DirecTV Chief Executive Officer Mike White said on Thursday the satellite TV operator was developing an Internet product that it would sell separate from its core video service, giving it a new business as growth in the U.S. pay TV market begins to slow.
White said the online service would feature niche programming that could be either based on a theme or targeted at a certain demographic.
He said in an interview on the sidelines of the company's investor day that the Internet-based service would likely have fewer channels than customers are used to seeing in a large pay-TV package.
"I don't see it as 200 channels of broad based (content)," White said. "If you want to do something, you want to be differentiated and distinctive."
Media companies usually balk at selling anything but a full suite of channels to cable or satellite operators. These programmers count on "bundling" lower-rated channels with popular ones, a practice that could challenge DirecTV's ambitions.
White said he viewed the Hispanic market as an opportunity for the new service. But he said it was too early to announce details as the company negotiates video rights. It may announce something in the next 12 months, he said.
He added that an online service could appeal to "millennial cord cutters," basically young people who do not want to buy a monthly cable or satellite subscription.
DirecTV explored buying online TV service Hulu earlier this year, but now believes a homegrown service is the way to go.
"There's not much out there to buy beyond Netflix and Hulu," White said during a question and answer session with investors.
Latam growth cut
DirecTV said on Thursday it expects compound annual growth of more than 15 percent in earnings per share by 2016, while also flagging slower-than-expected revenue growth in the important Latin American region.
DirecTV said strong subscriber additions would help it reach earnings per share of $8 by 2016, slightly ahead of Wall Street forecasts.
The company's projections exclude results from Venezuela due to the country's huge currency devaluation.
At the same time, the DirecTV acknowledged that Latin America, long seen as a big potential growth area, would remain troubled, depressed by currency weakness in Brazil and Argentina as well as Venezuela, as well as costs related to the soccer World Cup and capacity expansion.
Revenue for the region is now seen at $8 billion to $9 billion, down from a prior forecast of $10 billion.
At the same time DirecTV expects significant improvement in cash flow starting in 2014 and an acceleration in those improvements through 2016.
Earnings per share for 2016 is seen at $7.62, according to the Thomson Reuters I/B/E/S consensus, while fully reported EPS is seen at $7.34.
DirecTV's shares closed 10 cents higher at $67.02. (Click here for the latest quote.)
NFL, DirecTV agree to framework for Sunday Ticket deal
Separately, Directv and The National Football League have agreed on a framework for negotiations to renew the satellite TV operator's contract to offer the popular NFL Sunday Ticket football package the company uses to attract subscribers, according to two sources with knowledge of the talks.
The two sides "are still in material negotiations," but extended their exclusive negotiating period to work through the remaining issues, according to one of the people. The talks might still not result in an agreement.
A contract that renews DirecTV's exclusive deal would give the satellite operator a key marketing advantage over cable operators. Cable companies sought a deal in 2009, but DirecTV ended up renewing its agreement with the NFL for four years.
The current DirecTV offer allows subscribers to watch football games outside of their local markets on Sundays. The exclusive package, which costs subscribers up to $300 a year, is an important tool for DirecTV to attract subscribers and the company has said about 2 million people receive the service.
Investors and analysts have been watching closely to see whether DirecTV would renew the Sunday Ticket contract with the NFL, estimated to be worth $1 billion annually. The current agreement is due to expire at the end of the 2014-15 season, meaning there is one year left to go under the previous terms.
"We don't comment on speculation," DirecTV spokesman Darris Gringeri said. Alex Riethmiller, the NFL's vice-president for communications, said "we are still in negotiations."
Any agreement still needs approval by DirecTV's board of directors and the NFL team owners, said the people, and will not be announced until the first or second quarter of 2014. In 2009, the owners announced the contract extension at the NFL annual meeting.
DirecTV CEO Mike White said at the company's investor day on Thursday that, "we've had very constructive conversations with the NFL but it's complex. I'm very optimistic we will get an exclusive deal done on NFL Sunday Ticket."