Can DirecTV Grow Subscriber Fee Revenue?

DirecTV (NASDAQ:DTV) witnessed a sharp growth in its average satellite fee per subscriber in the U.S during 2009. This figure increased from about $59 in 2008 to $64 in 2009 driven by price hikes and improved brand recognition.

DirecTV competes with satellite pay-TV providers like Dish Network (NASDAQ:DISH), cable companies like Comcast (NASDAQ:CMCSA) and Time Warner Cable, (NYSE:TWC) as well as telecom operators like AT&T (NYSE:T) and Verizon (NYSE:VZ) in the pay-TV business.

Is There Room for Growth in Fee per Subscriber?

We forecast a stabilization in average fee per subscriber as subscription fees will experience pressure from overall intensifying industry-wide competition. The chart below illustrates the impact of growth beyond the Trefis estimate of flat average fee per subscriber beyond 2011.

If DirecTV can beef up its average subscription fee by 5% over the Trefis forecast by 2013, this can lead to potential upside of 4% to DirecTV’s price estimate. Our DirecTV price estimate stands at $42.51, slightly ahead of the current market price.

As DirecTV is seen as a premium brand, it attracts a stickier subscriber base with customers more likely to have higher incomes and lower churn rates. We discussed this as well as some other advantages DirecTV enjoys over its competitors in a recent article. (See DirecTV Subscriber Gains Continue.) Marketing campaigns drove subscriber additions in recent quarters and so far it has avoided any large scale blackouts similar to the ones experienced by Dish in pricing disputes with content carriers.

Thus it becomes relatively easier for the company to raise prices without much risk of losing subscribers. Additionally, as the economy emerges from recession, consumers might be more inclined to upgrade to higher priced packages and get access to more content. If this happens, average subscription fees will benefit.

What’s the Risk?

Competition arising from competitors’ promotional efforts could hinder DirecTV’s ability to raise subscription price while maintaining its pay TV market share. Although we currently forecast a steady increase in DirecTV’s market share, the chart below illustrates the impact on DirecTV’s stock value should this trend change. Still, DirecTV’s strong brand image and high-quality subscriber base could inhibit potential downside and position the company for greater upside as the economic outlook improves.

You can see the complete $42.51 Trefis price estimate for DirecTV’s stock here.