DIRECTV (DTV), the largest satellite TV operator in the U.S., is all set to enter into a new distribution deal with Comcast Corporation (CMCSA)-owned NBCUniversal. By virtue of the deal, the former will offer popular channels of NBCUniversal like CNBC, Bravo, MSNBC and other channels to its customers.
However, Comcast SportsNet Houston, a regional sports channel and G4 channels will not be the part of the deal as DirecTV failed to negotiate rates.
DirecTV is continuously signing new deals or renewing contracts with cable and channel partners. Few days back, the company signed a deal with Time Warner Cable Inc. (TWC) to telecast the cable MSO’s two sports network in the Los Angeles area. The company also entered into an agreement with CBS Corporation (CBS) to broadcast its huge range of channels to its subscribers.
Such agreements with different network and cable partners will not only help DirecTV to boost its customer addition, but will also allow the company to offer superior services to its subscribers, thereby improving subscriber churn going forward. Separately, DirecTV subscribers can no more view TVB channels due to the recent disagreement between TVB network and DirecTV. Thus, in order to offset any further subscriber loss, the company is signing more deals with other channel partners.
However on the down side, such increased amount of new deals coupled with renewal of contract with Viacom, Inc. (VIAB) at 30% higher rate will elevate DirecTV’s programming expense, hence putting more pressure on margins.
We are maintaining our long-term Neutral recommendation on DirecTV. Currently, the stock holds a Zacks #3 Rank, implying a short-term Hold rating.
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