DirecTV Expands its NFL Package by Offering Streaming Services

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DirecTV (NASDAQ:DTV) has introduced a new service to stream the National Football League (NFL), which will allow subscribers to stream live, out-of-market games without requiring a satellite dish. [1] The content can be streamed over laptops, tablets, smartphones or a gaming console. The satellite company spends about $1 billion a year on NFL programming and charges up to $300 annually for the exclusive package subscribed by more than 2 million people, translating into $600 million in annual revenues. [2] The new streaming service is priced at $199.99 for laptop, computer and phone services, and $329.99 for the full package compatible on all devices and gaming consoles. If DirecTV manages to attract 2 million subscribers for its streaming services, it will generate another $400 to $600 million and make up for the cost incurred to get the event rights. However, it must be noted that the company’s agreement with NFL will expire after the 2014 season and it is safe to assume that the new agreement if renewed will be at a higher price.

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The Move Will Not Impact DirecTV’s Pay-TV Market Share

NFL Sunday Ticket is a sports package that broadcasts NFL regular season games outside of their local markets on Sundays. In the U.S., the package is available exclusively to DirecTV subscribers, thus giving the company a unique edge and selling point. The NFL is one of the most popular domestic sports and maintains substantial viewership. It is consistently one of the most watched programs in the U.S.

DirecTV spent $4 billion in 2009 and renewed its contract with NFL until 2014. Given the high costs involved for acquiring the programming rights, the company has been on a hunt for other revenue streams. The company had earlier thought about sharing the rights with others, but it has now decided to go with its own streaming services. [3]

It must be noted that NFL programming is of immense importance to DirecTV, helping it gain subscribers in the past. Since the past few years the company’s U.S. pay-TV subscribers have been increasing at an average annual rate of 4%. [4] Does this mean DirecTV may lose market share, as people are now free to choose their pay-TV operator and subscribe to NFL package?

Not really. There are restrictions on who can subscribe to streaming services. The service is only available to:  1) those who live in apartment buildings where DirecTV service is unavailable, 2) live in metro New York, Philadelphia or San Francisco, or 3) attend college at Michigan (Ann Arbor), Alabama, Washington, Texas (Austin), USC, Florida, Colorado (Boulder), Syracuse, Ohio State or Harvard. [1]

We believe that the launch of streaming services is a smart move, which will aid DirecTV’s overall revenue growth for NFL programming and also ensure that it does not lose its pay-TV market share. At the same time, it is important for the company to renew its license with NFL. Given the saturation in the U.S. pay-TV industry and rapid growth in alternate video platforms, the company risks a slowdown in subscriber additions if it opts for non-exclusivity.

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Notes:
  1. DirecTV to offer NFL Sunday Ticket streaming options, NFL, Jul 17, 2014 [] []
  2. Exclusive: NFL, DirecTV agree to framework for Sunday Ticket deal, Reuters, Dec 12, 2013 []
  3. DirecTV floats possibility of sharing NFL Sunday Ticket rights with cable operators, FierceCable, Mar 7 2013 []
  4. DirecTV’s SEC Filings []
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