Recently, DIRECTV (DTV), the largest satellite TV operator in the U.S., hinted at introducing online video streaming services. However, the initial offering will be at a much smaller scale than the existing service providers Netflix Inc. (NFLX), Hulu and uTube.
Also, the company will initially offer this service for selected contents. Shifting from satellite TV network to IP streaming via broadband network will boost the company’s operating income and free cash flow in the long term.
The U.S. pay-TV market is extremely competitive. In addition to the traditional Cable TV and satellite TV operators, telecom giants are also offering fiber-based high-speed video services. In contrast, low-cost online video streaming services have also become very popular especially when the economy is still reeling under fluctuations.
We believe that DIRECTV also needs to restructure its business model and the decision to start online streaming service is one such step. DIRECTV currently has a Zacks Rank #3 (Hold).
DIRECTV has also decided to enhance its video offerings with next-generation 4K ultraHD video services, which provides contents with horizontal resolution on the order of 4,000 pixels.
The use of horizontal resolution technology is a qualitative shift from the previous HDTV technology which offers vertical resolution. The new technology will significantly upgrade video and sound quality. Comcast Corp. (CMCSA) is also conducting research and development for 4K resolution.
DIRECTV has also planned to launch two more satellites in 2014 and 2015, which we believe will further improve service quality. Rounds of rumor in the industry circle suggest a possible merger between the largest two satellite TV operators, namely, DIRECTV and DISH Network Corp. (DISH). DISH has accumulated a significant size of wireless spectrums.