DirecTV (DTV), the largest U.S. satellite-television provider, could lose out on more than $600 million in revenue this year if the National Football League cancels the 2011 season, according to analysts’ estimates.
DirecTV’s NFL Sunday Ticket, which allows viewers to watch every NFL game, generated between $600 million and $750 million in subscription revenue last season, said Craig Moffett of Sanford C. Bernstein & Co. The company would have added another $44 million in new Sunday Ticket subscribers this year if it got the same number as last year, he said.
The football programming, which runs $335 per season on top of regular subscription fees and isn’t offered by any other operator, would also cost El Segundo, California-based DirecTV a branding tool for drawing new customers to other television services, diminishing growth in the near term.
“Usually Sunday Ticket brings them a number of new subscribers,” said New York-based Moffett, who has a “market perform” rating on the company’s stock and doesn’t own any. “They are losing one of their biggest marketing draws.”
The NFL said it would shut down the most-watched and wealthiest U.S. sport March 11, after talks broke down over how to divide $9 billion in annual revenue. Both sides are exploring ways to salvage the season, with the league saying it’s committed to mediation and the players’ association filing suit to prevent a lockout.
“We’re optimistic that we will be fine,” Michael White, DirecTV’s chief executive officer, said in an interview March 11. “Our hope is that somewhere between now and the summer, this gets resolved, hopefully sooner rather than later.”
Payment and Credit
The impact of a canceled season on DirecTV’s reported earnings would likely be minimal, according to analysts including Moffett. Though the company would miss out on some revenue, it also wouldn’t have to report expenses for Sunday Ticket, which Moffett estimates are about $1 billion a year.
DirecTV still has to pay for the programming if there isn’t a season, under its contract with the NFL, the company has said. In such a scenario, DirecTV would receive a credit in 2012, though it hasn’t disclosed what the payment or credit will be.
Amy Yong, an analyst at Macquarie Capital in New York, estimates DirecTV will pay about $1.1 billion in rights fees without a season and get a refund of $632 million in 2012. Forty-two percent of the payment is non-refundable, according to a lawsuit the players have filed over television fees.
DirecTV is expected to boost revenue to $26.5 billion this year, from $24.1 billion last year, according to the average estimate of analysts surveyed by Bloomberg. A loss of $600 million in revenue this year would cut the company’s growth to about 7.5 percent, from 10 percent.
Sunday Ticket is “a very important” part of DirecTV’s branding, White said during the company’s third-quarter earnings call last year. DirecTV added 667,000 net subscribers in the U.S. and Latin America last quarter, its highest total in a decade.
If there’s no NFL season, the company has contingency plans in place, said White, although he wouldn’t elaborate on them.
“It’s competitive information,” said Darris Gringeri, a spokesman for the company.
DirecTV fell 63 cents, or 1.4 percent, to $45.34 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has gained 14 percent this year.
DirecTV may lose out on advertising revenue of about $100 million without NFL games, Marci Ryvicker, an analyst with Wells Fargo Securities LLC, said in a Feb. 28 research note. The company’s contract to broadcast NFL games runs through the 2014- 2015 season.
A canceled NFL season would cut into revenue at other television distributors and networks too, said Moody’s Investors Service in a report yesterday. CBS Corp. (CBS)’s CBS Network, News Corp.’s Fox, Comcast Corp.’s NBC and Walt Disney Co. (DIS)’s ESPN broadcast NFL games and will likely see declining advertising revenue from lower-rated replacement programming, according to Moody’s.
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