Sunday Ticket 'Part And Parcel' Of DirecTV Brand: Chang
But Analyst Moffett Says DirecTV Will Have To Lift Subscriber Total To Make $4 Billion Rights Extension Pay Off
Mike Reynolds -- Multichannel News, 3/24/2009 12:22:04 PM
Derek Chang said that having Sunday Ticket on its roster is integral to DirecTV in explaining the satellite leader's pricey extension of the National Football League out-of-market package.
"It's something that's part and parcel of our brand," said DirecTV's executive vice president, content strategy and development of the pay-per-view package the satellite leader has held exclusively since 1994.
"If the opportunity presented itself we determined that it was something we definitely wanted to keep, provided it was doable," said Chang of the renewal, spanning the 2011-2014 NFL seasons.
Doable evidently fell into the price range of about $1 billion per season, a 43% rise from the $700 million DirecTV is paying per annum under its current deal that expires with the 2010 campaign.
The new contract, negotiating momentum for which Chang said began to heat up late last year, also affords DirecTV with a chance to expand its base. Kicking off in 2012, the top satellite operator will be able to sell a Sunday afternoon offering of games to broadband subscribers that can't receive DirecTV. The satellite leader will aim this broadband game service at those who reside in multi-unit or its customers with a poor exposure to its signal in the southern sky.
"Our first desire is to sign up more subscribers to DirecTV and add existing subscribers to the Sunday Ticket," said Chang. "But this will give us access to people who live in apartment buildings and other multi-unit dwellings who can't receive DirecTV. We'll work with our partner the NFL to see how it can be beneficial for both of us."
Under the current contract, broadband coverage of the games is limited to those who purchase Sunday Ticket and then pay an additional $99 for the broadband Super Fan package.
Conversely, the new contract enables the NFL to market what has become a popular application from the Sunday Ticket to cable, satellite, telco, wireless and Internet providers. The league, also beginning with the 2012 campaign, will proffer a "Red Zone Channel," which affords live look-ins to games when teams move into the scoring zone, inside the 20-yard-line, as well as highlights and fantasy information. DirecTV has presented its "Red Zone Channel" for the past four seasons.
"There are risks with everything," conceded Chang, who called the Red Zone Channel, "a compelling product, but not a full substitute for the Sunday Ticket. It's a matter of co-existence and we'll see how it works out for everybody."
Chang declined to discuss financial considerations of the deal, but Sanford Bernstein cable and satellite analyst Craig Moffett, in a research note published today, said DirecTV will have to lift its game with subscribers to make the new deal pay off.
Moffett estimated that Sunday Ticket currently tackles about 2 million subscribers paying about $300 per season, for about $600 million in direct revenue annually. Moffett calculated indirect revenue -- from DirecTV monthly fees overall and DVR revenue, among other sources -- as being "perhaps 40% greater than direct subscription fees" to Sunday Ticket.
Considering an average price of $4 billion to $4.5 billion for the term of the four-year contract extension, Moffett wrote that "assuming a price increase from $300 to $350 for the 2 million current subscribers by 2011, and further assuming $80 monthly non-NFL monthly ARPU, DirecTV would need to acquire (or retain) about 400 to 450K incremental subscribers by 2012 who are solely attributable to the NFL Sunday Ticket package in order to break even on the contract."
Those totals exclude any impact from the broadband or mobile offerings under the new contract, according to Moffett.
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