DirecTV (NASDAQ:DTV) has recently inked a deal with start-up movie studio A24 Inc. The satellite provider and A24 will acquire independent films in exchange for rights to offer them exclusively on the video-on-demand services 30 days before they hit theaters. 
The deal marks DirecTV’s first direct investment in indie films, and the move is in the right direction as the company needs additional features to differentiate and compete with the other pay-TV operators such as Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and Dish Network (NASDAQ:DISH). While the cable companies have an advantage of broadband in a saturated pay-TV market, Dish has amassed wireless spectrum, which can aid its growth in the long run. For DirecTV, it is the Latin America market which is primarily driving its growth.
However, in order to keep the churn rate low in the U.S., it needs to offer attractive features. A couple of months back, the company tried to acquire video-on-demand service provider Hulu, but its owners later decided to keep the company (See – A Setback For DirecTV As Hulu Owners Once Again Abandon Sale). Another exclusive feature of DirecTV is the NFL Sunday Ticket in the U.S., but even that contract expires in 2014 and its fate with DirecTV is unknown.
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How Will Indie Films Help DirecTV?
There is a growing importance of the video-on-demand market for indie films, many of which struggle to gain attention in cinemas. While A24 will get promotional support from the huge subscriber base of the satellite company, DirecTV will have exclusive rights for the movies before they hit the cinema screens. On the other hand, big cinema chains including Regal and AMC don’t touch films that are shown first on other platforms. In such a scenario, a studio will have to book with the independently owned cinemas. 
A24 is a start-up founded last year and has released five movies in 2013, including Spring Breakers and The Spectacular Now with average box-office grossing of $5.5 million for each movie.  DirecTV stated that it will charge around $11-$13 for seven day rentals. With a subscriber base of 20 million, even if 3% of subscribers opt for a movie rental, it would generate $6.6 million revenue for each movie (more than the current average). In case the movie is rented by 5% of subscribers, it would lead to $11 million revenue for DirecTV. Not to forget, the company has committed just $40 million with A24, and it plans to showcase one new movie every month.
While the figures might look small, they have a bigger meaning for DirecTV. It is about what the company could offer to keep the churn rate low. The company’s average subscriber churn represents the number of subscribers whose service is disconnected, expressed as a percentage of the average total number of subscribers. While the churn rate was around 1.44% in the first quarter of 2013, it increased to 1.53% in the second quarter. However, it was at similar levels during the same period previous year.  The deal with A24 will add to the additional features such as exclusive NFL Sunday Ticket, what DirecTV offers to its subscribers and help it compete better in a saturated pay-TV market.Notes: