DirecTV's ( DTV ) recent move to launch Starz Play and Encore Play streaming services is a smart one, given that Starz's content has good appeal among viewers. Furthermore, separately branding these streaming services will maintain their premium perception, and will help DirecTV in sustaining its brand appeal among its affluent customers.
DirecTV, as a pure-pay TV service provider, lacks the bundling of additional services such as broadband and phone (VoIP or mobile). This is not necessarily a handicap given that despite the lack of bundling, the company has gained subscribers while its cable counterparts such as Time Warner Cable ( TWC ) and Comcast ( CMCSA ) have been losing pay TV subscribers for the past few years. DirecTV has managed to do this with high standards of customer service, being proactive in bringing HD channels and latest DVR technologies to the market, a focus on subscriber credit quality and some other key offerings such as NFL Sunday Ticket. All of these strategies point towards a focus on quality rather than a pricing advantage that comes with bundling. The addition of Starz Play and Encore Play is consistent with this strategy.
Streaming has become of paramount importance and it is critical that DirecTV continues its efforts towards it. Its rivals such as Dish Network ( DISH ) and Comcast already have their own streaming services. DirecTV's choice of Starz content is a smart one as Starz boasts of many movies from Disney ( DIS ) that have formed an integral part of Netflix's (NFLX) online catalog in the past. Netflix recently realized that Starz content was not worth losing over a price-negotiation fallout, and struck a deal directly with Disney (see What Are The Implications Of Netflix's Deal With Disney? ).
Our price estimate for DirecTV stands at $59 , implying a premium of little under 20% to the market price.
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