DIRECTV (DTV) subscribers who awoke on Sunday, April 1, to find they couldn't watch their favorite channels and TV shows soon learned it was not an April fool's joke. The satellite provider and Tribune Broadcasting failed to reach an agreement, leaving DIRECTV subscribers in the dark. The debacle now raises questions about what the domino effects will do to the company's stock.
For the satellite company's affected subscribers, this debacle means no longer being able to watch 'American Idol,' NASCAR races, Major League Baseball games and a slew of other popular shows and events. For investors, it means DIRECTV could lose subscribers who will bolt to other sources, including the competition, to be able to continue to have access to their favorite broadcast shows.
As of Saturday at midnight, Tribune pulled its programming that DIRECTV subscribers had been able to access in 19 U.S. markets. Tribune noted that it had never been compensated for the rebroadcast of its television stations and that it sought an agreement that was similar to those that DIRECTV "already has in place with hundreds of other broadcasters and program providers."
DIRECTV seems to blame Tribune's bankruptcy proceedings as a reason why they backed out of the deal. In a statement it released over the weekend, DIRECTV said,
"We can't help but wonder whether Tribune's ability to negotiate a reasonable retransmission agreement with DIRECTV is being undermined by the complexities and competing interests in their lengthy bankruptcy process…"
Tribune responded by saying the situation stemmed from DIRECTV 's inflexibility and refusal to offer a fair deal. Tribune added that it had not been compensated for 10 years.
Regardless of who's to blame, DIRECTV stands to lose the most. Its subscribers have too many options when it comes to being able to watch their favorite channels and programs. Those include other satellite providers, like Dish Network (DISH), but also other cable companies. Consumers are also turning to companies like Hulu and Netflix (NFLX) to watch their basic television programs. In addition, HD antennas are gaining in popularity and offer an alternative to all of these that have been mentioned in this story.
DIRECTV knows all too well how important subscribers are to its investors. Last year, it announced that it had added only 26,000 new subscribers in the U.S. This missed analysts' estimates - some of which were double that number - causing the stock to plummet.
In July of last year, the stock was trading around $53. By August, it had dropped further to less than $42. It regained some traction around October through the end of the year when it was trading between $44 and $48. Since, it has managed to climb back up to about $50. It closed at $49.34 on Friday.
Like most observers, I believe the drop in DIRECTV 's subscribers reported directly related to customers being able to find and afford alternatives. Unless an agreement is reached soon, I don't see this situation with Tribune being a simple nor small challenge for DIRECTV.
Consider this. There is more at stake than losing viewers of Fox shows like "American Idol" and NASCAR. In New Orleans, where Tribune owns the local ABC affiliate, DIRECTV subscribers won't be able to watch NBA basketball games. In New York, DIRECTV subscribers won't be able to watch the Mets baseball team and in Chicago, they won't see the Cubs and White Sox baseball games either. You can quickly see how these losses can add up. Now we'll see which side, DIRECTV or Tribune, blinks first.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.