After Netflix (NASDAQ:NFLX), it’s DirecTV’s (NASDAQ:DTV) turn to venture into original programming despite being a pure service provider.  The company is reportedly coming up with the original program Rouge, and that certainly raises some questions about its strategy in specific, and of the pay-TV providers in general.
It is no news that the programming costs are rising and either subscribers or the pay-TV service provider or both have to face the implications. While subscribers are facing increased programming prices, the cable and satellite companies are witnessing shrinking margins. This is a threat that has been acknowledged by all major pay-TV service providers who have frequently been involved in disputes with content owners resulting in programming blackouts.
Could it be that DirecTV is attempting to take first step on the road where it might become less reliant on big media companies such as News Corp (NASDAQ:NWS) and Time Warner (NYSE:TWX)? We feel that the company is going to use the original programming to generate additional profits to partially offset the shrinking margins in the industry.
The other reason could be building a USP (unique selling proposition). For a long time, DirecTV’s NFL Sunday Ticket has acted as its USP and with increasing competition and a more saturated market, the company is looking to strengthen its portfolio of unique propositions.
With cable companies performing better and Dish Network (NASDAQ:DISH) reviving itself, DirecTV’s smooth run is unlikely to continue. It is necessary to manage these risk via diversification. In Latin America, the risk diversification for DirecTV revolves around diversifying across geographies and launching 4G broadband as an additional viable business.
Our price estimate for DirecTV stands at $54.55, implying a premium of little under 25% to the market price.Notes:
- DirecTV to air original program ‘Rouge’, ‘Arrested Developement’ Coming to Hulu, dtvusaforum.com, June 7 2012 [↩]