DirecTV (NASDAQ:DTV) has stated that it will launch its streaming service in the second quarter of 2012 for its subscribers.  The company has not given out any details yet but it appears that the streaming service will initially be limited and may not be as broad as Comcast’s (NASDAQ:CMCSA) recent offering, Streampix. (see Xfinity Streampix Arrives: What’s the Value for Comcast?). This represents DirecTV’s serious push into the streaming market where its rivals have already started making inroads. This also implies that Netflix (NASDAQ:NFLX) may have a tougher time in the future.
What This Means For DirecTV
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It is inevitable that DirecTV embraces the online shift of consumers not just to generate incremental profits but also to retain the current subscriber base and its traditional business. Companies like Netflix are growing stronger each day.
Although they are far away from being a replacement for pay-TV, the pay-TV companies cannot afford to sit silently. Why even let the subscribers think of other alternatives when they can provide a one-stop shop for their video content needs? And with other pay-TV companies embracing streaming and broadband, DirecTV cannot simply stay behind and slide to a second tier player.
We estimate that advanced services such as HD and DVR constitute about 18% to DirecTV’s estimated value, implying a business worth close to $6.8 billion. This is based on increasing penetration of these services (assumed to increase to about 75% by the end of our forecast period) and close to an average fee of $15 per month per subscriber. If we assume that with streaming, DirecTV can achieve even a quarter of the success that it has achieved with HD and DVR, there can be an upside of close to 5% to our estimate. This will imply half the fee and half the penetration, which we believe is achievable.
What This Means For Netflix
DirecTV’s quality and loyal subscriber base means that these customers are likely to go for DirecTV’s streaming if it develops a viable alternative to Netflix in the future. This could make it more difficult for Netflix to grow its subscriber base and win customers back.
Our price estimate for DirecTV stands at $53.26, implying close to 15% premium to the market price.Notes: