A Direct NFL TV price cut

Satellite TV giant DirecTV has cut the price of its popular NFL Sunday Ticket football package to the lowest level in almost a decade. And while that will reduce the company's average revenue per subscriber, several Wall Street analysts said the move could actually benefit DirecTV's financials if it signs up enough new users.

Overall list prices are coming down to $200-$300 per season from $335-385. Current customers will pay only $199.95 for the NFL offering, more than 40 percent less than last year’s price.

“NFL Sunday Ticket is an incredible product, and we want to make sure it is accessible and affordable to as many of our customers as possible, so we made the decision to dramatically lower the price,” said Alex Kaplan, vp, marketing for DirecTV. “With these new package options we hope that those who had the service before will enjoy it again, and those who have not had a chance to subscribe to NFL Sunday Ticket will take this opportunity to experience this fantastic service for the first time."

DirecTV's stock dropped 1.4 percent on Thursday after news of the new pricing first emerged.

Evercore Partners analyst Bryan Kraft, who has an "overweight" rating and $55 target price on DirecTV's stock, said the price change means that the company is "rewriting the play book."

"This makes sense for DirecTV because the Sunday Ticket pricing was becoming too high and the company needs to achieve a better balance of rate and volume," he wrote in a report. "There is an opportunity to actually grow revenue by lowering the price."

With the lower price, DirecTV could increase the renewal rate on a free promotional offer of Sunday Ticket last season and get more subscribers to add the football package. "Higher penetration…should lead to lower churn among those customers given the differentiated nature of the Sunday Ticket," Kraft argued. "Additionally, as the Sunday Ticket is fixed cost programming, leveraging it over a greater number of subscribers is optimal if revenue can at least be maintained."

Overall, he estimated that DirecTV "only needs to gain an incremental 212,000 paying Sunday Ticket subscribers to offset the average revenue per user reduction." Added Kraft: "Hitting this hurdle should be relatively easy as DirecTV will automatically renew the Sunday Ticket for last year's free promo subs at the $199 base package. As long as less than 80 percent of the extra 1 million gross adds DirecTV picked up last year on the free promotion don't bother to call to cancel the package, DirecTV will reach the breakeven point."

Barclays Capital analyst James Ratcliffe, who has an "overweight" rating and $56 target price on the satellite TV giant, echoed the bullish analysis. "If the company can convert 20 percent of last year's free promotion subs under the new pricing plans (versus our baseline 10 percent forecast and offer smaller discounts off of the new $200 base package, we believe the new pricing will be at least revenue neutral, and potentially accretive," he said in his report.

But ISI Group analyst Vijay Jayant expressed some concerns about the football package price change. "Paying NFL Sunday Ticket subscribers will have to double, at the very least, to break even on the new pricing," he said. "The incremental number of paying subscribers to break even on the fixed $1 billion annual cost range from 1.6 million to 3.3 million based on tier of the NFL package.

(source Hollywood Reporter)