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DIRECTV Plans Online Services

Zacks Equity Research

Recently, DIRECTV (DTV), the largest satellite TV operator in the U.S., has indicated that it might introduce 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 YouTube. Initially, the company will offer this service for selected contents.   

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).

In the second quarter of 2013, DIRECTV lost 84,000 pay-TV customers in the U.S. compared with 52,000 in the year-ago quarter. We believe satellite and cable TV operators are gradually losing to telecom operators in the U.S. Verizon Communications Inc. (VZ) and AT&T Inc. (T) jointly gained 373,000 subscribers in the same quarter offering fiber-based TV services.

DIRECTV has undertaken a three-edged strategy for the U.S. market. These strategies include (1) streamlining its cost structure through better negotiation with the content providers (2) introducing TVEverywhere facilities, the multi-screen streaming capability on mobile devices and expanding the penetration of its Genie Whole-Home DVR and (3) focusing more on becoming a premium brand in the U.S. pay-TV market, targeting the high-end customers who are willing to pay for its costly HD-DVR and interactive services and premium programs even during economic downturns.

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