DirecTV (NASDAQ:DTV) is the second largest pay-TV service provider after Comcast (NASDAQ:CMCSA) and the largest direct broadcast satellite (DBS) service provider in the United States. It mainly competes with Dish Network (NASDAQ:DISH) in the DBS space. DirectTV’s pay-TV market share has risen in the past few years, from 16% in 2006 to around 18% in 2010. However, we don’t expect much upside in its market share going forward, as it loses out to cable and telecom players when it comes to bundling services (voice, internet, and TV) as well as in providing bandwidth heavy services like video on demand (VOD).
DirecTV could also take a hit from the potential NFL lockout, as it may have to refund fees charged to subscribers for its “NFL Sunday Ticket” package and still pay a licensing fee for the NFL broadcast. However, the actual stock impact from this scenario is rather limited (see What an NFL Lockout Would Mean for DirecTV).
Despite these concerns, DirecTV is riding strong subscriber growth in both the U.S. and Latin America. While we anticipate DirecTV’s pay-TV market share will reach 18.6% by the end of our forecast period, Trefis members predict that this number will reach 19.5%, implying an upside of 4% to our price estimate for DTV stock.
We currently maintain a $48.63 price estimate for DirecTV’s stock, about 5% ahead of market price.
DirecTV is Losing Out on Bundling, VOD Services…
While it’s easier for cable and telecom companies to offer multiple play bundles that combine video, broadband and voice options, DBS providers like DirecTV find it difficult to do so. DBS operators are ill-equipped to provide such bandwidth heavy services as they don’t have a dedicated line to customer premises. Any efforts to stream a movie (or even a TV show) on-demand is likely to place severe constraints on the satellite bandwidth for the area. As a result, even normal services to other households could be affected. While DTV has its own VOD service, its on-demand library is much smaller compared to cable companies.
… But Subscriber Numbers Are Rising
In Q4 2010, DirecTV saw its highest total of subscriber additions of the past 10 years. DirecTV added a net 667,000 subscribers in Q4 (up 75% year-over-year), with strong growth in both the U.S. and Latin America. For full-year 2010, the company added 1.2 million subscribers, of which 663,000 were from the U.S. .
DirecTV’s gain in new subscribers came at the expense of cable providers, most notably Comcast, which lost 135,000 subscribers last quarter.  Meanwhile, DirecTV noted that its premium offerings like “NFL Sunday Ticket” and new high-definition boxes helped sustain its subscriber base.
Trefis Community Forecast
Trefis members forecast that DirecTV’s pay-TV market share will increase from about 18.2% in 2010 to 19.4% by the end of our forecast period, compared to the baseline Trefis estimate of a smaller increase to 18.6% during the same period. The member estimates imply an upside of 4% to our $48.63 price estimate for DirecTV’s stock.Notes: