The DIRECTV Group Inc.DTV

Morningstar Rating

Stock Research and Analysis

by Michael Hodel, CFA

DirecTV has held its own in the pay television market, accelerating growth recently despite a tough economy and an increase in the number of rivals competing for customers. This growth has come at a price, though, and we're concerned that the firm may Read more

Bulls Say

A key differentiator of DirecTV's service is the strength of its programming lineup, including exclusive content, like NFL Sunday Ticket, and the industry's widest selection of high-definition networks. DirecTV's size and national coverage should continue to make it a natural partner for content creators.

The firm's customers tend to be the nation's biggest spenders on television services, as indicated by average monthly revenue per customer of more than $80. The typical cable customer, on a comparable basis, generates less than $70.

DirecTV has relationships with each of the three largest phone companies in the U.S. (AT&T, Verizon, and Qwest Q). These firms provide a great distribution channel, and one (or more) of them may try to acquire DirecTV.

If competitors begin to severely weigh on DirecTV and rival DISH, regulators might allow the two firms to merge, creating lots of cost-cutting opportunities and easing competition. Read more

Bears Say

DirecTV's equipment subsidies and marketing spending is typically about $700 for each customer acquired. If we assume an average margin of 50%, it takes nearly two years just to break even on each customer. If customers decide to discontinue service at a faster pace than they do today--perhaps in response to an increase in content available online--DirecTV's value will suffer.

The ability to combine phone with high-speed Internet access and television service gives cable a major weapon in its fight with satellite. The phone companies are building a similar advantage as they upgrade networks around the country.

Although upgrade spending has declined recently, DirecTV has conditioned customers to expect heavily subsidized equipment. As customers demand new services and DirecTV attempts to keep pace with the cable and phone companies, it will probably need to spend heavily on customer equipment.

DirecTV has had to fork over ever-increasing amounts of cash to keep exclusive National Football League content for its NFL Sunday Ticket package, to which around 15% of customers subscribe. The latest contract also forced the firm to give up some of its exclusive content. Read more

Strategy

DirecTV aims to offer the best television service available. The firm's aggressive satellite expansion in recent years--and the resulting increase in the number of high-definition channels it offers--is Read more

Management

DirecTV couldn't completely escape John Malone's love of complex corporate structures in its agreement to merge with Liberty Entertainment LMDIA. Liberty amassed a 54% stake in DirecTV through an asset swap with News Corporation NWS and subsequent purchases Read more

Profile

DirecTV Group is the largest satellite television provider in the U.S., with 18 million customers. It also owns satellite operations in Latin America: 74% of Sky Brazil, Read more

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