What an NFL Lockout Would Mean for DirecTV
DirecTV (NASDAQ:DTV) competes with satellite pay-TV providers like Dish Network (NASDAQ:DISH), cable companies like Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC), and telecom operators like AT&T (NYSE:T) and Verizon (NYSE:VZ). Our price estimate for DirecTV stands at $42.51, which is roughly in line with market price.
See our full analysis and $42.51 price estimate for DirecTV
DirecTV has had some success differentiating itself from other pay-TV providers. While cable operators have been losing subscribers and Dish Network (a direct competitor) has been struggling with growth, DirecTV has been rather successful in gaining subscribers. One of DirecTV’s key differentiating factors is its NFL Sunday Ticket package.
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NFL Sunday Ticket
NFL Sunday Ticket is a sports package that broadcasts National Football League (NFL) regular season games that are not available on local affiliates. 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.
However, the possibility of an NFL lockout could be bitter news for NFL Sunday Ticket. According to a recently published article, DirecTV could be a big loser in the conflict as it will still be required to make its regular payment to the NFL, while money spent by networks like CBS (NYSE:CBS), NBC, Fox and ESPN will be refunded. [1]
Does DirecTV risk losing subscribers in the event of a lockout? We believe the risk of customers switching to another service provider is limited, but the risk of losing revenue from NFL Sunday Ticket subscriptions looms.
Estimated Value at Risk
It is estimated that about 2 million of DirecTV’s subscribers subscribe to NFL Sunday Ticket package and pay around $300 per season. [2] This amounts to close to $600 million of revenues annually for the company. Notably, this is just a fraction of DirecTV’s overall revenues. If we apply company-wide margins and expenses to these revenues and discount future cash flows back, it turns out that NFL Sunday Ticket constitutes less than 4% to DirecTV’s equity value, so company-wide downside is limited.
Notes:- The Biggest Loser In An NFL Lockout Could Be DirecTV, Business Insider, Feb 8 2011 [↩]
- DirecTV Could Take a Hit from NFL Lockout, Investors’ Business Daily, Oct 21 2010 [↩]