Leading U.S satellite TV operator, DIRECTV ( DTV ) failed to reach an agreement with Time Warner Cable Inc. ( TWC ) over the distribution of the latter's regional SportsNet LA channel. As SportsNet LA airs all the matches of the Dodgers Baseball team, customers of DIRECTV will miss the matches this year.
Last year, Time Warner Cable signed a lump some $7 billion deal with baseball team, Los Angeles Dodgers. The cable giant has acquired the distribution rights for the next 25 years and thus all the games of Dodgers will be aired on SportsNet LA - which is jointly owned by Time Warner Cable and the Los Angeles Dodgers Major League Baseball team. Hence, the company has planned to hike its rates for other pay TV operators to recover the substantial amount invested, in our view.
DIRECTV has a strong foothold across Los Angeles with 1.2 million subscribers while 25% of the households in Coachella Valley has access to the services of DIRECTV. However, Time Warner Cable is the sole broadcaster of Dodgers games. Thus, failing to strike an agreement with Time Warner Cable will not only disappoint all baseball fans of DIRECTV but might also affect subscriber count in the region.
In the fourth quarter of 2014, DIRECTV U.S. segment added net 93,000 subscribers as compared with 103,000 in the year-ago quarter. Average monthly subscriber churn rate in the reported quarter was 1.41% against 1.43% in the previous-year quarter.
Such deterioration in subscriber growth can be attributable to intense competitive pressure from fiber-based video offerings of large telecom operators like AT&T, Inc. 's ( T ) Uverse and Verizon Wireless's FiOS TV. Significant popularity of low-cost video streaming providers such as, Netflix, Inc. ( NFLX ) and Hulu have also impeded subscriber growth.
A few months back, DIRECTV also stopped broadcasting The Weather Channel due to disputes over programming fees. Fee-related disagreements have become a regular affair between content distributors and pay-TV operators. While network operators devise to pass on the raised contractual fees to the pay-TV operators, the latter shifts the burden to the customers.
In this case, DIRECTV should make SportsNet LA as its premium service and charge higher fees from baseball loving customers, thereby maintaining its strong foothold in the Los Angeles region.
DIRECTV currently has a Zacks Rank #2 (Buy).
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