DirecTV could share NFL Sunday Ticket rights
Pay-TV margins are getting squeezed and football rights are costly, but the broadcast company could lose subscribers if it opts for non-exclusivity.
The company has had an exclusive contract for the sports package, which includes National Football League regular season games that are not available on local affiliates, for a long time. But exclusivity costs money, and it seems that DirecTV is struggling to justify the expense. This is especially a concern when pay-TV margins are getting squeezed for the entire industry.
However, NFL Sunday Ticket has been a unique selling point for DirecTV, helping it gain subscribers in the past. Given the saturation of the pay-TV market, the company risks losing new subscribers if it opts for non-exclusivity.
There is no definite answer to this dilemma. If a slowdown in subscriber growth is offset by increased profitability, DirecTV will likely go for it, but it all depends on the price of re-negotiation.
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.
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