Investing in a Company Anthony Romero MGT 521/Management April 16, 2012 Gary Maxa

Investing in a Company
DirecTV is the leader of providing digital television entertainment services in the United States. The satellite provided service is also available through its subsidiaries in other parts of the world, such as Brazil, Mexico, and Latin American countries. There are 19.88 million DirecTV customers in the United States and about 11.88 million customers in Latin America. DirecTV has been a successful company reporting revenues of $7.46 billion during the fourth quarter of 2011. Being the top provider of television service, DirecTV possesses a large amount of strengths, but there are also a few elements impacting DirecTV’s competiveness (Directv.com, 2012).
Strengths
DirecTV gets its television signal via satellite. This allows them to expand their service to out of range markets that other television providers cannot reach. According to DirecTV, its company has 28 million customers in Americas. Additionally, it is the largest supplier in the United States of DTH digital television service and the second largest supplier of multi-channel video programming distribution (MVOD) industry. In 2010, the company did a study that determined 95% of television users in the United States were familiar with the DirecTV brand name. This gives the company a big advantage when attracting new customers. Furthermore, it interests other technological markets to create possibly a partnership with DirecTV (Datamonitor.com, 2011).
DirecTV offers from a wide range of different programming but television entertainment is the only service the company presents. There are competitors who offer television service that is available with a package to include home phone and Internet services as well. Because DirecTV is the leading provider of digital television service, it attracts other companies to want to work with them. Companies such as CenturyLink have partnered up with DirecTV to offer TV, home phone, and Internet in a bundled package. If a customer chooses that option he or she would get a bundled discount from both DirecTV and CenturyLink. There are also a variety of other companies who work with DirecTV to offer the same type of services.
DirecTV is available in most markets around the United States, and it entails a large customer base. This gives the opportunity to stabilize the economy in such areas by providing jobs for customer service, equipment purchasing, installation, and repair services. It is convenient for customers to have quick and easy service available in their local market. Furthermore, DirecTV offers job opportunities that allow their customer service representatives to work from home. This encourages a good work environment to promote happy employees. This also creates a positive influence on the company while stabilizing and adding to their large customer foundation.
The programming DirecTV offers is unique and some of it is available for their viewers only. DirecTV offers special sports packages such as the NFL Sunday Ticket. The NFL Sunday Ticket allows customers to watch all the games, even if they are broadcasted outside of their local market. This is a big advantage to diehard fans and contributes to DirecTV’s customer satisfaction. Additionally, DirecTV provides packages that include international languages and channels from other parts of the world. The company satisfies customers by offering special programming that is available only on DirecTV. DirecTV is expanding their company to markets outside of the United States. DirecTV has recorded strong growth rates in Latin America. The company has a favorable competitive edge over the competition in Latin America. Using satellite technology in Latin America has even more of an advantage there than it does in the United States because the competition is not much of a threat. DirecTV’s satellites cover their whole region with cheap rates and uniform technology that provides DirecTV with the ability to upgrade the entire customer base at one time. The company can negotiate with program suppliers on a region-wide foundation instead of a country by country basis. Allowing it to take full advantage of scale and attain discounts that the competitors of DirecTV cannot match. DirecTV’s market is continuing to grow outside of the United States (Datamonitor.com, 2011). Customer satisfaction is means to success in the television industry. DirecTV has scored the highest against the largest cable and satellite TV providers in the nation for customer satisfaction going on 11 consecutive years in the American Customer Satisfaction Index. By providing quality service, DirecTV can keep its current customers happy while obtaining new customers. In competitive markets, customer satisfaction is the most important element to offer (Datamonitor.com, 2011).
Weaknesses
DirecTV has reported high debt in the recent years. At the end of 2010, the company’s long term debt was $10,472 million. This is an increase compared to the $6,500 million that was reported in 2009. The long term debt has been progressing since 2006. The company’s debt is getting significantly larger in recent years (Datamonitor.com, 2011).
Opportunities
There has been an increase on the demand for bundled services. Bundled packages make it convenient when paying bills. It is a more organized process to view all charges and services on one bill. Additionally, companies usually offer a discount to bundle their services with other industries. In 2011, approximately 57% of the American households were classified as multiplay; this means people take more than one type of entertainment or communication service from the same supplier. Referring to business estimates, by the year 2016, 13% of homes in the United States will enroll for quad play packages. A quad play package is a one supplier service that involves a bundled offer of fixed voice, Internet, TV, and mobile voice. This would be four times more than the current number of Americans who subscribe to bundled packages. Bundled services will be developing more in years to come (Datamonitor.com, 2011). Latin America provides DirecTV with many opportunities. Referring to industry estimates, Latin America is expecting an increase in pay TV growth for the next few years. The total amount of DirecTV subscriptions are deemed to increase by 74%. This is from about 35 million in 2010 to 67 million in 2014. The average revenue in Latin America is expected to be close to the highest in the world with about $1 billion accumulation in monthly pay TV funds continuing through 2014 (Datamonitor.com, 2011). There is a demand for online movies, games, and television shows. DirecTV has recently come out with video on demand service. By connecting an advanced receiver to the Internet, consumers can stream movies and TV shows as well as by online games. The industry estimates imply global spending on digital information and entertainment products to increase by 5% to $2.1 trillion and grow up to $2.8 trillion by the year 2015. DirecTV’s entrance into the online video market will compliment top line growth and promotes the company into a high growth new revenue stream (Datamonitor.co , 2011).
Threats
DirecTV’s highest expense is the cost of the content they broadcast. Most of the company’s programming is supplied by independent third parties. Usually, the programming contracts are multiple year agreements and include annual price increases. When the companies negotiate to secure the rights of new programming or to renew an expired contract, the programming providers normally increase the rates they charge DirecTV. Programming cost is estimated to increase at faster rates in the coming years than before because of expensive sports costs and greater retransmission prices for the conveying of local satellites and channels. Usually the price increases are more than the rate of inflation for the same time period. DirecTV is expecting the negotiation process to continue with the independent third parties and presumes the price increases to be crucial and a possible negative impact on the company (Datamonitor.com, 2011). In consideration of DirecTV facing rising cost of their content as well as increasing retransmissions costs to broadcast programming eventually can cause the company to raise the rates for their subscribers. This in time, especially during a struggling economic period can provoke customers to cancel their services. Furthermore, potential new customers may decline to subscribe with the company. If DirecTV does not come to terms when negotiating with the unaffiliated third party, it can choose not to carry that specific program or channel, which can also affect customer growth for the company. Increasing programming rates makes it more difficult for DirecTV to compete with other companies in the industry (Datamonitor.com, 2011). There is fierce competition in the television industry. In recent years, companies from the communications industry have developed advanced technology that competes well with the television market. DirecTV also faces challenges from other satellite and cable services. Companies that provide Internet allow consumers to stream video content through the web to televisions, computers, and cell phones steadily have increased their competition. Cable services can bundle their TV services with Internet and voice services all from the same company, which further enhances competition (Datamonitor.com, 2011). Fiber based television services offered by telecommunications companies have grown significantly. Companies such as AT&T and Verizon developed fiber optic based networks that convey video services in considerable parts of their business region. Fiber optic networks have multiple advantages. They provide higher bandwidth, allowing telecommunications companies to offer more high definition programming content with their bundled packages. These are unique preferences that DirecTV is not currently offering (Datamonitor.com, 2011).
Investing
Deciding to invest in a company is an important decision. Before making this type of decision, it is important to know what the company’s plans are in regard to their future development. DirecTV has potential to grow, especially with the deal they have made with Latin America. DirecTV is also recognized nationwide, which is an advantage over other companies, specifically newer companies in the industry. If DirecTV can continue to offer fair prices and excellent customer service, they are a reliable company to make an investment in.
Wants and Needs An ongoing challenge that DirecTV is facing is the increasing price of the programming content they receive from independent third parties. DirecTV normally has a contract with individual television station providers that exist during specific period. When the contract expires, the companies renegotiate a new contract. The affiliated third parties usually increase the price they are charging DirecTV to broadcast their station. This eventually leads DirecTV to raising the prices on their current and potential customers. If prices increases become too extensive, consumers will look elsewhere for television entertainment. DirecTV needs make a prolonged deal with third party retailers that include a fair price for the programming they are purchasing. If DirecTV is not able to come to an agreement with the other companies, they need to figure out a way to pay the higher cost of the programming without raising the prices on their customers.
Fulfilling Needs DirecTV is performing other traits to compensate for their price increases. The company offers significant discounts to their new customers. This is a good way to introduce their product to consumers who have never experienced it. DirecTV also offers support in most local markets. This is important in achieving customer satisfaction during installation or in the case of technical issues. DirecTV needs to continue to bring in new customers and sustain their current customers to ensure their stakeholder’s needs are met.
Conclusion
DirecTV leads the United States at providing digital television entertainment services. The company has had success by extending their services to other parts of the world such as Mexico, Brazil, and Latin American countries. DirecTV serves almost 20 million customers in the United States and about 12 million in other countries. Continual high revenues in previous years prove DirecTV is a thriving company. If DirecTV can continue to build from their strengths and improve their weaknesses they will maintain their market dominance and be a strong company for years to come.

References

Directv.com. (2012). Directv- corporate profile. Directv- investor relations. ULR investor.directv.com/overview.cfm

Datamonitor.com. (2011, October 14). Directv. EBSCO Publishing Service Selection Page. URL http://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?sid=e7d5b272-68f3-47ef-bad4-49907cac1a2b%40sessionmgr115&vid