DIRECTV and NFL Extend $12 Billion Partnership

DIRECTV and NFL have announced an extension to their partnership, cementing another 8 years of NFL action for DIRECTV subscribers. However, the move has come at a price for DIRECTV, with costs rising 50% to $1.5 billion per year – more than the price paid by competitors NBC, Fox and CBS respectively.

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The pay-TV service, which broadcasts to over 22 million subscribers worldwide, offers NFL coverage as part of their NFL Sunday Ticket package, which has proved instrumental in building and maintaining subscriber numbers in periods of prevailing market weakness. Furthermore, the deal is seen as a major factor in the proposed merger with AT&T, with the transaction relying to some extent on the successful tie-up.

The deal gives DIRECTV extended exclusive broadcasting rights for a number of games which aren’t otherwise available, which should secure audience numbers for the duration of the contract. However, given the significantly higher cost price premium, there may need to be package adjustments to counteract the adverse effects on ARPU figures.

The NFL Sunday Ticket package costs $300 per annum, and has attracted around 2 million subscribers. But with such a significant shortfall in revenues to cost, DIRECTV has little alternative but to investigate new ways of charging these services.

The launch of an online streaming package for the games will go some way towards helping, but combined revenues will still be considerably under $1 billion, and the premium paid has to help DIRECTV secure more subscribers in order to pay dividends.

While this might seem like a risk for DIRECTV, it has been suggested that the move for exclusivity will be a major benefit for the company in growing its subscriber base. While there is still capacity in the pay-TV market, new subscriptions can be seen slowing down as more consumers settle on the packages and providers that best meet their needs. With the added bonus of exclusivity over its NFL package, DIRECTV hopes to be able to attract new customers in the round, as well as recouping costs from the purchase of their NFL packages.

Perhaps more crucially, a regulatory filing revealed that AT&T could walk away from their proposed merger if the NFL deal fell through, without penalty. When it comes to justifying the higher price tag, particularly considering the payoff that comes with the completion of the deal, it starts to make much more sense that DIRECTV would be willing to pay so much.

Given the competitive nature of the pay-TV market, assets like NFL exclusivity can carry brand-wide benefits, as well as the narrow direct revenue boost. But with the future of the AT&T merger essentially riding on the conclusion of this deal, it’s no wonder DIRECTV were willing to flash the cash. This is made even more important by the fact that subscriber numbers in both US and Latin American markets are considerably down for the company, with market growth seemingly fixed in a 4% annual rut. With stiff competition and everything riding on the conclusion of this merger, the premium for exclusive coverage could still prove to be money well spent.

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