DIRECTV Dumped GoITV

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DIRECTV (DTV) dumped GolTV as the latter lost telecast rights to Spain's most popular La Liga football league.

GolTV is a specialized American TV sports channel, which broadcasts mainly soccer matches in both English and Spanish languages.

Over the past seven seasons of La Liga football league, GolTV has held the network rights, previously held by Fox network. The company has sublicensed the rights of some games to ESPN Deportes and ESPN3.com.

From the last month onwards, DIRECTV included the Al Jazeera-owned network called beIN Sport, which acquired the U.S. rights to La Liga, Italy's Serie A and France's Ligue 1. Hence, the drop of GolTV from DIRECTV’s Sports Pack from yesterday onwards will allow the company to reduce its mounting programming expenses.

Few days back, DIRECTV had a lot of tussle over price hike with Viacom, Inc. (VIAB), following which the former renewed its contract terms with the network company at a 20% higher rate, which we believe will certainly dampen its bottom-line growth in the upcoming quarters.

Another similar situation has evolved as DIRECTV’s contract terms with News Corp. (NWSA) is about to expire in the next three days. News Corp. is demanding a 40% increase in fees. Subsequently, we believe that if DIRECTV renews its contract with News Corp. at a higher rate then it will result in further decline in the company’s bottom line. Moreover, DIRECTV’s chance of transferring that cost to its subscribers is limited due to increased competition from other cable and telecom operators coupled with deteriorating U.S. economy.

So, in order to offset such increased programming cost, the company should upgrade its customer base by selling premium services, including the disposition of VOD, HD and DVR services to its customers will thereby foster ARPU growth in the coming days.

We maintain our long-term Neutral recommendation on DIRECTV. Currently, DIRECTV has a Zacks#3 Rank, implying a short-term Hold rating on the stock.

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