative. If you will recall, back in June, we participated in a spectrum option in Brazil and announced agreements on several smaller Brazilian acquisitions, all part of a broadband strategy that we discussed with you back in March. We're currently working our way through the various regulatory processes and hope to get the necessary approvals before the end of the year. Assuming all goes well, these transactions, combined with the spectrum we already hold today in Brazil, will represent coverage of approximately 16 million households, representing more than 30% of the GDP in Brazil.

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

Patrick T. Doyle

Thanks, Bruce. Overall, I thought DIRECTV U.S. had a good third quarter, highlighted by solid revenue growth, improving margins and, most importantly, strong cash flow growth. And as you heard from Mike earlier, these results are consistent with our strategy to generate a more optimal balance between our long-term growth and profitability.

Looking first at the top line, DIRECTV U.S. revenues increased by 6% to nearly $5.8 billion and were primarily driven by solid ARPU growth of 4.6% in the quarter. In addition to the usual lift we receive from annual price increases, ARPU growth benefited from increased penetration of both new and existing customers paying for advanced services as the number of subscribers with Whole-Home DVR more than doubled year-over-year. And penetration of Connected Home service doubled from a year ago, bringing our total number to approximately 13 million connected subscribers.

And consistent with recent quarters, we saw strong sales in both our paid premium channel and pay-per-view movie categories. Also favorably impacting ARPU growth in the quarter were lower credits related to the changes we initiated to our offers and pricing in February, as well as higher NFL Sunday Ticket revenues due to the extra game in the quarter.

It's also worth highlighting that the combination of last year's promotional strategy around the NFL Sunday Ticket and our new bifurcated pricing options drove a 50% increase in the number of people paying for the NFL year-over-year. However, we did see more of our existing customers take the $199 package versus the $299 MAX package. Net-net, the lower pricing strategy is driving more overall NFL Sunday Ticket subscriptions than we planned, and we expect to collect higher renewal revenue this year than we did last year.

Turning now to subscribers, gross additions were largely in line with prior quarters as stricter credit standards, reduced promotional discounting, and declining contributions from our telco partners contributed to the decline. In the third quarter, almost 90% of new subscribers purchased advanced products, with the largest increase coming from subscribers who purchased HD DVR services. In addition, we estimate that the lifetime value of new subscribers increased by some 20% compared with last year.

Regarding our third quarter churn rate of 1.74%, the increase over the prior year period was mostly driven by our programming dispute with Viacom. More importantly, after the dispute ended, churn improved, demonstrating the benefits of our selective acquisition policy, as well as our efforts to drive higher loyalty through segmented offers to grow the percentage of subscribers on commitment.

For example, churn in September and October ran below churn in September and October of 2011. In addition, we've been successful in significantly increasing the percentage of customers on auto-bill pay compared with last year.

Moving now to the bottom line. Third quarter operating profit before depreciation and amortization growth of 8% was solid, and OPBDA margin increased for the second consecutive quarter. Most of the margin improvement reflects the early benefits we are deriving from the priorities we established to generate sustainable growth over the long term.

Consistent with recent trends, lower spending related to our more selective customer acquisition strategy helped margin growth, and lower G&A cost also contributed to the improvement as we remain focused on cost containment. We're also seeing favorable trends in bad debt expense due to the benefits from our improved churn management and better collections.

In addition, subscriber services continues to benefit from our productivity initiatives with improved work order accuracy and installation during the critical first 90 days of the customer's life cycle. And last month, we improved the customer onboarding experience even further by eliminating the programming rebate redemption process for new customers.

Looking ahead, we expect this new instant rebate will further simplify our sales process and reduce call volumes related to billing inquiries at our call centers. Partially offsetting all of these improvements were costs related to the Viacom dispute and increased content cost primarily related to the annual programmer rate increases and the extra NFL game in the quarter.

Separately, we had a modest decline in capital expenditures in the quarter due to the reduction in leased equipment and lower satellite payments. However, we continue to expect total full year capital spending in the U.S. to be relatively flat with 2011 at approximately $1.7 billion. Adding it all up, DIRECTV U.S. grew cash flow before interest and taxes by 16% in the quarter, bringing year-to-date growth to 28%.

Looking quickly at our consolidated third quarter results, DIRECTV continues to generate solid bottom line growth as diluted earnings per share increased 29% to $0.90 in the quarter. Free cash flow grew 36% in the quarter, driven primarily by higher OPBDA, a decline in capital expenditures and the lower cash tax rate. However, it's worth reiterating that we are targeting a full year cash tax rate in the 30% range.

In addition, but not included in free cash flow, this quarter, we repurchased 24.6 million shares of DIRECTV stock for $1.2 billion, bringing cumulative repurchases to over $24 billion, or nearly 58% of shares outstanding since we began the program in 2006. Also in the quarter, we issued GBP 750 million in 17-year sterling senior notes as part of a highly successful inaugural sterling bond issuance, providing us with cost-effective funding and diversification. As a result, we ended the quarter with just over $17 billion in total debt while bringing our total debt to trailing consolidated OPBDA leverage ratio target to about 2.3x.

Finally, we refinanced our $2 billion revolving credit facility into new facilities totaling $2.5 billion, further enhancing our financial capacity and flexibility while reducing our cost.

Before wrapping up, I'd like to make a few comments about our fourth quarter outlook. DIRECTV U.S. was unable to renew our programming agreement with TVB, a television company which provides Chinese and Vietnamese language programming. Therefore, on November 17, approximately 130,000 customers in these communities will lose access to some of their most popular channels. We are working to mitigate the loss of subscribers within these communities by substituting similar international programming. At this point, it's difficult to predict the precise churn number, but this event will likely result in higher fourth quarter churn than we saw in the prior year period. It's important to point out that even with the Viacom and TVB events, we still expect full year churn to remain roughly flat relative to 2011.

Also in the fourth quarter, we expect ARPU and OPBDA growth to be a bit lower than the last couple of quarters, primarily due to the NFL Sunday Ticket offer and related costs. More importantly, we will achieve DIRECTV U.S.'s full year revenue and OPBDA targets of mid-single-digit growth in 2012.

All in all, even though we have experienced a couple of bumps along the way, 2012 is shaping up to be a really good year. We're successfully executing on our long-term strategy by hitting our key targets at both DIRECTV U.S. and DIRECTV Latin America. As a result, we are now poised to perform better than our original free cash flow guidance and deliver double-digit consolidated growth. Our ability to consistently execute with discipline and focus enables us to take advantage of our opportunities, manage the risk and deliver sustainable industry-leading growth for years to come.

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.

Finally, I'd like to ask that you limit the number of questions to 1 or 2 to allow additional time for more participants to ask questions. So with that, operator, we are ready for the first question.

Question-and-Answer Session


[Operator Instructions] We'll take our first question from Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I guess, given the greater free cash flow generation, the natural question to ask is how do you guys feel about returning capital as you progress into next year? Any updated thoughts on dividends versus share repurchases and the level of free cash flow that investors should consider returned? And I have one follow up.

Michael D. White

Doug, it's Mike. I'll start. Pat, maybe you want to chime in. Normally, we'll provide you guys guidance, as we always do, on the February call. We've got a fair amount of work going on, as we always do, for our Board of Directors in the fall. At this particular point in time, though, Doug, I don't think a dividend for next year is on the table. I would say we continue to find, given the stock price, the free cash flow yield, over 7%, relative to the multiple that we attract, that it's still very, very shareholder friendly for us to -- and by the way, the most efficient way for us to return cash to shareholders is through our share repurchase. Now as I've said, we've completed the releveraging of the balance sheet. There's some tweaks and puts and takes as we look at Latin America in that regard. But I think you can expect we’ll have a continued healthy share buyback program next year, but that's really subject to the board's decision, and we'll be reviewing that with our board in December. And we'll have more to say about it in February.

Patrick T. Doyle

Yes. I think, Doug, the -- I think there are a couple of things we are still comfortable with, kind of the target range of the 2.5x. I think some of the things we've been looking at, which we've expressed to investors, is just making sure we adequately take in Latin America where the cash flows are not necessarily accessible. We're committed to investment-grade. And as Mike said, I think as we look at it, I think the -- there will continue to be meaningful opportunity to return cash to shareholders, maybe not at the higher levels we've seen as we've leveraged our balance sheet up to the target. But I think the -- we certainly see the opportunity to return meaningful amounts of capital over the next few years.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And then this might get a little bit too nuanced for you, Pat, but in terms of lifetime value being 20% higher over last year, is that the right level you expected? And how much of that is due to selecting higher-quality subs? In other words, just that subset happens to be a higher lifetime value due to its nature? How much of that is due to improving the per-subscriber economics this year through better revenue or costs?

Michael D. White

Well, it's all of the above, Doug. I don't think I'd parse it quite that specifically. I mean -- In fact -- I mean, I go back to, I think, talking about last year, hey, we need to land the plane safely here as we shifted our overall strategy from what it worked very successfully for us for 7 years to a different approach this year. And I'm pleased to say, through 10 months now, we're right on track with executing what we said we were going to do, which was, first and foremost, we knew we needed to continue to grow ARPU north of 4%. That required less discounting, the ARS fee, for the advanced receiver fee, raising -- we raised prices in a disciplined way, all of that without crashing the car in terms of net adds and holding our market share. And I would say we've kind of navigated that, kept churn under control other than the Viacom thing, which really was a spike for 6 weeks only and then by the 15th of August was over. And lastly and importantly, worked real hard on every other line of the P&L to be disciplined in our spending versus the growth rates you would have seen about this time last year. And our team has done on a terrific job on all of those, I would say. So I wouldn't promise 20% LTV increases every year. I don't think that's realistic. But I think as we pulled all of those things together -- I mean, I don't know, Pat, but I could say how much of it was the discipline on less discounting and promoting and price increases versus the higher-quality subs. But I think you got both running through there, Doug.

Patrick T. Doyle

Yes. And I think as you said, Mike, it definitely is a combination of both and selling additional revenue sources to customers with stuff like...

Michael D. White


Patrick T. Doyle

The Whole-Home and movies, VoD. So yes, it was really a combination of both quality and then being able to enhance the value of those that are coming on to the platform.


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

Benjamin Swinburne - Morgan Stanley, Research Division

I wanted to ask a similar question on the cash flow outlook. I couldn't tell, Bruce, in your comments, if you talked about sort of rebalancing gross connects and investment with profitability in maybe PanAmericana? But if you could just touch on that in the context of Mike's comments about managing the whole business a little bit more focused on margins. And then, Pat, can you -- is there any way for you to give us a little bit of the puts and takes on ARPU? It was a very strong ARPU number this quarter. How much did Sunday Ticket help and how much did the Viacom credits hurt so we could maybe think of a more normalized number? I don't know if you have that.

Michael D. White

So, Ben, before I turn it over to Bruce, I just -- my comments in the -- are really focused on the U.S., where, as I think you saw once again in the third quarter, virtually no net subscriber growth for the industry as a whole. And therefore, pending kind of this housing recovery we're all waiting for, in the U.S., it's mostly a 0-sum game, hence being very disciplined and balanced in how we manage the business is quite a different strategic priority in my mind than in Latin America, where there's still tremendous growth to be had. So I would -- I just want to be clear. I think we think differently, strategically about the balance when we look at Latin America. Nevertheless, for any business, ensuring you have an appropriate balance of margin and growth is always a consideration. But Bruce?

Bruce B. Churchill

Yes. And I think that's what I was alluding to when I made my comments, which I think were specific to Brazil, but actually are generally true across the footprint. We're not going to chase growth for growth's sake. So in the case that I was alluding to in my comments in this last quarter in Brazil, we're at a juncture in the quarter where we just decided not to frankly have just one more promotion to try and keep the pace of sales up. We thought that those were still very healthy. We still have a very strong position and there was no need to chase sales anymore at that juncture. So there has been some promotional activity from some of our competitors, but we view that as just the nature of the market and will come and go as these things tend to do in these markets and that we're very comfortable overall of where we are in terms of our overall subscriber growth.

Michael D. White

We manage it by segment, I mean, Ben. You think about the U.S. business, you're making $800 on average, $850 investment day one with a customer that you need to get a return on capital on or return on investment, if you will. Whereas for the prepaid business in PanAmericana, was it $120, Bruce? $150?

Bruce B. Churchill

Yes. Yes.

Michael D. White

So it's quite a different investment. So therefore, you can also afford to be a little different in terms of how you think about that. And that's where -- for us, we want to make sure we don't manage to averages but that we're very disciplined and strategic in looking at the different segments of the business by geography in making those judgment calls. Pat, you want to take the ACPU -- the ARPU increase from...

Patrick T. Doyle

Yes. Ben, like you said, I think there's a lot of things working there, particularly the offer change and the value of the offer change and dividing it into 2 segments. It does have some kind of complicated accounting. But if I just look at it in total, the ARPU growth we had of 4.6% would be about 4% were it not for the extra NFL game. I think the credits that we gave out on Viacom are probably not all that material in the scheme of things. They might be 1 point or 2 in that growth. And then on the flip side, you didn't ask this, but I think if you look at the ACPU growth, we had somewhere around 10%, it probably be at 8% or a little bit less if you take out the cost of the extra NFL game versus last year.


And our next question comes from Craig Moffett with Sanford Bernstein.

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

Bruce, a while ago, you were talking about the potential strategic appeal of GVT. I wonder if you could just update us on your thinking about wireline assets in Latin America? And Mike, I don't think we've heard you talk specifically about how you think about those kinds of strategic investments relative to the kind of cash return that you were discussing earlier on the call?

Michael D. White

Well, Bruce -- I mean, I'll start maybe, Craig. Look, I think I have said that we look at a lot of strategic opportunities that are brought to our attention. In my career, I've read a lot of books from bankers, not all of which -- in fact, most of which don't result in a deal. But in this particular case, if you look at the business, it is a very well-run business, it's a high-growth business and it's a very complementary business to our Brazil business. It has a pay-TV business. Who knows, there could be synergies as we look at that. And they have a nice broadband offering, which could have synergies to sell a bundle that would be very strategic. With all that said, I think our team has an excellent track record for being very disciplined in the way we look at both the strategic fit, as well as financially disciplined on any deal like this. And I think it's way premature, Craig, for me to say, because the team hasn't completed its analysis yet. We haven't even started a process, other than kind of getting books to say where we'll come out on it. But I think, clearly, for me, the test is going to be the size of the synergies, of how confident we are in synergies that would justify a return on capital for that kind of an investment of the shareholders' money. So we'll see as we work our way through it. I don't know, Bruce. You're a little closer to it than I am. Anything else you want to add?

Bruce B. Churchill

I think that's right. And I would say that this is quite a unique asset. I don't think there's 10 of these running around Latin America by any stretch. So it's a kind of thing where we do look at a lot of different things opportunistically. And then -- but each of them has to stand on their own merits. So we're early in the game, as Mike said, and it's premature to comment.

Michael D. White

Yes. There are a lot of things, Craig, strategically, that would fit my kind of lens on strategic fit and that I'd like to own. But most of them, I can't make a financial case to get from here to there when I look at the world. So look, we will take that into consideration, and I think it'll be a function of how compelling the case is. If it's a compelling case, we're going to make it to our investors.

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

Can you comment on -- if you were to pursue an opportunity like that, how it would affect your cash return priorities in the U.S.?

Michael D. White

Again, I think we'd have to look at it in light of our -- what Pat said, which is we would keep our -- our intent is to keep our investment-grade rating. We believe strongly that's where our company should be, is investment-grade. We're a notch above investment-grade. So we've got some firepower and some flexibility, and we'd have to take a look at that. But it's way, way premature to speculate. I mean, there's so much financial engineering that would go into any transaction. It's not particularly useful for me to speculate. But if we were to do a transaction of any kind, we'd want to make sure that it was a strategic fit and a strategically sound decision that takes us places we couldn't get on our own. And second, it needs to pass a financial test that we can create significant shareholder value for our shareholders, consistent with the risk of any transaction. And gosh, there's lots of ways to financially engineer a deal. Just look at the way NBCU was bought by Comcast. I mean, who knows? I mean, I would say it's way premature to speculate. But I think, certainly, our view is that we need to maintain our investment-grade rating. Beyond that, we'll see where we go. There are a lot of things that we would consider in that regard.


And we'll go next to Stefan Anninger with Crédit Suisse.

Stefan Anninger - Crédit Suisse AG, Research Division

One of the things that helped DVS grow up was its ability to offer products and services that were superior in many cases to what cable could offer. Better picture quality. You were early on in DVRs, HD, multi-room DVRs, et cetera. Is there anything left, in your view, from a pure product establishment standpoint, that could reaccelerate your growth? Or are we beyond that phase? And is the business simply too mature and the separation between you and cable now more difficult?

Michael D. White

Look, I think historically, we had a lot of advantages, best sound and picture. I think we still have the best sound and picture. We had the most sports, and I think we have the best customer service. And clearly, as in most industries that have become highly mature and highly competitive, those advantages certainly have narrowed. You're correct in that regard. It's just, to me, all the more reason that you've got to work harder on stuff. We certainly think -- perhaps there could be a next generation of high-def that we're working on. There's a lot of things that we're working on in the lab that I'd consider proprietary, I wouldn't comment on. But I would say to you that it's partly why we felt a year ago that we should take a fresh look at the customer experience and the customer satisfaction with the service and work harder on thinking about customer loyalty for life. We made a lot of progress in our work in that regard. Pat mentioned one, which is the rebate process, but there are a lot more initiatives that we'll talk about down the road as we get closer to implementing them. But I'm very excited about in terms of the customer service aspect of our business. But I think it's safe to say we're all working on TV Everywhere. We're all working on improving our user interface, and I expect that you can't stop. I mean, you can't ever sleep soundly at night and not be working on being more innovative. And rest assured, no one in our company, our engineering team, our digital team or any other part of the company is taking for granted where we are. But I think our focus is to continue to enhance the product and to continue to enhance the service experience, recognizing there probably is no one killer competitive advantage you can rely on. You need multiple advantages.

Bruce B. Churchill

But if I might add, Mike, that I think in Latin America, that gap between satellite and cable is still very much there.


And our next question comes from John Hodulik with UBS.

John C. Hodulik - UBS Investment Bank, Research Division

First, maybe on the -- I guess the obligatory content cost question. How are you seeing the trends there? And then with the TVB dispute and the loss of these -- potential loss of these subs, it sounds like you've got another similar question coming forward here with the L.A. SportsNet and potentially some customers at risk there if you don't come to terms with that program. I mean, are the decisions getting more difficult as we move forward, given how high content costs are growing at this point? And then second of all, over to maybe Bruce in terms of Brazil, 5% decline in gross adds in that market. If you could talk a little bit more about really what's driving that? And are we -- is DIRECTV pursuing a new approach there, maybe focusing more again on quality of the subs and profitability down there? Or is there still -- maybe talk about the growth going forward compared to what we've seen in that market.

Michael D. White

You want to go first, Bruce?

Bruce B. Churchill

Okay, I'll start on -- look, I wouldn’t say it's a new approach. It's an approach we've always had. It may have been more -- felt a little bit more this quarter, but I don't think it's necessarily indicative of what might happen in the future. There was a bit of, I think, a slowdown in the market in general, but we are continuing to take shares. So I think that's really the way we think about it, is we can continue to grow the business, do it profitably, do it in a way where it gets share, which helps us build scale. That's probably the optimal balance there. It's not going to be any sale at any cost.

Michael D. White

I think in terms of the programming cost, I don't think the TVB thing kind of matters one way or the other. That really was that. But there's no question that the single biggest issue for all distributors are unsustainably rising programming costs. And certainly, as we've started our work for 2013, '14 and '15 -- boy, I'd love to tell you I see a light at the end of the tunnel that's not a train coming at us, but I don't. I mean, right now, we continue to expect elevated programming costs for the foreseeable future. Now I think that's all the more reason why I'm pleased that we started the work a year ago on rebalancing the P&L and getting better at driving productivity in our expense line items. And frankly, the whole customer experience thing, and again on another occasion, maybe we'll talk about it, but it's got amazing benefits to our business. It reduces churn. We're getting a huge reduction in calls to our call centers because of the elimination of the rebate, and we're including close rates because of that. So it's got all kinds of win-win benefits that will improve our productivity, as well as improve the customer experience. But with that said, we at DIRECTV are going to continue to stand up for the customer and take a long-term view of these things. In the case of the Viacom dispute, cost us a little bit of money in the quarter. But frankly, relative to the last offer that we had and where we settled, we got our shareholders $1 billion. So it didn’t come anywhere close to that, being what we spent, and we'll continue to make those trade-offs between the short term and the long term and doing the right thing for the long term every day. But in terms of Los Angeles, I think it's another example of how broken this system is. People take the same content, package it up, bid it up for 3x the national average on a per-game basis and then try and stick it back to the other distributors in the geography. And I think that's very unfortunate. We have a system of very carefully tracking churn by day to look at kind of what we think our customers will be most interested in. We are continuing to have active discussions about the Lakers Network. We hope to have a deal on that content. But all of these new channels that -- everybody wants a new channel and they want to stick it into the bundle is not right. I mean, we are taxing most of our customers who wouldn't be willing to pay for that content. And I've said before, I think the regional sports network's structure in the industry is broken, and it is, but I'm probably not going to be able to change that overnight. But adding other stuff to the bundle that the average consumer can't pay for without allowing it to be sold to those that want to pay for it is just not right. So we'll continue to stand strong for our customers. I got to represent the majority of our customers, not just the few that want to send me an e-mail, and I'm trying very hard to do that in a disciplined way. But I don't know that they're getting more difficult. Clearly, in the case of retrans, as a market gets established, you at least know what the market is. You get a little more transparency in that regard. But I certainly don't think that any of these discussions have gotten any easier in that regard, I think, for every distributor. I mean -- and I don't expect that to change for the foreseeable future. I think we're going to continue to see very, very tough discussions by all distributors with content providers, to try and mitigate these outrageous cost increases that are unaffordable to the average customer.


And we'll go next to Matthew Harrigan with Wunderlich Securities.

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

This is kind of -- is a question that harkens back almost to the Chase Carey days. As you talked a little bit about having more aggressive MDU approach -- I mean, that might be precluded by your philosophy on ROI and your cash generation right now. But there’s some interesting things happening technology-wise, 802.11ad and even past that. I assume that, that's something that's still kind of on the radar screen on your engineering guys, or do you just have too much else to deal with right now?

Michael D. White

We've looked at the MDU market. Frankly, I think we found that some of the things that we were trying to do were not sustainable for either the distributor or for us. You've got to remember, technology is one piece of it, and we actually came up with new technologies for MDU a couple of years ago and we're pleased with that technology. But you still got kind of incumbents that have exclusives in many cases, and so it has to pass a return on investment test. And the biggest challenge with most MDU customers is churn. I mean, they just -- the number of kind of customers that move in and out of apartments and whatever is not the most attractive business from an ROI standpoint in the U.S. Now having said that, I know Bruce is working on some very interesting MDU stuff. But to your point, for the U.S. business, I would say where we're really ramping up our investment is in the digital agenda around TV Everywhere. That's probably our U.S. focus right at the moment, more so than MDU. But we've got some good partners on the MDU front. We got a technology we're pleased with and we'll continue to build it. But we want to build it sustainably step-by-step. Bruce, do you want to just comment? You guys are...

Bruce B. Churchill

Yes. I just -- I think that the difference, possibly one of the big differences between the U.S. market and many Latin American markets, is it actually -- the MDUs have a different demographic characteristic. And in fact, MDUs are an attractive place to live in a lot of Latin American markets, largely because of security and other kinds of issues. So we are working on some products which actually involved selling, even possibly a bundle, both broadband and video. But it's very early days and probably something we'd comment on more in 2013, frankly.


And our next question comes from James Ratcliffe, Barclays.

James M. Ratcliffe - Barclays Capital, Research Division

Two, if I could. In the U.S., if you could just clarify, if I heard you correctly, on the NFL ticket side. Paying subs are about 15% higher with the -- given the take rates, the ARPU is lower. But on the net, revenue is up year-on-year? And secondly, in LatAm, CapEx per gross add has clearly been trending down pretty much across the board, I assume connected with the middle market. How much lower can that get. Because it seems like it's already running not that much above what you've looked at in terms of the cost of some of the prepaid packages?

Michael D. White

So James, I'll take the NFL thing and turn it over to Bruce. On the NFL front, as we said, I think the new strategy that we adopted has worked pretty well by and large. As Pat said, we had way more paying subs. I think our one kind of concern was we probably had more of the $199 price point in the mix than we had planned. So net-net, we were a little better than our revenue plan for the product as a whole. But I -- there are a couple of things I'm encouraged by. We did see a 50% increase in the number of customers paying for the product. We had a 25% increase in renewals, and we actually tripled the number of customers who signed up for it for the first time, from our existing customer base that is, mostly because I think of the $199 price point. So I would say -- and that's all kind as stuff, not -- as a promotional tool. I look at it one way as a promotional tool. It did okay in the quarter. You've got to remember, there was a lot of pent-up demand for the NFL with the strike a year ago. So we didn't pull quite as strongly, but we were lapping some huge numbers from a year ago. So the promotional aspect of it was okay, but I think the positive part of it was, although we did have some kind of trade down on mix more than we would've liked, we did accomplish what we set out to do, was to get more paying subs. Bruce, do you want to...

Bruce B. Churchill

Yes. On -- you had a question about how much lower can CapEx per growth add go. I'd hesitate to predict the future. I guess I would -- a couple of comments. One, I think you're probably right in the sense that it's getting quite low. And as we've had already a very high proportion of our gross adds being from middle-market products, therefore the average gets driven down quite a bit. Looking forward, I would say that -- where we are looking for additional opportunities to serve this market is actually looking for possibly selling them an additional box or something, or even in some cases, an HD box. So it may well be that our CapEx per gross add, even in the middle market, will not go down any further. Having said that, there would be a corollary there, which would be, obviously, more ARPU. So again, it's very much just -- we look at it as a return on investment. We think, by putting an additional investment in even a middle-market customer, we can get more ARPU with -- that will sustain the return. That's a kind of business we'll go after. And in a world where it's frankly impossible, I think to buy a standard-def television anymore anywhere in the world, even in Latin America, we actually do give -- we obviously give some thought to the question of whether we ought to be trying to sell even prepaid customers an HD package. Obviously, appropriately priced.


And next, we'll go to Bryan Kraft with Evercore Partners.

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

I wanted to ask you, can you talk about what the response has been to the Genie so far? How you think it's going to affect some of the key metrics, gross adds, churns, SAC and the retention upgrade cost? And then was also wondering if you could just comment or give an update on your targeted advertising initiatives and maybe talk about what you're expecting, seeing in terms of 3Q and 4Q political?

Michael D. White

Sure. Bryan, it's Mike. I mean, first, on Genie, I think it's too early, frankly, to say, other than our October net adds were very, very positive. So I feel good about the start to the product. I think you'll see a build over time. It's a fabulous product, by the way, both in terms of the 5 channels, no conflicts. I think the ad campaign that we've just launched is off to a terrific start. We're getting -- interestingly enough, we're also getting a lot of demand from existing customers that are willing to pay for it. So I'm really pleased with the upgrade trends on Genie so far. So all of that, I'd say, is pretty positive. And I probably can't really -- I mean, as -- we have like 3 weeks’ worth of data, so I'd say it's a little premature. But certainly, I think we're off to a good start in terms of our gross adds in the fourth quarter. But again, consistent with the kind of trend we saw on the first couple of quarters. So not comparable to last year because of all the initiatives we've talked about, but right smack in line with where we had been trending. So I feel good about that. I think in terms of the targeted ad initiative, we did have about 10%, 12% growth, I think, in ad revenues in the quarter. We don't benefit quite as much as the cable guys do in terms of political ads. So political ads was a small amount of that this year. We are expecting double-digit ad sales growth for the full year. I would say, in terms of targeted advertising, there's several different flavors to that. And I think what is clear is that the local stuff, I think we've got a good approach to how we sell it. The kind of truly segmented stuff, like how do I sell -- how do I make sure I'm not advertising to dog owners cat food is quite an intriguing capability. We've got a terrific team working on it, but it's probably a slower build in terms of how you sell that to packaged goods marketers. And that's going to take a little bit longer time to ramp up. But net-net, we feel great about the progress that Keith Kazerman and our ad sales team have made under Paul Guyardo this year. I think we're off to a good start.

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

Mike, when you look at next year's advertising, are you on track to hit some of the internal targets that you've established previously?

Michael D. White

Well, I think if we kind of take a look at the overall, I think the 3 areas, we've talked about commercial, ad sales and pay-per-view movies, I would say there are puts and takes. We're probably a tad behind on ad sales because we were a little late launching the -- later than we expected to be launching the targeted ad capability. On the other hand, commercial's running ahead. And so net-net, I would say I feel pretty good about where we are in terms of the total. And as Pat said, premiums and movies had a great quarter. So some puts and takes. I would say we're probably just a tad behind on ad sales, but that was more because we were late delivering the product.


And our next question is from Tom Eagan with Canaccord.

Thomas W. Eagan - Canaccord Genuity, Research Division

I guess, first for Pat -- Bruce, actually. You mentioned in the last call that there was a possibility of an investment in an additional satellite for SKY Brazil. Where are we on that? And then I have a follow-up.

Bruce B. Churchill

I think that'll be pushed into next year. Still a project we're pursuing, just taking a little more time than we thought.

Thomas W. Eagan - Canaccord Genuity, Research Division

And then for Pat or Mike, where are we in the arc of the efficiencies in terms of these cost savings? Is it possible that the U.S. OPBDA margin will be able to be flat for '13?

Michael D. White

Well, I think we'll give you kind of '13 guidance in February. I haven't -- we haven't finished kind of hammering each of my direct reports to kind of donate a little more to the cause. But suffice it to say, I don't expect us to have a different philosophy, which is we're pretty much the same kind of guidance we said. We're looking for mid-single-digit kind of revenue and OPBDA growth. There may be some puts and takes, we'll have to look at it as we go. But I don't expect a huge difference between revenue and OPBDA growth. It's just a little premature for me to comment. What is clear is that we will continue to see elevated programming costs next year. So I think kind of a playbook that you saw from this year. Probably won't be dramatically different. I mean, there are always things that'll be a little different, but we won't have to deal with a big programming dispute, hopefully. But I would say this whole point of being disciplined on pricing, controlling churn, and in fact reducing churn, because you're driving greater customer loyalty, being very tough-minded on kind of discounts and promotions and ensuring that there's a return, and then being really good about how we manage our expenses all across the enterprise, we think we've got a formula to sustain this, not just to do it for one year. I mean, I think the first question you guys had is can we land the plane safely for this year? Well, I can tell you the runway is in sight. So we're 10 months through the year and frankly, as we're doing our work for 2013, by the way, we actually are spending a fair amount of time trying to look at not just how we deal with the escalated -- or the higher programming costs for 2013, but what do we do with 2014 and '15? And again, I think though you'll see, by and large, the strategy, the rebalancing strategy. You're just going to see more of it. And I think you'll see more payback by the way from some of our customer experience initiatives that I'm very excited about for next year, some of which don't probably get rolled out, sort of the middle of next year and some not till fourth quarter of next year.


And our next question comes from Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I have 2 questions, so 2 topics. First, Pat, I just wanted to ask you, what is the difference in churn for those subs who are on auto-bill pay and those who aren't?

Patrick T. Doyle

When we look at that, there's usually a modest benefit, somewhere around 25 to 50 basis points on those that are -- that have auto-bill pay versus those that don't.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And how many are actually on auto-bill pay?

Patrick T. Doyle

We've got about -- we're up to now, about 35%, 36% of our base that's on auto-bill pay today, which is up quite a bit from where we were just a couple of years ago.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Right. And then just a completely separate topic, but to follow-up on Mike's comment on financial engineering, if you were to do something the size of GVT, would you consider spinning out Latin America to create a currency for consolidation? And can anyone...

Michael D. White

No. Yes, we've talked about that before, I think, Jessica. And I've said -- look, I think DIRECTV Latin America is our best growth asset. It's got tremendous strategic advantages in its own right. But it also has significant synergies with the U.S. business in terms of the shared technology roadmap. And I think U.S. is probably going to benefit from some of the technology they're developing around the lower-cost HD box. So no, I wouldn't have that on the table.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Okay. Can you give us any sense of the timing on a decision or an outcome on GVT?

Michael D. White

I don't think it's imminent. I mean, it's -- that's not under our control. It's being driven by the bankers. I would expect it's certainly not this year.


And we have time for one more question, and it comes from Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

I just had a longer-term question for Mr. White. One of the reasons I suspect your stock is inexpensive is you've got a growth asset and a value asset sort of inside one publicly listed security, so sort of very eager for homogeneity sort of across the complex. And in that context, you said you're not managing, which I think is appropriate, the LatAm business, for free cash. And you've also laid out sort of your 5-year outlook for the EBITDA less CapEx, to grow from sort of $300 million level to closer to $1.5 billion. Without talking specific numbers, how do you think this will sort of play out? Do you see it as a hockey stick in terms of that tax-free cash number, sort of hitting the target? Or do you think it's sort of a steady ramp, more closer to a steady ramp?

Michael D. White

Well, I don't know. Probably a bit of both. I mean, it depends on when the growth slows, to be honest with you. If you look at Latin America, I wouldn't expect 2013 to see a hockey stick in cash return because we'll still be investing in the business. But I certainly think, over the next 3 years, you'll see a healthy improvement in free cash flow out of that business. But frankly, a lot of it will depend on how long we can sustain these above-average growth rates. And that's our first priority as we look at it. Look, we do some of the parts valuation, Jason. I don't think we're -- I don't think our stock is being penalized at this point in time for having a growth asset in a mature business. It's a healthy portfolio that I think balances itself. And as I said, there are significant benefits that DTV Latin America gets for being a part of DIRECTV U.S. and vice versa.


Thank you, everyone. This concludes today's DIRECTV Group's Third Quarter 2012 Earnings Conference Call. You may now disconnect your lines and have a pleasant afternoon.

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