DirecTV Update & The Future of the Pay-TV Industry















So to sum it all up:











       DirecTV Model





  1. I am a avid reader of your blog. I also own DTV personally, same as you, I bought at mid to high $40s, and sold 3/4 of it at low to mid $60s. Kind of a mistake due to lack of conviction too.




    1. I find SIRI attractive but I think you may be able to get it even cheaper via LMCA. I haven’t crunched the numbers for a while but LMCA likely still trades at a 5% – 10% discount to NAV. If it’s still at a NAV discount then you get a situation where you potentially get the benefit of a double buyback (both at SIRI the operating entity and also at LMCA the holdco), as long as LMCA doesn’t sell into any future SIRI repurchases. I don’t think Maffei wants to sell any more SIRI given how much it’s dropped and the current valuation (high teen multiple over FCF for a solid double digit grower, still below leverage target).

      One issue with SIRI is that it’s currently over-earning. As you pointed out the FCF/EBITDA conversion is abnormally high since they are using their NOLs to shield income taxes. But again the NOL is huge relative to this business’s earnings so they should be able to run tax-free for a very long time.

      I can see a lot of parallels between SIRI today and DTV in 2006, except the case might be even stronger with SIRI given its secular growth tailwind and stronger competitive position. I think SIRI also still operates with untapped pricing power, some of which has been unlocked in the past two years but they should still be able to keep raising prices at a few hundred bps above inflation for a while.

      Another thing that slightly bothers me is that SIRI will be borrowing a ton of money for a pretty long period of time to fund at least a portion of the buybacks. An interest rate spike would be bad news.

      Richard what do ya think?


    2. So a better way to value SIRI is to put a multiple on its theoretical after tax FCF, which will probably be something like $800 – $900 mil in 2015, then add the PV of the NOLs to it which is around $2 billion the last time I checked.

      If you look at it that way, the market cap is 20B; take out 2B in PV(NOLs) it’s $18B, so the stock is selling for something like 20 x to 22 x 2015 FCF. That doesn’t look cheap but I think given the top-line growth potential (mid single digit sub growth + mid single digit price increases), margin expansion opportunities, SIRI at 20 x or a 5% FCF is undervalued, but not by THAT much.

      If LMCA trades at a NAV discount (suppose 10%), then you can effectively “create” (damn I hate pretentious Wall Street jargon) a cheaper levered version of SIRI by buying LMCA and shorting LMCA’s other public holdings. Some of the most important pieces like Charter will be used to form a new tracker so post-transaction SIRI will be relatively isolated anyway.

      Currently I think I have better opportunities to pursue but I could crunch the numbers if SIRI drops to $2.80 or something like that.


    3. Hi Brian, thanks for your question. My quick take on SIRI is that I would view it in a similar lens to DTV – a scale-driven business that relies on providing exclusive content that no other competitor can match. Similar to DTV, SIRI should be able to generate the highest customer lifetime (LTV) – the net present value of every subscriber – relative to competitors given its scale. In terms of an entry point I would mostly agree with Steven and try to pick it up somewhere below $3.00, but to each his/her own.


  2. I am trying to wrap my head around satellite technology. Let’s operate under the assumption that Pay TV does actually shift to a more on demand/two way type system, which should theoretically hurt DTV. Can satellites be re-purposed easily? Is there another service that DTV’s satellites can provide other than Pay TV? Same question for SIRI (although maybe SIRI has an advantage as there is a trend towards cars demanding more data, which hopefully SIRI technology can provide).

    Also, I think NFLX is an interesting company to study. I think people have them in mind when they think of unbundling and OTT, but they are/were essentially a bundler. I think that was the push towards original content for them. If OTT becomes prevalent, a service like NFLX doesn’t seem to have a place as I imagine content providers would stream directly to consumers. Why have NFLX bundle your content and make a profit? It will be interesting to see if they can continually launch new shows and become a content provider and what their role in the marketplace will be.



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