DTV - Directv

[thefatbaboon]

HJ,

 

I had a lot of the same thoughts/concerns as you when I started looking at DTV.  Which can be summarized simply as:

 

Every household needs broadband because internet is like having water and electricity.  So broadband must be advantaged when it comes to selling tv/video.

 

I haven't got a good answer for you as to why DTV continues to do fine if you're looking for profound, forward looking "technology" predictions.  But what I can say is that for years cable has been losing video subs and dbs has been gaining subs (admittedly only a tiny bit recently). Which is totally bizarre.  It should be the opposite.

 

So i decided that selling video/tv to customers is probably not about huge tech cycles and obsolescence but it's just what it says on the tin: selling tv/video to customers.  Sure it's nice to have bundled services but it's not a huge issue.  Sort of like if your water company merged with your electricity company and sent you a single bill.  Nice.  Convenient.  But it's just one of a number of typical consumer product issues:  quality, service, cost, branding, content, ease of use etc. 

 

But you might say it's not just the bundled bill, but maybe the bundle makes it cheaper for cable to provide tv/video.  As far as I can tell, far from having cost advantages over DBS, DBS is actually more profitable than cable.  It has excellent returns on invested capital compared to cable.  I see no evidence that every home having to have broadband means that Cable cos can sell TV/video cheaper than DBS. ( Furthermore, I think - but I'm no tech expert - DBS is better positioned to respond to greater data demands from new tech like 4K or whatever, relatively cheaply and quickly.) 

 

In the end, my investment thesis was essentially to respect the sub numbers rather than my tech cycle prognostications.

 

[DCG]

HJ,

 

I had a lot of the same thoughts/concerns as you when I started looking at DTV.  Which can be summarized simply as:

 

Every household needs broadband because internet is like having water and electricity.  So broadband must be advantaged when it comes to selling tv/video.

 

I haven't got a good answer for you as to why DTV continues to do fine if you're looking for profound, forward looking "technology" predictions.  But what I can say is that for years cable has been losing video subs and dbs has been gaining subs (admittedly only a tiny bit recently). Which is totally bizarre.  It should be the opposite.

 

So i decided that selling video/tv to customers is probably not about huge tech cycles and obsolescence but it's just what it says on the tin: selling tv/video to customers.  Sure it's nice to have bundled services but it's not a huge issue.  Sort of like if your water company merged with your electricity company and sent you a single bill.  Nice.  Convenient.  But it's just one of a number of typical consumer product issues:  quality, service, cost, branding, content, ease of use etc. 

 

But you might say it's not just the bundled bill, but maybe the bundle makes it cheaper for cable to provide tv/video.  As far as I can tell, far from having cost advantages over DBS, DBS is actually more profitable than cable.  It has excellent returns on invested capital compared to cable.  I see no evidence that every home having to have broadband means that Cable cos can sell TV/video cheaper than DBS. ( Furthermore, I think - but I'm no tech expert - DBS is better positioned to respond to greater data demands from new tech like 4K or whatever, relatively cheaply and quickly.) 

 

In the end, my investment thesis was essentially to respect the sub numbers rather than my tech cycle prognostications.

 

 

DTV also has a strong-hold on the business market, partially due to their sports programming contracts.

[HJ]

 

I haven't got a good answer for you as to why DTV continues to do fine if you're looking for profound, forward looking "technology" predictions.  But what I can say is that for years cable has been losing video subs and dbs has been gaining subs (admittedly only a tiny bit recently). Which is totally bizarre.  It should be the opposite.

 

 

I'm not looking for a technological revelation, but simply something reasonable to resolve the complete absence of anybody in my circle who subscribe to satellite TV and the obvious healthy reported subscriber count by the satellite TV companies. 

 

I have one conclusion, which is geography.  The cable TV business is run by different companies in different geography.  I live in a high density population area, which is historically served by Time Warner.  And I have to imagine that ROIC is much better in a densely populated area than one that's not (primarily because of service cost, you dig up the ground once to lay a pipe into a building, and you can serve 500 -1000 household at once.  The whole truck roll logistics is easier to manage, maintenance is cheaper, etc, etc.)  That's the reason why for rural areas in Alaska, for example, GNCMA need to apply for Federal money to make their capex work on a rate of return basis.  The same reason why the initial FIOS roll out went after the geography that they did, or Google Fiber picked the cities that they did.  So I suspect the reason cable has lost customer is not necessarily that they don't compete as well against satellite, but simply fiber  has picked their most attractive geography to attack.  Several years ago, John Malone has made comments that Time Warner can push their cable speed more aggressively (vs. Comcast).  I take from this statement that for the less competitive area, Cox communication territory, or Mediacom territory, or Charter territory, or Cablevision, territory, the cable companies has not been as aggressive in pushing cable modem speed, or the bundled offering or roll out TV everywhere initiatives.  I suspect that's where DirecTV and DISH has had the most success. 

 

But even competition in those area is getting tougher.  The cable companies are building out even to the rural areas (once again witness GNCMA federally subsidized capex budgets).  And I know that Time Warner is upgrading my building to 15Mbps.  These technology will be available to the Cox and Mediacom of the world, and it's obvious that a recapitalized Charter with Liberty running the show will be much more aggressive competing in their territory. 

 

What I was hoping to be able to get any evidence of, is that even in a reasonably competitive area, DTV has its loyal subscribers, who are there simply because they prefer their TV service than those offered by their competitors', maybe it's because of a better bundled content, NFL Sunday ticket, whatever.  That household just seemed to be pretty hard to find in New York city.

[HJ]

DTV also has a strong-hold on the business market, partially due to their sports programming contracts.

 

I can definitely see that, but in the grand scheme of things, out of 20+MM US subscribers, how big can the business market be? 

 

DCG, from previous messages, I know that you were a previous employee, so feel free not to respond if it makes you feel uncomfortable answering this line of question, but is DTV's subscriber base a pretty well dispersed across the different cable territories?  In very rough terms, how many of their subscriber do you reckon don't really have a high quality alternative?  Internet speed still lingering 500kbps for example, so can't do much video stuff, or a cable offering that's doesn't have VOD, for example?  Is there any particular website or literature that you'd recommend me to dig for a better understanding of the competitive dynamics out there?

 

Thanks in advance.

[ItsAValueTrap]

( Furthermore, I think - but I'm no tech expert - DBS is better positioned to respond to greater data demands from new tech like 4K or whatever, relatively cheaply and quickly.)

I always thought it was the other way around... DTV is poorly positioned for a higher-bandwidth Youtube/Netflix world.

[HJ]

( Furthermore, I think - but I'm no tech expert - DBS is better positioned to respond to greater data demands from new tech like 4K or whatever, relatively cheaply and quickly.)

I always thought it was the other way around... DTV is poorly positioned for a higher-bandwidth Youtube/Netflix world.

 

When you run a broadcasting system, to generate greater data throughput, you just need to figure out how to do it once from the satellite.  Maybe for double the throughput, you just put another satellite up there.  In a pure IPTV on demand world, on the other hand, if 1000 different household wants to watch the same show, except at different time, the same data now travels through the network 1000 times.  So to to double the data throughput, the technical demand on the system is 1000 times that, a significantly more difficult problem to solve. 

 

It's ultimately the same issue driving the Netflix / Comcast squabble, as well as complaints from the infrastructure provider that at peak hours, Netflix is up to 1/3 of all internet traffic.  But technology is improving dramatically.  As short as 10 years ago, people thought 1.5Mbps is all the speed they'll ever need.

 

Technologically, satellite TV is a 1980's technology, competing with a 1960's cable technology, if all TV signals were simple linear broadcasting.  When you add in the internet interactivity, that's when cable becomes much more attractive.

 

 

 

 

[TeddyLampert]

Hope this doesn't add noise to the thread. I'm starting to look into the competitive dynamics between the OTT, cable, and DBS providers with a view towards understanding DTV better.

 

Here's an interesting article describing fragmentation in the video industry and how it isn't going to get better soon due to 10-year lock ups for movie content:

 

http://www.nytimes.com/2014/03/27/technology/personaltech/why-movie-streaming-services-are-unsatisfying-and-will-stay-so.html?src=rechp

 

Here's one about Comcast looking to transform itself into a technology company

 

http://www.nytimes.com/2014/03/29/business/a-vision-for-comcast-in-a-post-merger-world.html?src=rechp&_r=0

 

 

 

 

[sethatk]

http://m.seekingalpha.com/article/1286811

[Aurelius]

Longleaf Partners exiting DTV:

"During the quarter we exited DIRECTV (DTV), a highly successful core holding in our U.S. and Global accounts for over a decade."

"We followed our discipline to exit when the price reached our appraisal, leaving no margin of safety in the stock."

 

http://www.gurufocus.com/news/255861/longleaf-partners-comments-on-directv

[Yours Truly]

@WSJ: Breaking: AT&T has approached DirecTV, the second biggest pay TV operator, about a possible acquisition.  http://t.co/UpqsjzSrC5

[Zorrofan]

link to Yahoo report on possible deal.....

 

http://finance.yahoo.com/news/t-approached-directv-possible-acquisition-043100561.html

 

cheers

Zorro

[MrB]

$80.00 shredded  ;D

[constructive]

Right now I see VZ as having a more attractive growth profile than T. Could a DTV acquisition change that?

 

DTV is well run - I would worry about losing management talent, losing the ability to buy back shares, projected synergies not materializing, etc.

 

I guess a ~17x takeout multiple would be OK, but I'll be a little disappointed not to keep owning DTV.

 

Kind of funny that DISH is up even more sharply today. This news suggests a much lower likelihood of DTV - DISH merger or T - DISH acquisition. It also seems unlikely that VZ will buy DISH (at least until they digest VZW for a few years), or that S - TMUS have any interest in DISH when merging with each other makes far more sense.

[Yours Truly]

Right now I see VZ as having a more attractive growth profile than T. Could a DTV acquisition change that?

 

DTV is well run - I would worry about losing management talent, losing the ability to buy back shares, projected synergies not materializing, etc.

 

I guess a ~17x takeout multiple would be OK, but I'll be a little disappointed not to keep owning DTV.

 

Kind of funny that DISH is up even more sharply today. This news suggests a much lower likelihood of DTV - DISH merger or T - DISH acquisition. It also seems unlikely that VZ will buy DISH (at least until they digest VZW for a few years), or that S - TMUS have any interest in DISH when merging with each other makes far more sense.

 

I'd be fine if both do not materialize so that they can improve on efficiencies in Latin America (esp w/World Cup/Olympics coming up) and continue share buybacks at a  rate of 6-8% of shares o/s per year.

 

Are you suggesting a take out price in the $100's?

[LowIQinvestor]

As a longtime shareholder of DTV, I would expect DTV would want at least $100 a share.

 

Got to be north of a 15 PE on 2014 Earnings?

 

[LowIQinvestor]

Something is about to happen

[fareastwarriors]

Something is about to happen

 

 

probably a formal bid is imminent?

[Yours Truly]

"Dow Jones reports DTV is talking with Goldman and other advisors to weigh a possible merger with AT&T"

 

The report led shares to spike shortly before the close.  The WSJ previously reported AT&T has approached DTV about a deal"

[fareastwarriors]

DirecTV Working With Goldman, Advisers on Possible AT&T Deal

 

Move Is Sign Satellite Broadcaster Serious About Combination

 

http://online.wsj.com/news/articles/SB10001424052702304655304579548162578579216?mod=WSJ_hp_LEFTTopStories&mg=reno64-wsj

[Yours Truly]

Would be nice if AT&T purchased DirecTV only to later spin-off the Latin American assets

[jeremykgold]

Would be nice if AT&T purchased DirecTV only to later spin-off the Latin American assets

 

+15

[LowIQinvestor]

deal this weekend!?

north of $100 on Monday!?

[Yours Truly]

deal this weekend!?

north of $100 on Monday!?

 

Yikes, I took some profits off the table yesterday as this deal may or may not happen.  It's very speculative at the moment.

[bmichaud]

DTV is currently trading a little over 15x earnings. This is one the least speculative take out situations I've seen, which is confirmed by Ergen's comment that ATT could "easily pay triple digits" and still extract value for its shareholders.

 

I just wish DTV would balls up and approach Dish about a take out. This ATT is such an effing waste of a strategic partnership.

[thefatbaboon]

bmi,

 

I think DTV and Dish have been trying to get a deal done.  But there are two things that are difficult to navigate.  One, the value of Charlie's spectrum.  He wants to get $20bn of value for spectrum.  And two, control of the merged entity.  Charlie owns 52% of Dish (and +80% of the votes).  A stock merger would see Charlie in control of the merged entity.  So, how does Directv buy Dish without effectively being bought?  The only way is a mainly cash bid.  But a mainly cash bid means paying up for spectrum and it means that Charlie would want a sweet offer to compensate for taxes, super-votes and giving up his lives work.  And a rich cash bid is difficult for Mike White because he can't raise that much debt safely and I doubt he wants to spend $20bn on spectrum.

 

Regarding the ATT angle.  I really have no idea.  Wish I understood the combinatorial possibilities (if any) between satellite, DSL and wireless technologies.  Can they be combined?  So that satellite can take over the heavy downlink of video?  If they can, maybe buying a satellite company with 20m US customers and 18m LA customers for $60bn is way smarter way of building downlink capacity than buying a bunch of undeveloped spectrum.  No idea.