DirecTV Takes On Dish’s Hopper With New DVR


With the U.S. pay-TV market becoming more saturated, pay-TV companies are looking to differentiate themselves by offering advanced services, promotional offers and more viewing flexibility to their subscribers. In a similar move, DirecTV (NASDAQ:DTV) is planning to launch Genie DVR, an HD capable device that can record shows based on the viewing habits of pay-TV subscribers. [1]

This move comes after Dish Network (NASDAQ:DISH) launched its Hopper DVR that records prime time shows and allows for automatic ad skipping earlier this year. Unlike Dish, DirecTV will not offer the ad skipping feature as it wants to avoid confrontation with broadcasters. The introduction of advanced DVR poses minimal risk to DirecTV as the company will recoup the costs by charging a monthly fee for DVRs that it installs, thus keeping its costs variable rather than fixed.

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See our complete analysis for DirecTV

We estimate that HD/DVR services constitute close to 20% of DirecTV’s estimated value. About half of this can be attributed to DVRs alone. Therefore, just charging an incremental fee for advanced services such as DVR is quite critical for DirecTv’s revenue growth, especially in the absence of a viable broadband offering. We estimate that the current penetration of HD/DVR services in DirecTV’s subscriber base stands at less than 60%. Although this is a healthy figure, there is a significant opportunity for growth. We forecast this penetration to grow to 80% by the end of our forecast period. DirecTV could be a $60 stock in our opinion if this figure was to grow to 100% instead.

While cable companies are relying on broadband services to grow their revenues and profits, satellite companies such as DirecTV and Dish Network have no such viable avenues for growth. The best that they can do for now is strive to gain subscribers at the cost of cable companies, keep service standards high, and in the process increase prices.

Further, the increasing penetration of advanced services such as HD and DVR is another growth opportunity. This implies that the U.S. pay-TV industry is likely to see more innovation and advancements from satellite operators in the future compared to the cable companies.

Our price estimate for DirecTV Cable stands at $57, implying a premium of about 10% to the market price.

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  1. DirecTV prepares to launch Genie DVR, FierceCable, Oct 4 2012 []