The Hulu sweepstakes is intensifying, and at least one source claims that DIRECTV (DTV +0.00%) is the leading bidder. Digital journalist Quartz is reporting that the country's leading satellite television provider has the inside track on the winning bid for the TV-centric streaming service provider, and the pairing makes sense.
DIRECTV stock is trading closer to its all-time high than its low these days, but it will face challenges in the near future for which Hulu would come in handy.
DIRECTV isn't just the largest satellite television service in the Americas. It also happens to be the most expensive. Over the past year, the average stateside subscriber has gone from paying $91.99 to $96.05 a month. Its closest rival -- DISH Network (DISH +0.00%) -- commands monthly average ransoms of just $78.54 a month.
A key differentiator for DIRECTV is its exclusivity among satellite and cable providers with the NFL to provide every game during the regular season with its Sunday Ticket package. However, as NFL fees continue to spike, there are no guarantees that the deal will be renewed after the 2014 season. DIRECTV will want to start beefing up its proprietary offerings outside NFL Sunday Ticket, and offering Hulu Plus access to subscribers at no additional cost would be one way to command a premium over similar pay-TV alternatives.
Analysts see revenue at DIRECTV growing at a nearly 8% clip this year and again in 2014. It's a different story at DISH, with those same pros targeting top-line growth in the low single digits. If DIRECTV loses football exclusivity, what will it do to keep people paying up for its service come 2015?
The move would also give DIRECTV a service that it could use to defend itself against Netflix (NFLX +0.11%). It's not a coincidence that Netflix chose Latin America and the Caribbean as its first expansion market outside North America for its streaming service a couple of years ago. DIRECTV is the top dog through Latin America.
It's a different game for DIRECTV in Latin America, as average revenue per user breaks down to just $54.23. Currency fluctuations aside, the annual increases aren't the same in Latin America, as it reaches out beyond the affluent for middle-market customers. We're not at the point where cord-cutting is a trend in Latin America, but DIRECTV doesn't want to be on the wrong end of the digital trend if streaming video becomes a difference-maker. Acquiring Hulu -- and naturally beefing up its Spanish and Portuguese licensed content -- would help it compete with Netflix's platform.
Paying too much for Hulu may sting some potential bidders, but DIRECTV stock would probably move higher if the company does indeed emerge victorious, because it makes tactical sense.
