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WIKI ANALYSIS
The DirecTV Group (NASDAQ:DTV) is the largest provider of household satellite television in the United States and has a customer base of over 17 million. The company markets itself as the leading provider of differentiated and exclusive content, and the leader in high definition (HD) programming. DTV offers exclusive programming such as the NFL SUNDAY TICKET package and over 95 Spanish and international language channels, which are not available via cable or other satellite service providers. [1]
Satellite television is the leading alternative to the traditional cable television and has experienced rapid growth in the past decade. However, DTV and the satellite industry continues to face challenges from traditional cable companies like Comcast (CMCSA), Cablevision Systems (CVC), and Time Warner Cable. These companies are not only much larger than their satellite competitors, but also have capacity to offer bundled services which includes TV, telephone, and high speed internet. DTV has recently begun to offer similar services through a partnership with AT&T (T) and other internet service providers, but may lose the ability to do so, as AT&T (T) continues to roll out its own video services.
Business Overview
DTV's revenue comes from the monthly subscription rates for programming that it provides to households. Depending on the number of channels and premium programming that a customer requests, the amount each household pays can be vastly different. In 2006, average revenue per user (ARPU) was $73.74, around 25-30% higher than the typical cable customer.. For acquiring each customer, DTV incurs significant costs by often times giving away equipment and providing installation. In 2006, DTV's average subscriber acquisition costs (SAC) was nearly $640. The company sales strategy is to recoup the cost by ensuring the customer stays with the company for at least a few years.
DirecTV operates through 2 primary segments:
- DirecTV U.S.: distribute over 1,700 digital video and audio channels, including 70 XM Satellite Radio music channels, 31 premium movie channels, over 35 regional and specialty sports networks, 95 Spanish and other foreign language channels, and over 45 pay-per-view channels. By the end of 2006, DTV US had approximately 16 million subscribers and generated $13.7B in revenue.
- DirecTV Latin America: is the leading provider of digital television services throughout Latin America, which includes South America, Central America, and the Caribbean. DTV LA provides service under the DIRECTV and SKY brands to approximately 1.3 million subscribers in Brazil and approximately 1.4 million subscribers in the rest of South America. DTV's affiliate, Sky Mexico, has approximately 1.4 million subscribers in Mexico. In 2006, DTV LA generated $1.0B in revenue.
In 2006, DTV U.S. revenue increased by 12.5% due to:
- A larger subscriber base - net new subscriber additions in 2006 were 820,000, which increased total subscriber base by 5.4% to 15.95 million customers. [3]
- A 5.9% increase in ARPU from $69.61 to $73.74. [4]
DTV's operating income more than tripled in 2006 due to lower subscriber acquisition costs and lower retention costs. [5] The company reported significant losses in 2004 as a result of extensive restructuring and a change in the corporate name from Hughes Electronics Corporation to The DIRECTV Group. [6]
Trends and Forces
- Bundling: is the marketing strategy of cross-selling customers across cable, Internet, and voice services. For example, Comcast (CMCSA) offers this bundled service as the "Triple Play" and charges approximately $99 per month. Consumers benefit because they have one consolidated monthly bill, and one company to deal with if there are problems. DTV primarily offers entertainment and has begun to offer high-speed internet through a partnership with AT&T (T) and other internet service providers. However, DTV still doesn't offer voice services and may therefore face tough competition from the cable industry, if customers favor the full bundling option.
- Housing Market: with more than 85% [8] of television owners already paying for cable or satellite services, the number of new potential cable customers is small. New homes provide new potential customers for cable companies and as a result, growth in the cable industry is closely tied with growth in the housing market. Recent deceleration of the housing market could mean a loss of growth for DTV's service.
- FCC Regulation: covers communications by radio, television, wire, satellite and cable in the United States. In 2006, FCC passed a rule requiring all new TVs to contain a tuner capable of receiving digital broadcasts, instead of the old analog signals, by 2009. [9] The switch to digital could benefit DTV, since it is currently the leading carrier of HD and digital channels. [10]
Market Share
DTV has the second highest market share in the pay-tv (cable & satellite market) behind Comcast (CMCSA) and the leading market share in satellite market, ahead of EchoStar Communications (DISH).
Competition
DTV faces competitors in the satellite television market and in the home entertainment sector at large. EchoStar Communications (DISH) is its main competitor in the satellite television market and has nearly 13 million customers. However, DirectV is sold in more electronic retailing stores than Echostar, and as a result Echostar must spend more on advertising to spread the word of its existence than DirecTV. DirecTV also has an advantage over EchoStar, by providing the most comprehensive offering of HD programming.
| Company | Subscriber Acquisition Costs (per customer)[11] | Churn Rate [12] | 2006 Profits (Millions) |
|---|---|---|---|
| Echostar | $686[13] | 1.64%[14] | $608[15] |
| DirecTV | $641[16] | 1.60[17] | $1,430[18] |
DTV also faces tough competition from cable television competitors such as Time Warner Cable, Comcast, and Charter Communications (CHTR).
Reference
- ↑ DTV 2006 10K, Pg. 4
- ↑ DTV 2006 10K, Pg. 38
- ↑ DTV 2006 10K, Pg. 44
- ↑ DTV 2006 10K, Pg. 48
- ↑ DTV 2006 10K, Pg. 48
- ↑ DTV 2006 10K, Pg. 3
- ↑ DTV 2006 10K, Pg. 37
- ↑ OneTVWorld
- ↑ Boston Globe
- ↑ DTV 2006 10K
- ↑ This is the cost to the company to acquire each new customer.
- ↑ This is the number of new customers minus the customers that leave.
- ↑ Echostar 2006 10K, Item 6, pg. 47
- ↑ Echostar 2006 10K, Item 6, pg. 45
- ↑ Echostar 2006 10K, Item 6, pg. 45
- ↑ DTV 2006 10K, Pg 33
- ↑ DTV 2006 10K, Pg 32
- ↑ DTV 2006 10K, Pg 65
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