Weekly Pay-TV Notes: Comcast And Time Warner Cable, Along With DirectTV and Dish, Post Major News

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The pay-TV industry saw significant activity around last week, with DirecTV and the National Football League (NFL) extending their deal for another 8 years. The largest pay-TV operator, Comcast, in a special meeting of shareholders, voted in support of Time Warner Cable merger. One day later, shareholders of Time Warner Cable also voted in favor of the proposed merger. In another development, satellite operator Dish Network, extended its agreement with Frontier Communications to bundle its satellite video services with Frontier’s package of broadband and voice packages and the company also filed the application for the AWS-3 spectrum auction, scheduled in the next month. On that note, we discuss below these developments related to the pay-TV companies over the last week or so.

DirecTV

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DirecTV (NASDAQ:DTV) has renewed its agreement with the NFL for another 8 years. However, this time around, the price is increased by 50% to around $1.5 billion a year. [1] This is very expensive and far more than $1 billion what CBS, NBC and Fox pay for their respective NFL coverage. One of the important aspects of DirecTV’s relationship with NFL was the merger with AT&T (NYSE:T). Earlier this year, when AT&T agreed to buy DirecTV in a $48 billion deal, a regulatory filing revealed that if DirecTV didn’t renew the deal with NFL, the mobile carrier could walk away from the deal with no penalty. This could be one of the reasons why DirecTV agreed to pay a 50% premium to the previous contract rates (Read More – DirecTV Extends Its Deal With NFL For $12 Billion).

We estimate gross revenues of around $33 billion for DirecTV in 2014, with EPS of $5.75, which is in line with the market consensus of $5.73-$6.17, compiled by Thomson Reuters. We currently have a $95 price estimate for DirecTV, which is more than 5% ahead of the current market price.

Comcast

Comcast’s (NASDAQ:CMCSA) shareholders, in a special meeting held this week, voted in favor of the proposed Time Warner Cable (NYSE:TWC) merger. More than 99% of shareholders voting, supported Comcast’s proposal to issue 2.875 shares of Class A common stock for every one share of Time Warner Cable common stock. [2] Later, on October 9, Time Warner Cable shareholders also voted in favor of the proposed merger. [3] Both the cable companies had agreed for the merger in Feb 2014 to form the largest pay-TV operator in the U.S. with roughly 30% market share, which will not only give the company a competitive edge, but also strong negotiating power over content owners. However, the proposed merger is subject to various regulatory approvals which are both forthcoming and uncertain. The transaction may close by early 2015.

We estimate revenues of about $68 billion for Comcast in 2014, with Non-GAAP EPS of $3.02, which is in line with the market consensus of $2.86-$3.1, compiled by Thomson Reuters. The company’s stock had declined close to 5% last week. We currently have a $60 price estimate for Comcast, which is about 10% ahead of the current market price.

Dish Network

Dish Network (NASDAQ:DISH) has extended its agreement with Frontier Communications to combine Dish’s satellite video services with Frontier’s bundled broadband and voice packages. [4] Frontier is a leading supplier of broadband and voice services to rural areas in the U.S. and bundles its services with Dish’s video services in some regions.

Separately, Dish has submitted its application for bidding in the upcoming AWS-3 spectrum auction. A total of 80 applications have been submitted to the FCC, which will auction 65 MHz of spectrum in the November auction. [5] While T-Mobile, Verizon (NYSE:VZ) and AT&T along with Dish have all expressed interest in the AWS-3 spectrum auction, Sprint has decided to stay away from it. The November auction is important for companies such as Dish, as it would give a clear picture of the value of the existing spectrum held by the telecom operators. It is possible that the AWS-3 auction will raise the value of spectrum currently held by the wireless operators, and it will be interesting to see how this impacts the industry at large in the near term.

We estimate revenues of around $14.4 billion for Dish Network in 2014, with EPS of $1.9, which is in line with the market consensus of $1.5-$1.9, compiled by Thomson Reuters. We currently have a $65 price estimate for Dish Network, which is close to the current market price of $63.

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Notes:
  1. NFL, DirecTV extend deal for 8 years, ESPN, Oct 1, 2014 []
  2. COMCAST SHAREHOLDERS OVERWHELMINGLY APPROVE THE STOCK ISSUANCE FOR MERGER WITH TIME WARNER CABLE, Comcast’s Press Release, Oct 8, 2014 []
  3. Time Warner Cable Stockholders Approve Merger With Comcast Corporation, Time Warner Cable’s Press Release, Oct 9, 2014 []
  4. DISH and Frontier Communications Extend Agreement to Deliver Bundled Technology Solutions, Dish Network’s Press Release, Oct 7, 2014 []
  5. FCC Prepares for AWS-3 and 600 MHz Spectrum Auctions, Daily Wireless, Oct 3, 2014 []