NFL is costing huge money for DirecTV

At the end of 2011, The Wall Street Journal reported that DirecTV spent about $1 billion a year on NFL programming, which is a large sum. At that time, we believed that gross margins for NFL programming would be lower than for other content, the logic being that DirecTV could not charge higher margins for a service that was already very costly. In 2012, DirecTV slashed its NFL Sunday Ticket pricing by 40%, charging more only for access to games on mobile devices as well. With the high programming costs and pricing cuts, DirecTV is finding it hard to maintain profitability.

Bloomberg reported last year that DirecTV had between 2 and 3 million NFL Sunday Ticket subscribers in 2011. Let's assume the figure is now at the top of the range. With 3 million subscribers, and reduced pricing of $200 per subscriber per year -- $300 for those who want mobile access -- DirecTV would have revenues of $600 to $900 million from NFL Sunday Ticket. If we compare these figures to the reported costs for 2011, according to the Wall Street Journal, it appears that DirecTV is incurring significant losses on the offering. This has evidently led the company to rethink its strategy of exclusivity.

The Trefis price estimate for DirecTV stands at $58, implying a premium of more than 15% to the market price.