Market Insight

DirecTV and NFL renew, pulling AT&T merger one step closer

October 02, 2014  | Subscribers Only

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DirecTV will remain the exclusive home to NFL Sunday Ticket for the next eight years in a deal worth a reported $12 billion. This marks a substantial increase in price and duration over DirecTV’s current deal of $1 billion a year on a four year term that is set to expire next year.

The deal also includes expanded rights for the recently announced live streaming service NFL Sunday The NFL Red Zone Channel and NFL Network distribution agreements were also renewed along with TV Everywhere access to those properties.

The pressure for DirecTV to renew NFL Sunday Ticket intensified when there were reports that the NFL had talks with Microsoft and Google for exclusive rights to NFL Sunday Ticket. Not only that, but securing NFL Sunday Ticket became one of the sticking points for AT&T in going through with its DirecTV acquisition. As a result, locking down the deal had become an upmost priority for DirecTV.

Now that the deal is finalised, DirecTV is in a comfortable familiar spot as NFL Sunday Ticket and the rights to out-of-market NFL games has become an important feature and major differentiator for DirecTV for the past 20 years. It has used the package to great success and helps seal them in as a top contender for any NFL fan looking to get a Pay TV subscription.

Our analysis

It was highly unlikely that DirecTV would have chosen not to renew its deal with the NFL for Sunday Ticket, given that its NFL Sunday Ticket exclusive is a significant differentiator. The company has two significant advantages over its wireline competitors, its satellite footprint reaches rural areas not serviced by wireline providers, and its sports exclusives led by NFL Sunday Ticket are a significant draw for sports fans.

While the details of the renewal were not made public, IHS believes that DirecTV will have significant increases in licensing costs to contend with. As the deal will extend another eight years, the company will have to continue to leverage NFL Sunday Ticket as a means to attract and retain subscribers. In 2014, before the beginning of the season, DirecTV offered new customers one year of free NFL Sunday Ticket with a two year subscription commitment.

Churn for NFL Sunday Ticket subscribers is likely significantly lower than that of subscribers not taking Sunday Ticket - this is because DirecTV's regular TV packages are some of the most expensive in the business, IHS estimates that the company's ARPU will be nearly $108 at year-end 2014.

A must-have for its impending merger, the NFL renewal was acknowledged by AT&T as key. The combined company will be among the largest pay TV provider in the USA, with an estimated 27.5 million video subscribers by 2015. The merger will put the company into contention for the spot as the largest pay TV provider in the USA, comparable to the proposed Comcast/TWC entity. 

The renewal is a significant positive for DirecTV which will benefit from eight more years of NFL Sunday ticket exclusivity. However, DirecTV or DirecTV/AT&T customers will have to bear the burden of the cost increases which is said to be $500 million dollars more per year - $1.5 billion total per year - for the duration of the contract. The increase in programming cost associated with the renewal will likely be passed down to subscribers, manifesting in the form of steadily growing ARPU. The question remains whether or not DirecTV's non-NFL Sunday Ticket subscribers will stay in the huddle, or will exit the field.

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