The late 1990s were a good time for direct and broadcast satellite (DBS) providers like DirecTV (NYSE:DTV) that had started capturing market share from incumbent cable companies like Comcast (NASDAQ:CMCSA) and Time Warner Cable (TWC) due to their offering of making television accessible in the remotest locations through satellite. This unique proposition coupled with aggressive promotional offers helped DirecTV increase its subscriber base and gain share.
With newer technologies including fiber-optic services like U-Verse and FiOS from AT&T (NYSE:T) and Verizon (NYSE:VZ), respectively, which promise greater speeds than offered by DBS providers, we expect DirecTV’s Pay TV share to stabilize at around 18% over the next few years.
However, the Trefis community projects that the share may increase to 21% by the end of our forecast period, translating to an upside of 13%. We currently have a Trefis price estimate of $42.51 for DirecTV’s stock, about 4% above the current market price of $40.91.
Lack of Bundling Services and Add-On Options
Satellite providers like DirecTV have limited options in bundling of services (Internet, TV, and voice). DirecTV has tied up with AT&T (who have limited video options) to provide voice service in the bundle; however they do not match up to the bundles offered by cable companies.
DBS operators find it difficult to provide bandwidth heavy services like Video on Demand (VOD), as they don’t have dedicated lines to customer houses. Any efforts to stream a movie (or even a TV show) on demand is likely to place severe constraints on the satellite bandwidth for the area. As a result, even normal services to other households are likely to get affected. DirecTV launched its own VOD service in mid 2008, however received lukewarm response.
Growing Subscriber Base a Positive
DirecTV’s strongest factors are its premium brand image and a huge subscriber base, which has kept growing over the years. DirecTV added about 174,000 subscribers in its Q3 2010, which is about 28% higher compared to same period last year. We can be attribute to the $420 million spent on marketing in 2009, much more than Dish Network’s (NASDAQ:DISH) marketing spend. (See "DirecTV Subscriber Gains Continue").
If DirecTV is able to keep up with it subscriber gains in an improving economy, this could give a significant boost to DirecTV’s market share.
The Trefis community forecasts DirecTV pay TV market share to rise from increase from 19% in 2010 to 21% by 2017, compared to the baseline Trefis estimate of largely stable market share of around 18%. The member estimates imply an upside of 13% to the Trefis price estimate for DirecTV’s stock.
Disclosure: No position