The NFL is the lifeblood of DTV

September 07, 2013, 11:45 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Shares of DIRECTV (NASDAQ:DTV) have declined 10% since mid July. The satellite TV provider’s contract with the NFL will expire in 2014, and  Google Inc (NASDAQ:GOOG) has been rumored to be bidding for the NFL contract in 2015.The potential loss of the NFL could already be baked into the stock price. With Direct TV shares are still up 17% YTD, is the stock a buy, sell or hold? 

Satellite providers like DISH Network Corp (NASDAQ:DISH) and direct TV have dropped 162,000 subscribers in the last quarter, as many younger consumers are moving away from pay-TV sources. Direct TV recently made a big for the online streaming service Hulu, in an attempt to diversify its revenue streams. However, Hulu turned down the bid and decided to remain private. Hulu might only have 3 million subscribers but many of those subscribers are part of a major shift to mobile devices. Over 40 devices, like iPhone and iPads and Android devices can access Hulu’s thousands of movies and TV shows. Hulu jointly owned by Fox & The Walt Disney Company (NYSE:DIS) also had offers from competitors like Yahoo! Inc. (NASDAQ:YHOO), Time Warner Cable and AT&T.

Since the announcement that Hulu would remain private, Direct TV’s stock has declined 9%. Direct TV’s competitors stocks were not affected the same way by the Hulu news. The reason might be that Direct TV’s competitors are much more diversified with multiple revenue streams. Comcast offers customers land line phone service, internet services, and even home security. Time Warner offers similar packages to its customers, which now accounts for 45% of the company’s revenues.  Direct TV has done well with NFL Ticket, with its more than 2 million subscribers, but that contract runs out next year.  Direct TV’s stock has been floundering, and according to the Stock Traders Daily live trading report, the stock is near a test of long-term support.

Google has reportedly been talking with the NFL about a deal to gain the rights to the games. Direct TV currently pays the NFL $1 billion each year to broadcast NFL games, so the competition is heating up. With cash rich companies like Google now considering making offers for the NFL games, it is very likely that the cost for a new contract will increase in the future. Even though Google is an internet company, it could use YouTube as a way to broadcast games, or fans would be able to use Google’s new Chromecast device to stream the NFL games from their computer, tablet or smart phone, right to their TV, wirelessly. The NFL would benefit too because right now, only Direct TV subscribers are able to access the games, instead of a virtually unlimited online audience. Direct TV’s $1 billion a year deal with the NFL might be ending soon, but that might not necessarily be bad news. Direct TV could add to its $2 billion in cash and use the money to find a solution to the ever-growing threat from online competition. A bigger bid for Hulu or a similar alternative could be in the works.

Dish Network the number two satellite provider is in a similar position. Both satellite providers are forced to deal with media companies push for higher fees, and skyrocketing costs for original content. Talks have resurfaced about a possible merger between Dish and Direct TV. The merger would make the new company larger than Comcast, who is the largest provider of pay TV. The new larger company would have considerably more advantage with media companies in negotiating retransmission agreements.

It would not be a surprise to see Direct TV make a big deal sometime in the near term. However, the stock is close to testing long-term support. We buy stocks near support, and as a rule, support acts as our risk control.  So long as the stock remains over support, as defined in our real time trading report, after testing support Stock Traders Daily expects higher levels and a test of resistance. 

About Stock Traders Daily:  Stock Traders Daily is a provider of proactive investment strategies that can work in both up and down markets, and the founder of the Investment Rate, one of the most accurate leading longer term stock market and economic indicators ever developed.  The tools were used to identify the market crash in 2008, the peak of the Internet Bubble, and the up-periods in between.

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