Why AT&T is pushing DirecTV to renew its NFL deal: It's the broadband potential, analysts say

A year ago, DirecTV (NASDAQ: DTV) chairman and CEO Mike White set off a huge wave of speculation regarding the fate of one of the most coveted programming assets in the pay TV industry when he declared "NFL Sunday Ticket" to be a "mature product."

On Monday, speaking to investors about AT&T's (NYSE: T) proposed $49 billion acquisition of DirecTV, White's perspective shifted dramatically on what will undoubtedly be a very expensive deal to renew the pro football games package. With AT&T requiring DirecTV, as a condition of the proposed corporate marriage, to make a concerted effort to renew "NFL Sunday Ticket," White said he was "optimistic" that an agreement will soon be reached.

It's clear that AT&T is the one pushing the satellite carrier to renew a deal that is set to expire after the 2014 football season. And even a quick look at DirecTV's financial considerations--it'll have to pay the NFL as much as 50 percent more to renew a loss-leader asset that already costs $1 billion a year to license--makes it clear why DirecTV has thought long and hard about making a new deal.

The remaining question: Why does AT&T want "Sunday Ticket" so badly? According to BTIG analyst Richard Greenfield, AT&T's broadband assets give it the opportunity to capitalize on the premium subscription product in a way DirecTV cannot as a stand-alone company.

"It is one thing for a one-way, broadcast satellite video platform to have multi-year exclusive rights to the 'NFL Sunday Ticket.' However, it is quite another for AT&T to have these rights following the DirecTV acquisition," Greenfield blogged. "While its unclear how AT&T could leverage exclusive 'Sunday Ticket' rights across its broadband distribution assets, we have to believe their control of 16.5 million wired broadband subscribers and 58 million wireless smartphone subscribers changes the competitive analysis meaningfully."

DirecTV currently touts around 2 million subscribers to the "Sunday Ticket" package. These subscribers pay as much as  $250 a month to access live broadcast feeds for every NFL game on the Sunday schedule.

"You can't simply base what the deal is worth to DirecTV on price," noted sports media consultant Neal Pilson. "DirecTV uses the package to secure subsribers and to hold on to existing subscribers."

While "Sunday Ticket" was undoubtedly a growth driver amid DirecTV's surge to around 20 million domestic subscribers over the last decade, its ability to expand the satellite company's North American base isn't what it used to be.

Meanwhile, its value has declined amid further expansion of the NFL's programming reach. The league's far less expensive RedZone product--which costs under $10 a month--lets viewers see live scoring drives from all over the league. Basically, it lets viewers skip the potatoes and get right to the steak. Meanwhile, the migration of one game a week to the Thursday night broadcast TV schedule means one less contest a week for "Sunday Ticket" subscribers.

Then there's the renewal cost, which some analysts predict will climb past the $1.5 billion-a-year plateau now that AT&T is pushing DirecTV to make a deal.

As media analyst Craig Moffett noted, "It's a bizarre situation now. The NFL can ask for the moon."

However, a quick analysis of the available suitors on the open market reveals that the NFL hasn't suffered from any shortage of leverage, so AT&T's impact on the negotiations might be marginal, after all.

As Greenfield noted, Comcast (NASDAQ: CMCSA), Dish Network (NASDAQ: DISH), Verizon (NYSE: VZ) and Google (NASDAQ: GOOG) are all standing by to meet the NFL's terms if DirecTV will not. 

"Everyone [else in the market] should be rethinking the importance of these sports rights, not to mention how acquiring 'Sunday Ticket' rights could derail the AT&T-DirecTV transaction."

For more:
- The Los Angeles Times has this story
- The Washington Post has this story
- Reuters has this story

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