DTV - Directv

[Yours Truly]

Sorry if this has been posted.

 

CEO White ( and the Berkshire boys, according to White) does not believe the internet is a threat.

 

( This seems like one of the few BRK holdings which is contrarian in nature. There isn't a groundswell of skepticism over the futures of IBM, KO, and WFC; but there sure IS about the future of pay TV.

 

http://www.bloomberg.com/news/2013-05-06/directv-spurns-dish-s-view-that-wireless-is-satellite-tv-savior.html

 

I believe its the recurring nature of the cash flow in conjunction with the excellent capital allocation strategy and hidden potential in the Latin American markets that have intrigued some big value investors (Weschler, Southeastern, etc)

 

2014 should be a good year with all the cap-ex stuff out of the way and olympics/world cup on the horizon.. IMO, the big question mark that remains is the contract with the NFL but I trust management will do whats right

[racemize]

Ok, simple question here: Why does Dish have a P/E of 18 and DTV a P/E of 12, given that Dish has growth troubles?  Is it just all the debt?

 

or perhaps the possibility of loss of NFL?  But even in that case, the long-term prospects of DTV seem better than Dish?  I'm sure I'm missing something here.

 

Edit: It looks like it is the spectrum/deals that Dish was trying to do--unless there are different opinions around?

[racemize]

Interesting article on the death of TV:

http://www.businessinsider.com/cord-cutters-and-the-death-of-tv-2013-11

 

This is my main concern with all current content delivery companies (cable or satellite).

 

[bmichaud]

Once Internet goes to usage-based pricing as Malone suggests, and Netflix hikes its prices as Brett Icahn suggests, we shall see how many people continue to cut the cord.

 

Plus the "90 percent" that has had its real median wage decimated in the last fifteen years really has nowhere to go but up, so that should provide a tailwind for TV affordability.

[constructive]

Ok, simple question here: Why does Dish have a P/E of 18 and DTV a P/E of 12, given that Dish has growth troubles?  Is it just all the debt?

 

or perhaps the possibility of loss of NFL?  But even in that case, the long-term prospects of DTV seem better than Dish?  I'm sure I'm missing something here.

 

Edit: It looks like it is the spectrum/deals that Dish was trying to do--unless there are different opinions around?

 

We're in a risk-on market. Instead of applying a discount for risk, people are seeking it out and paying extra.

[Guest wellmont]

Ok, simple question here: Why does Dish have a P/E of 18 and DTV a P/E of 12, given that Dish has growth troubles?  Is it just all the debt?

 

or perhaps the possibility of loss of NFL?  But even in that case, the long-term prospects of DTV seem better than Dish?  I'm sure I'm missing something here.

 

Edit: It looks like it is the spectrum/deals that Dish was trying to do--unless there are different opinions around?

 

correct. the specturm is a non cash flowing asset at the moment. but it is extremely valuable. the actual video business of DISH is not being valued as high as DTV. it just looks that way until you drill down and discover the spectrum. Dish also has more immediate value creation potential as either a seller or an acquirer. DISH is managed by a rational, fabulous owner operator. I think in a perfect world ergen would sell DISH to DTV and spin off "spectrumco" and try to take control of T-mobile.

[MrB]

Li Lu in Aereo. Interesting.

 

http://www.businessweek.com/news/2014-01-07/aereo-raises-34-million-to-help-online-television-service-grow

 

[Yours Truly]

Ok, simple question here: Why does Dish have a P/E of 18 and DTV a P/E of 12, given that Dish has growth troubles?  Is it just all the debt?

 

or perhaps the possibility of loss of NFL?  But even in that case, the long-term prospects of DTV seem better than Dish?  I'm sure I'm missing something here.

 

Edit: It looks like it is the spectrum/deals that Dish was trying to do--unless there are different opinions around?

 

Other reasons for differences in valuation perception: high debt ratios, volitile Latin American exposure, uncertainty of NFL Sunday Ticket, no exposure to wireless

 

Either way, I'm not complaining as share shrinkage will remain an ongoing policy and my existing slice gets larger and larger

[jay21]

I'm starting to like this idea.

 

Article from Oct 2013: http://www.bloomberg.com/news/2013-10-10/malone-doesn-t-see-cablevision-as-target-in-cable-merger-push.html

 

"The billionaire [Malone] owns about 5 percent of DirecTV shares, making him the largest individual holder."

 

Article from December 2012: http://www.multichannel.com/distribution/steering-directv-right-qa-mike-white/140895

 

"MCN: Do you see a point where net new subscribers go negative?

 

MW: We’re not planning it. I want to be optimistic that you’re going to see some improvement in housing, and that is going to help the industry as a whole. That is going to be good for our whole industry and we hope to get our fair share of that business. We’re managing our business to be sustainable. We’re not trying to not grow. I want to grow as aggressively as I can. But it needs to be responsible growth. It’s just [that] the world has changed and we are trying to adapt our business models to the new realities.

 

At the same time we’ve got a tremendous growth engine in Latin America. So we’ve got a unique portfolio and frankly our EBITDA multiple is so low and our free cash flow yield is so high, that it’s hard for me to not see a very attractive share buyback strategy to continue for the next several years.

 

To me I think it’s a very attractive business for shareholders where we think we can grow free cash flow per share at high teens and maybe even 20%, but certainly mid-to-high teens, for the foreseeable future."

 

"We’re focused on building our company and when we buy back stock we have a very high bar because of the return we get from buying back shares."

 

 

[compounding]

Hey all, been lurking for a while. Thought I'd drop a line and say thanks for the discussions on the forum that I've been learning immensely from recently and add a thing or two that I think hasn't been mentioned regarding DTV.

 

Nice interview from dec 2012, thanks for posting that. Management seem very opportunistic and shareholder friendly to me with always using the buybacks as a benchmark for capital allocation. Managements compensation is also tied to growing free cash flow in the long term.

 

Also some interesting things happening recently with the Weather Channel dispute where DTV refused to pay an increase of one cent per subscriber a month and have for now dropped the channel. White has repeatedly talked about rising programming costs being the biggest issue in the distributing industry and I guess this is the way they are trying to manage that at the moment, by not letting replacable channels get away with increases in content cost. Looking back to that interview he also talked a bit about cutting costs through service calls and those numbers have been going way down according to the Investor Day from December, which is recommended if you haven't seen it by the way. A lot of information on LADTV and how they are managing growth over there.

 

And yeah, it's interesting that you've got some really talented long term investors in the mix. You mentioned Malone, obviously BRK are big investors too, and Lou Simpson's got a decent stake too (and has bought more seven of the last eight quarters). 

 

Thanks

[Yours Truly]

I don't believe Malone any shares in DTV anymore.. I've checked CapitalIQ and couldn't find him listed anywhere

[rogermunibond]

As discussed above in Note 15, on June 16, 2010, we completed the Malone Transaction, which resulted in the reduction of the Malones' voting interest in DIRECTV from approximately 24% to approximately 3% and Dr. Malone's resignation from our Board of Directors.

 

From the last 10-K

 

LMCA is the holder of the DTV stake, but may have sold that down completely, since 2010.

[racemize]

As discussed above in Note 15, on June 16, 2010, we completed the Malone Transaction, which resulted in the reduction of the Malones' voting interest in DIRECTV from approximately 24% to approximately 3% and Dr. Malone's resignation from our Board of Directors.

 

From the last 10-K

 

LMCA is the holder of the DTV stake, but may have sold that down completely, since 2010.

 

LMCA does not list DTV in its list of assets.

[saltybit]

Recent post from the Brooklyn Investor about DTV

 

http://brooklyninvestor.blogspot.com/2014/03/directv-dtv.html

[gurpaul88]

http://www.bloomberg.com/news/2014-03-26/dish-s-ergen-said-to-approach-directv-ceo-white-about-merger.html

[Guest wellmont]

it seems to me that netflix hulu and youtube are new distribution channels that weren't around last time they tried this. new ball game!

[constructive]

it seems to me that netflix hulu and youtube are new distribution channels that weren't around last time they tried this. new ball game!

 

They get eyeballs but not profit share. DTV + DISH have more profit share than they did back in 2000.

 

On the other hand, if CMCSA + TWC goes through, it seems pretty tough to deny the smaller DTV + DISH.

 

If they do merge I hope Charlie splits off the mobile stuff. I want to own pure play satellite TV, not unused spectrum.

[thefatbaboon]

I'd also hope that the DTV board and management stay in control of the merged entity.  Been very impressed with Mr White.

[SwedishValue]

Am I stupid for not seeing the big news here? I mean, White has been talking about a merger making sense for years now, and they have said that they continously have been looking at it. It makes perfect sense to merge, but the question has always been if they will be allowed to. I guess what I'm saying is I don't understand how the news of today made the company a couple of billion more expensive.

[LowIQinvestor]

As I shareholder for a number of years, I would love a merger.

 

"The Indirect Approach for a Dish Deal"

http://online.wsj.com/news/articles/SB10001424052702304688104579463761822354276

 

"Dish may think it will be easier to get a deal past regulators while they are also weighing the merger of Comcast CMCSA -0.62%  and Time Warner Cable. TWC -0.28%  The satellite companies could argue that getting together would help them better compete against such a cable behemoth. Even if that doesn't fly, a Dish-DirecTV bid could inspire regulators to reject both deals, stymieing the competitive threat from the cable merger. And if regulators approve the latter while rejecting a satellite deal, Dish and DirecTV would end up roughly back where they started."

[Liberty]

http://oraclefromomaha.wordpress.com/2014/03/27/directv-update-the-future-of-the-pay-tv-industry/

[thefatbaboon]

Does anyone know why DTV never got into the radio business or at least bid on Sirius when it was nearly bust?

[jouni1]

it seems to me that netflix hulu and youtube are new distribution channels that weren't around last time they tried this. new ball game!

 

They get eyeballs but not profit share. DTV + DISH have more profit share than they did back in 2000.

 

On the other hand, if CMCSA + TWC goes through, it seems pretty tough to deny the smaller DTV + DISH.

 

If they do merge I hope Charlie splits off the mobile stuff. I want to own pure play satellite TV, not unused spectrum.

profit share! is this sustainable? i mean don't you need eyeballs for profit share? what if the others get all the eyeballs?

[HJ]

I like the story a lot, for similar reasons as listed in all these previous posts, attractive ROIC, etc.  However, aside from Latam, THE question to answer here is how does a pure play TV broadcast model shake out against the cable companies and other OTT providers like Netflix.  They maybe competitively advantaged, but if they are competitively advantaged on buggy whip, well, it may not be worth as much.

 

On the one hand, after listening to all their previous investor day webcasts and reading annuals, I want to say that they are doing just fine, just look at the subscriber count, the churn comparison, etc.  On the other hand, I look around myself personally, and I don't know of a single person in my surrounding who is a subscriber to satellite TV.  Not my family, not my friends, not the friends of my family, not a single one, zero.  Part of it is that this is a heavily New York city concentrated crowd.  When I looked around to see if I can bring in the service just to try, I was told that my apartment building won't allow it, while FIOs and Time Warner are both available.  So it's quite difficult for me to personally evaluate the service against the alternatives, and to reach any meaningful conclusion. 

 

The question from me is how many of DirecTV's subscriber are in these truly heavily competed neighborthoods?  Is it the case that most of their subscriber are in say, rural communities where the cable build out is not complete?  And if the cables eventually went there, (guys like GNCMA building out Alaska, for example), that they eventually lose customers?  I think I heard from one of their webcasts that something like 75% (or was it a lower number) of their customers hook up their satellite box with the internet, which implies that those are in the competed areas.  But why are those customers doing that?  With Comcast launching Xfinity, FIOs integrating VOD, DVR offerings, and the cable internet speed continuing to ramp up so that OTT quality is closer to HDTV all the time, is the Satellite TV experience continuing to be that differentiated for those who subscribe?  Are there any subscribers here who can personally relate some of their experiences?

 

Just on the OTT vs. broadcast TV thing, I'm also not sure that technologically OTT is quite ready for full scale competition against broadcast TV.  I read statistics somewhere (I think it's from Comcast) that some nights Netflix accounted for 1/3 of all internet traffic.  Yet a blockbuster shows like House of Cards for Netflix is not even among the top 10 series as ranked by Nilsen, way behind some of the HBO shows, and other broadcast TV shows.  So imagine all the top 10 series go the way of IPTV, the bandwidth requirement on the entire network must be quite overwhelming.  Is the network really ready to handle that?  The recent Netflix / Comcast squabble hint at that problem for OTT, but I don't know if there are literature anywhere for one to get a better understanding on that dynamic.  Any suggestion would be appreciated.

 

[constructive]

it seems to me that netflix hulu and youtube are new distribution channels that weren't around last time they tried this. new ball game!

 

They get eyeballs but not profit share. DTV + DISH have more profit share than they did back in 2000.

 

On the other hand, if CMCSA + TWC goes through, it seems pretty tough to deny the smaller DTV + DISH.

 

If they do merge I hope Charlie splits off the mobile stuff. I want to own pure play satellite TV, not unused spectrum.

profit share! is this sustainable? i mean don't you need eyeballs for profit share? what if the others get all the eyeballs?

 

On the cost side, broadcasting is a lot more physically efficient than video on demand. And satellite TV is also more efficient than cable in the current market (this could change as demand shifts from broadcast to VOD).

 

On the revenue side, they offer different, more valuable content than video on demand. Eyeballs watching cat videos or old movies aren't worth anywhere near what eyeballs watching Breaking Bad or NFL games are worth. People are willing to pay a premium for DTV service for a reason.

 

So yes I think they have a sustainable competitive advantage.