In a bold move that could change cable television, DIRECTV (NYSE:DTV.DL) has blacked out The Weather Channel to its subscribers. The blackout comes as the result of a carriage dispute over the amount paid per subscriber to The Weather Channel's owners Comcast (NASDAQ:CMCSA), Bain Capital, and Blackstone (NYSE:BX). By cutting The Weather Channel out, DIRECTV may have started a war in cable content.
DIRECTV cutting costs for football
DIRECTV has taken one of the most available cable channels off of the air in favor of its newly created Weather Nation. Back in August 2013 , The Weather Channel was available in 99.9 million American homes, representing 88% of total homes. After the loss of DIRECTV subscribers, The Weather Channel will see less subscription revenue. SNL Kagan reports that The Weather Channel collects an average of $0.13 per monthly subscriber from cable providers. The rumors were that The Weather Channel owners wanted DIRECTV to pay more per month on a new contract.
The news brings up several good points concerning cable programming. DIRECT chief content officer said, "The Weather Channel does not have an exclusive on weather coverage-the weather belongs to everyone." DIRECT president David Clark also nixed a possible return of The Weather Channel to subscribers by saying the channel "is off permanently." An expert in the field, SNL Kagan analyst Derek Baine, also reminds investors this, "News, weather and financial information are so widely available online, it's very cannibalistic to these genres."
DIRECTV ended the most recent quarter with 20.2 million subscribers in the United States. The company added 139,000 subscribers during the quarter and more importantly saw the average revenue per user increase 6.2% to $102.37. The move to drop The Weather Channel may be in an effort to cut costs to free up money for a new deal with the National Football League. DIRECTV counts on its Sunday Ticket for additional subscribers and a higher price per subscriber from the premium content. With a deal ending soon, DIRECTV must decide if it is willing to pay $1.4 billion in 2015, an increase of 40% from the current amount paid. It's estimated that 2 million of DIRECTV's 20 million subscribers have Sunday Ticket and pay around $250 per season for the extra programming.
The Weather Channel owners could end up hurt
As a partial owner of The Weather Channel and other cable channels, Comcast might have a lot to lose in the future. The company's NBC Universal has a huge base of cable channels offered to customers including: CNBC, Syfy, E!, USA Network, Bravo, NBC Sports, and MSNBC. While Comcast shouldn't have too difficult of a time bundling channels like Syfy, E!, USA, and Bravo to cable providers, the news stations may see the same fate as The Weather Channel. We live in a world where consumers can get their news via social media and the Internet. Comcast may be forced to lower its fee per subscriber for its news stations to stay on cable.
Through the first nine months of the current fiscal year, Comcast has seen nice growth in its cable revenue and total revenue. Comcast operates its own cable network, which posted revenue of $31.2 billion, growth of 5.8% from the previous year. The company's NBC Universal business segment has posted revenue of $17.2 billion through the first nine months. This is a decline of 3.4%, due to the comparable impact of last year's Super Bowl and Summer Olympics. Broadcast revenue, which includes the NBC network, saw revenue fall 21.1%. Partially making up for that decline is cable networks, which saw 5.5% growth to $6.9 billion.
Comcast's NBC Universal division has posted operating cash flow of $3.4 billion in the first nine months of the fiscal year, an increase of 15.6%. The cable network is responsible for $2.6 billion of that total, representing the majority of the NBC Universal segment. Margins could be hurt if the company loses additional channels or sees smaller subscription fees from cable providers.
DIRECTV poised to be the winner in dispute
Overall, Comcast is seeing growth in cable subscribers and other business segments. However, with Comcast shares hitting 52-week highs, investors should be skeptical to get behind a company that could see lower margins and more channel losses ahead. DIRECTV offers the better investment in cable in my opinion, with possible catalysts coming from its margins after the loss of The Weather Channel, and a possible new NFL contract.