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The DIRECTV Group Announces Second Quarter 2004 Results

EL SEGUNDO, Calif., Aug 5, 2004 (BUSINESS WIRE) -- The DIRECTV Group, Inc. (NYSE-DTV):

-- DIRECTV U.S. Surpasses 13 Million Subscriber Mark Driven by
Record Second Quarter Net Owned and Operated Subscriber
Additions of 455,000

-- Gross Owned and Operated Subscriber Additions Increase 49% to
an All-Time Record 944,000

-- DIRECTV U.S. Reduces Average Monthly Subscriber Churn to 1.4%
and Increases Average Monthly Revenue per Subscriber 7% to
$65.00

The DIRECTV Group, Inc. (NYSE-DTV) today reported that second quarter revenues increased 21% to $2.64 billion and operating profit before depreciation and amortization(1) was $143 million compared to $251 million in last year's second quarter. In addition, The DIRECTV Group reported a second quarter 2004 operating loss of $28 million and net loss of $13 million compared with operating profit of $66 million and net income of $22 million in the same period last year.

Also in the quarter, DIRECTV U.S. added an all-time record 944,000 gross owned and operated subscribers, 49% more than in the second quarter of 2003. Net owned and operated subscriber additions in the quarter of 455,000 increased 151% compared to the same period last year due in part to an improved monthly churn rate of 1.4%. DIRECTV U.S. revenues increased 23% to $2.22 billion driven by strong subscriber additions over the last year as well as a 7% increase in average monthly revenue per subscriber (ARPU) to $65.00. In the second quarter, DIRECTV U.S. operating profit before depreciation and amortization and operating profit declined to $175 million and $63 million, respectively, compared with operating profit before depreciation and amortization of $325 million and operating profit of $201 million in the same period last year primarily due to the higher subscriber acquisition costs associated with the record gross subscriber additions.

"It's clear that even in an increasingly competitive market and in what historically has been a seasonally-weak period, demand for DIRECTV in the U.S. is stronger than ever," said Chase Carey, president and CEO of The DIRECTV Group. "Having passed the 13 million total platform subscriber mark in the second quarter, DIRECTV U.S. has strong momentum and we continue to make improvements across all key operational areas, including the launching of new local markets, expanding our international programming, and opening new customer call centers."

Carey continued: "Furthermore, we continue to take critical steps to position DIRECTV for long-term growth highlighted by our recent agreements to purchase the direct broadcast satellite assets of Pegasus Satellite Television (Pegasus) and the subscribers from the National Rural Telecommunications Cooperative (NRTC) members. These transactions will give DIRECTV a true ability to reach every home in America, provide us with the full economics and cash flows from approximately 1.4 million additional subscribers, allow our distributors to seamlessly sell our service nationwide, and provide us with an opportunity to significantly expand DIRECTV's subscriber base in desirable rural territories."

Carey finished: "We have also made significant progress toward our goal of focusing our business on DIRECTV by arranging to sell our ownership interests in PanAmSat, Hughes Network Systems' set-top box manufacturing business, Hughes Software Systems, and our equity investments in several companies, including XM Satellite Radio. We have a singular focus -- to make DIRECTV the best television experience in the United States -- and we believe we are well on our way toward achieving that goal."

Second Quarter Review

In the second quarter of 2004, The DIRECTV Group's revenues increased 21% compared to the second quarter of 2003 to $2.64 billion driven principally by an increase in the number of subscribers and ARPU at DIRECTV U.S.

The lower operating profit before depreciation and amortization of $143 million and the operating loss of $28 million were primarily due to increased subscriber acquisition costs related to the record gross subscriber additions and higher acquisition costs per subscriber (SAC), as well as higher retention and upgrade costs at DIRECTV U.S. Also impacting the quarter were charges of $60 million related to stock-based compensation expense, severance, and employee retention plans. These declines were partially offset by the increase in gross profit generated from the higher revenues at DIRECTV U.S. and improved operating performance at DIRECTV Latin America mostly related to its lower post-bankruptcy cost structure.

The DIRECTV Group reported a second quarter 2004 net loss of $13 million compared to net income of $22 million in the same period of 2003 primarily due to the larger operating loss, partially offset in 2004 by lower interest expense as well as a tax benefit related to the loss from continuing operations. The interest expense decline was due to the refinancing of DIRECTV U.S. debt in the first quarter of 2004 at lower interest rates, lower average outstanding DIRECTV U.S. borrowings, and interest accrued on the Boeing purchase price adjustment in 2003.

Year-To-Date Review

For the first six months of 2004, The DIRECTV Group's revenues increased to $5.14 billion, or 21% greater than the first six months of 2003, principally due to the larger subscriber base and higher ARPU at DIRECTV U.S. and increased sales of DIRECTV(R) set-top receivers and DIRECWAY satellite broadband services at HNS.

The lower operating profit before depreciation and amortization of $233 million and the operating loss of $125 million were primarily due to increased subscriber acquisition costs related to the record gross subscriber additions and higher SAC, as well as higher retention and upgrade costs at DIRECTV U.S. Also impacting the period were charges of $120 million associated with severance, stock-based compensation expenses, and employee retention plans. These declines were partially offset by the increase in gross profit generated from the higher revenues at DIRECTV U.S., improved operating performance at DIRECTV Latin America mostly related to its lower post-bankruptcy cost structure, and at HNS due to stronger margins and revenue growth in its primary businesses.

The DIRECTV Group reported a net loss of $652 million for the first six months of 2004 compared to a net loss of $29 million in the same period of 2003. The higher net loss was mostly due to two first quarter 2004 charges: a $479 million non-cash after-tax loss related to the pending sale of PanAmSat (reflected in "Income (loss) from discontinued operations, net of taxes") and a $311 million non-cash after-tax charge related to a change in accounting for subscriber acquisition, retention, and upgrade costs at DIRECTV U.S. (reflected in "Cumulative effect of accounting change, net of taxes").

In addition to these items, the six month comparison was negatively impacted by the larger operating loss and a non-cash after-tax charge of $63 million in the first quarter of 2004 for the early retirement of PanAmSat's PAS-6 backup satellite due to a failure in its power system (reflected in "Income (loss) from discontinued operations, net of taxes"), as well as higher income tax expense related to the higher income from continuing operations. These declines were partially offset by a first quarter 2004 pre-tax gain of $387 million related to the sale of approximately 19 million shares of XM Satellite Radio common stock and a $45 million first quarter 2004 pre-tax gain resulting primarily from the restructuring of certain contracts in connection with the completed DIRECTV Latin America, LLC bankruptcy proceedings, as well as higher interest expense in 2003 related primarily to a $19 million write-off of debt issuance costs and interest accrued on the Boeing purchase price adjustment.

Three Months
Ended June 30,
-------------------------------
2004 2003
-------------------------------------- --------------- ---------------
Revenue ($M) $2,217 $1,800
-------------------------------------- --------------- ---------------
Average monthly revenue per subscriber
(ARPU) ($) 65.00 60.90
-------------------------------------- --------------- ---------------
Operating Profit Before Depreciation
and Amortization ($M) 175 325
-------------------------------------- --------------- ---------------
Operating Profit ($M) 63 201
-------------------------------------- --------------- ---------------
Cash Flow ($M) 112 54
-------------------------------------- --------------- ---------------

-------------------------------------- --------------- ---------------
Gross Owned & Operated Subscriber
Additions (000's) 944 633
-------------------------------------- --------------- ---------------
Average monthly subscriber churn 1.4% 1.5%
-------------------------------------- --------------- ---------------
Net O&O Subscriber Additions (000's) 455 181
-------------------------------------- --------------- ---------------

DIRECTV U.S. gross owned and operated subscriber additions increased by 49% to an all-time record of 944,000 in the second quarter of 2004 due to more attractive consumer promotions and an improved and more diverse distribution network. Average monthly subscriber churn in the quarter improved to 1.4% driven principally by an increase in the average number of set-top boxes and digital video recorders (DVRs) per subscriber, as well as increased availability and subscriber purchases of local channels. After accounting for churn, DIRECTV U.S. added a second quarter record of 455,000 net new owned and operated subscribers, an increase of 151% over the same period last year.

As of June 30, 2004, the total number of DIRECTV owned and operated subscribers was 11.60 million, representing an annual growth rate of 17%, compared to the 9.95 million subscribers on June 30, 2003. In the second quarter, the total number of subscribers in NRTC territories fell by 46,000, reducing the number of NRTC subscribers to 1.44 million on June 30, 2004, compared to 1.61 million at the end of the same period last year. Including the NRTC subscribers, the DIRECTV U.S. platform had 13.04 million total subscribers as of June 30, 2004.

CONFERENCE CALL INFORMATION

A live webcast of The DIRECTV Group's second quarter 2004 earnings call will be available on the company's website at www.directv.com. The call will begin at 2:00 p.m. ET, today, August 5, 2004. The dial-in number for the call is 913-981-4910. The webcast will be archived on our website and a replay of the call will be available (dial-in number: 719-457-0820, code: 236979) beginning at 7:00 p.m. ET on Thursday, August 5, through 12:59 a.m. ET on Tuesday, August 10.