The NFL season has officially kicked off, and Shares of DIRECTV (DTV) are up 17% YTD. Direct TV's contract with the NFL expires in 2014, and many are speculating that Google Inc (GOOG) might next in line to strike a deal for the rights to NFL games. Shares of DirectTV have pulled back 10% from the highs. The NFL might not be the only reason the stock has been trading lower. Can the stock rebound from here or is this the start of a downtrend?
Satellite providers like DISH Network Corp (DISH) and DirectTV have dropped 162,000 subscribers in the last quarter, as many younger consumers are moving away from pay-TV sources. According to Bloomberg, DirectTV recently made a big for the online streaming service Hulu, in an attempt to diversify its revenue streams. However, Hulu turned down the bid and decided to remain private. Hulu might only have 3 million subscribers but many of those subscribers are part of a major shift to mobile devices. Over 40 devices, like iPhone and iPads, and Android devices can access Hulu's thousands of movies and TV shows. Hulu jointly owned by Fox & The Walt Disney Company (DIS) also had offers from competitors like Yahoo! Inc. (YHOO) and Time Warner Cable and AT&T.
Hulu did not accept DirectTV's offer and the company remains private, since the offer, DirectTV's stock has declined 9%. Direct TV's competitors stocks were not affected the same way by the Hulu news. The reason might be that DirectTV's competitors are much more diversified with multiple revenue streams. Comcast offers customers land line phone service, internet services, and even home security. Time Warner offers similar packages to its customers, which now accounts for 45% of the company's revenues. DirectTV has done well with NFL Ticket, with its more than 2 million subscribers, but that contract runs out next year. DirectTV's stock has been floundering, and according to the Stock Traders Daily live trading report, the stock is near a test of long-term support.
Peter Kalfa first reported that Google had talked with the NFL about a deal to gain the rights to the games. Direct TV currently pays the NFL $1 billion each year to broadcast NFL games. With cash rich companies like Google now considering making offers for the NFL games, it is very likely that the cost for a new contract will increase in the future. Even though Google is an internet company, it could use YouTube as a way to broadcast games. Fans would be able to use Google's new Chromecast device to stream the NFL games from their computer, tablet or smart phone, right to their TV, wirelessly. The NFL would benefit too because right now, only DirectTV subscribers are able to access the games, instead of a virtually unlimited online audience. DirectTV's $1 billion a year deal with the NFL might be ending soon, but that might not necessary be bad news. DirectTV could add to its $2 billion in cash and use the money to find a solution to the ever-growing threat from online competition. A bigger bid for Hulu or a similar alternative could be in the works.
Dish Network the number two satellite provider is in a similar position. Both satellite providers are forced to deal with media companies push for higher fees, and skyrocketing costs for original content. Dish Chairman Charlie Ergen, spoke briefly about a possible merger between Dish and DirectTV during the company's conference call last week. The merger would make the new company larger than Comcast, who is the largest provider of pay TV. The new larger company would have considerably more leverage with media companies in negotiating retransmission agreements.
It would not be a surprise to see DirectTV make a big deal sometime in the near term. However, the stock is close to testing long-term support. We buy stocks near support, and as a rule, support acts as our risk control. So long as the stock remains over support, as defined in our real time trading report, Stock Traders Daily expects higher levels and a test of resistance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.