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DirecTV is in discussions with the National Football League that could determine the fate of the Sunday Ticket franchise.
Speaking to investors during DirecTV’s second quarter earnings call, chairman and CEO Michael White said talks with the NFL are ongoing. “We’re always in a dialogue with the NFL about how things are going and how we can continue to improve and build the franchise, and we've had those discussions as well this year,” White said. “We continue to have very constructive discussions with the NFL.”
White went on to add that he believed a renewal would be reached before the current contract expires after the 2014 season. “I continue to be optimistic that we’re great partners together and that Sunday Ticket will stay with us for the long haul.”
As is the case with most high-profile sports tent poles, price is the deciding factor in the talks. DirecTV pays $1 billion per year for Sunday Ticket, an exclusive out-of-market package that allows viewers to watch nearly every game on the NFL schedule.
In March, DirecTV chief financial officer Patrick Doyle intimated that the NFL’s fee was too steep, adding that the satellite operator would not be willing to pay a significantly higher rate going forward.
“For us, there’s a point where we’re certainly willing to renew and at some increase that’s reasonable, that we can absorb and continue to pass on to the customer,” Doyle said in a session of the Deutsche Bank media conference in Palm Beach, Fla. “I think, obviously, if it goes above that, we would certainly either think about not carrying it or go nonexclusive.”
If the terms of the league’s most recent renewals are any indication, DirecTV could face a significant price increase if it decides to stay in the Sunday Ticket business. The aggregate jump in rights for NFL TV partners CBS, NBC, Fox and ESPN works out to 76.6 percent versus the costs associated with the 2006-13 deals. All things being equal, a $1.76 billion annual payment is probably too rich for DirecTV’s blood.
That the NFL can command such altitude sickness-inducing rates is a function of the league’s universal popularity. Last season, NFL broadcasts averaged 19.3 million viewers—a little more than two-and-a-half times the size of the average prime-time entertainment audience (7.6 million).
Since Doyle made that earlier statement, DirecTV has been mum on the matter. For his part, White gave greater emphasis to the time remaining on the contract.
“We’ve had a very long and very positive and, I think, mutually beneficial relationship with the NFL,” White said. “And by the way, we’ve still got two more seasons to go on our current deal. We’re, frankly, mostly focused right now on getting ready to launch our new ads and our new promotional offer around NFL Sunday Ticket.”
White added that DirecTV is getting ready to update its Sunday Ticket iPad app with new features designed to appeal to the Fantasy Football crowd.
Should DirecTV punt on the Sunday Ticket rights or choose to sign a non-exclusive deal with the NFL, a rival cable operator is likely to rush in to fill the void. DirecTV has held the rights to Sunday Ticket since the league introduced the package in 1994.
Cable providers aside, Sunday Ticket would also seem to be an alluring acquisition for the likes of Google or Apple TV, although it’s uncertain if NFL owners would approve of getting into bed with one of these “disruptive” technologies.
While there’s no question that Sunday Ticket has been a killer app for DirecTV, the value of the property has eroded somewhat over the past few years. The NFL’s full-season Thursday Night Football schedule has incrementally boosted the odds of finding your favorite out-of-market team on a national TV platform; moreover, the rise of the look-in service NFL RedZone offers a fast-paced, commercial-free experience rivaling Sunday Ticket.
At the midway point in the year, DirecTV boasts 20 million subscribers, up just 0.5 percent versus 19.9 million in the first half of 2012. DirecTV is the nation’s No. 2 multichannel video provider, trailing only cable giant Comcast (21.8 million).
DirecTV’s Q2 domestic revenues grew 5 percent to $5.94 billion.