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Cable Technology Feature Article

September 26, 2013

DirecTV Looks to Targeted, Niche OTT Service

By Tara Seals, TMCnet Contributor

After participating as a bidder in the recent failed auction of the Hulu online TV service, No. 1 U.S. satellite company DirecTV (News - Alert) is mulling the launch of its very own over-the-top (OTT) video service. CEO Michael White, speaking at the Goldman Sachs Communacopia conference on Wednesday, said that any such launch would be a scaled-down version of what’s in the market today—sort of a Netflix lite.

"You will probably hear more from us when we are ready talk about it," White said to attendees, noting that he could reveal that it would be a targeted service, appealing to a niche audience.

“The U.S. pay-TV market is extremely competitive,” Zacks Equity Research said in an investment note. “In addition to the traditional cable TV and satellite TV operators, telecom giants are also offering fiber-based high-speed video services. In contrast, low-cost online video streaming services have also become very popular especially when the economy is still reeling under fluctuations. We believe that DirecTV also needs to restructure its business model and the decision to start online streaming service is one such step.”

DirecTV, whose stock currently has a Zacks Rank No. 3 (hold), lost 84,000 pay-TV customers in the U.S. in the second quarter of 2013, compared with 52,000 in the same quarter a year-ago. It’s an example of how satellite and cable TV operators are gradually losing to IPTV. Verizon Communications and AT&T (News - Alert) jointly gained 373,000 subscribers in the same quarter for their FiOS and U-verse telco TV offerings.

“DirecTV has undertaken a three-edged strategy for the U.S. market,” Zacks Equity said. “These strategies include streamlining its cost structure through better negotiation with the content providers; introducing TV Everywhere…multiscreen streaming capability on mobile devices (and expanding the penetration of its Genie Whole-Home DVR); and focusing more on becoming a premium brand in the U.S. pay-TV market, targeting the high-end customers who are willing to pay for its costly HD-DVR and interactive services and premium programs even during economic downturns.”

Those comments further the notion that DirecTV will look to adapt its satellite TV platform as the media industry evolves with new technologies. White was more tight-lipped about the prospects of a possible merger with Dish Network (DISH_) to scale both firm's slow-growth platforms and potentially move into the wireless industry.

It’s clear that the traditional satellite model needs to be revamped in order to stay ahead of the digital consumption curve, but White said that consolidation could help its business model significantly, particularly when it comes to achieving a better position with content and media companies, thus allowing it to lower consumer costs.  

"I firmly believe some consolidation would be pro-consumer," White said.

The OTT gambit should stay on the front-burner nonetheless. Right now, large-scale mergers in the TV space are likely to be blocked on antitrust concerns. The Department of Justice for instance denied a merger between DirecTV and DISH Network, the only two nationwide satcasters in the United States, 10 years ago.

Edited by Blaise McNamee

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