Strategic Analysis of DIRECTV and DISH Network DIRECTV DIRECTV (NASDAQ:DTV), established in 1994, provides digital television entertainment services through its subsidiaries and affiliated companies in the United States, India, Brazil, Mexico and other countries in Latin America. DIRECTV provides digital television service to 19. 22 million customers in the United States and 8. 85 million customers in Latin America. (DIRECTV, 2010). DIRECTV reported revenues of $24. billion in 2010 with net profit margin percent of 9. 12. DIRECTV is composed of two main operating units – DIRECTV U. S. , and Latin America, as well as DIRECTV Regional Sports Networks. As of December 31, 2010, DIRECTV U. S. had 19. 22 million subscribers with average monthly revenue per subscriber, or ARPU, of $89. 71. (DIRECTV, Annual Report, 2010) (Exhibit B). DIRECTV has strategically partnered with AT&T, Verizon, Qwest, CenturyLink, and Frontier to provide TV services bundled with phone and internet.
DIRECTV’s mission is to provide customers with the best video experience in the United States both inside and outside of the home by offering subscribers unique, differentiated and compelling programming through leadership in content, technology and customer service. (DIRECTV, 2010) Differentiation Business Model DIRECTV’s strategy is to pursue differentiation business model to sustain competitive advantage. It is the only Pay TV provider in Latin America and only provider to offer NFL sports package.
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DIRECTV’s geographic market of operations in Latin America, gives them opportunity for growth, as visible from the increased revenue growth for that segment. It is also exclusive provider of DISHA India channel in the U. S. , catering to the needs of South Asian families in the US by offering spiritual, social and cultural programming. DIRECTV offers Differentiated and Exclusive Content Services, such as NFL SUNDAY TICKET, which allows subscribers to watch up to 14 games each week. They are also exclusive provider of NCAA- MEGA MARCH MADNESS. (DIRECTV, 2010) (Exhibit D) Investment in Technology
DIRECTV invests in technology innovation to differentiate from competitors and provide broader content and services to customers. They offer more 3D programming than their competitors do. In 2009, they solely broadcasted 3D program of MLB All-Star Game and U. S. Open Tennis Championship. DIRECTV has strategically collaborated with Panasonic to provide dedicated 3D TV channel, namely “n3D Powered by Panasonic”. DIRECTV has invested in technology and has strategically focused on “anytime, anywhere” experience to compete with new service providers available over Internet Protocol TV(IPTV).
DIRECTV also offers Whole-Home DVR service and provide mobile apps, to browse shows, schedule recordings and set DVR from anywhere with any computer or phones. Evaluation of DIRECTV’s Strategies DIRECTV captured First Mover Advantage in providing digital television entertainment services through satellites. They capitalized on the opportunity to lock consumers into their services, thus making it difficult for their competitors to break down the consumer base. In spite of capturing the first mover advantage, they are not in monopoly position anymore.
Two years after their entry in the market, their main competitor “Dish Network” entered the market of providing digital television entertainment services as well. While DIRECTV is still ahead in ARPU with the advantage of being the first mover, DISH Network has also captured a significant subscriber base by providing similar services at a low cost. As per the resource based view, DIRECTV has utilized its resources and capabilities to gain competitive advantage over their competitors following differentiation strategy.
DIRECTV has a distinctive competence in offering NFL sports package, which positions them uniquely in comparison to their rivals. Large subscriber base, leading brand name, most full time HD programming channels, premium sports channels – including NFL Sunday, MLB Network, Grand Slam golf and tennis coverage, international soccer and major international cricket coverage are primary competitive drivers of DIRECTV. The business strategy of DIRECTV involves bringing more focus on customer’s needs and convenience.
They are strengthening their business by having strategic partnerships to offer bundled options for TV service, phone service and internet service. The strategic partnership has enabled DIRECTV to offer discounts on equipment, programming packages and thus gain broader base of subscribers. DIRECTV’s provision of “anytime, anywhere” experiences, expansion of Whole-Home DVR service, connecting customer HD-DVR’s to the Internet and by providing mobile apps, DIRECTV has not only satisfied customer’s need, but has also tapped opportunities to create new revenue sources and expand business.
DIRECTV is able to grow their subscriber base by focusing on acquiring higher quality subscribers, as well as by improving customer service. DIRECTV’s strategy of building new revenue streams by having local advertisements for target customers, and by delivering new products focused on priority commercial segments, like hotels, restaurants and other businesses will be fruitful. DIRECTV has achieved economies of scale with the increased demand for the product and maximizing revenues, with the first mover advantage and by implementing business strategies.
It offsets the extra cost incurred in adopting Differentiation business level strategy and R&D expenditure. DIRECTV is charging premium price for the unique service being provided in response to customer needs. At the same time, the premium price it is charging is reasonable enough to stay within the limit the price, which the customer is willing to pay. The only challenge with DIRECTV’s differentiation strategy is that it will need to continue to maintain the distinctive competencies and the brand loyalty that goes with it, when NFL contract will be up for renewal.
The contract with the NFL is extremely important for DIRECTV to maintain a unique premium sports package and loyal subscriber base (Exhibit C). DISH Network Corporation DISH Network Corporation (NASDAQ:DISH) established in March 1996, is the provider of digital television entertainment services. DISH Network, a publicly traded Fortune 200 company, is the media and entertainment firm of its former parent company, EchoStar Communications Corporation, founded in 1980. DISH Network reported revenues of $11. 6 billion in 2009 with net profit margin percent of 7. 9. As of December 31, 2009, DISH Network had 14. 1 million subscribers with average monthly revenue per subscriber, or ARPU, of $70. 04. ) (DISH NETWORK, Annual Report, 2009, Exhibit B) The mission of DISH Network is to be the best at delivering video anytime, anywhere. (DISH NETWORK, 2011) Cost Leadership Business Model DISH Network has pursued cost leadership strategy as competitive advantage. As a cost-leadership business model, DISH Network chooses strategies to lower its cost structure, so that it can sell services at a lower cost than its competitors.
To sustain competitive advantage over its rivals, DISH Network focuses on making television affordable and accessible by most customers and it has the philosophy to keep costs low by focusing on the value and quality for their customers, thus trying to capture more subscriber base. (DISH NETWORK, 2010) (Exhibit D). While DISH Network’s business strategy is to be a cost leader, still they have chosen low level of product differentiation relative to its competitors. DISH Network was the first to launch a programming package in the US designed for Mexicans.
It was the first pay TV provider to offer local channels in all 210 US local markets, and the first pay TV provider to offer 200+ channels in HD to differentiate itself from its competitors. DISH Network provides the most international channels, and award-winning HD and DVR technology. DISH Network distributes live international TV channels in collaboration with NeuLion. In 2010, DISH Network introduced TV Everywhere. Dish Network has offered their subscribers to watch TV on compatible smart phone, laptop, or tablet anywhere, where they can connect to high-speed Internet or over a 3G cellular data plan.
DISH Network has introduced Sling technology to offer Sling loaded DVR and adapter to compress the television signal and make the TV available over the web, thus enabling TV anywhere where the high-speed internet is available. DISH Network has also introduced DISH Remote Mobile App, which not only allows subscribers to enjoy TV programming anywhere, but also enables managing home television by scheduling a recording and managing DVR through mobile device. The mobile device can also transform into TV’s remote control DISHOnline. om provides online content and videos available to anyone, though DISH subscribers can watch more contents on demand. Recently, as of April 6, 2011, DISH Network was announced as the winning bidder in the bankruptcy court auction for all of the assets of Blockbuster, Inc. This deal will offer more than 1700 locations, Blockbuster’s existing streaming and video delivery service that mimics the Netflix model and new cross-marketing and service extension opportunities for DISH Network. (DISH NETWORK, 2011).
Evaluation of DISH Network’s Strategies The business strategies of DISH Network, aligns with their Cost Leadership Strategy chosen for competitive positioning. The resources and capabilities of DISH Network are being utilized to create distinct competitiveness through cost advantage and they have been able to capture the #2 position in the household television provider in the United States. DISH Network focuses on lowering its cost structure to sell services at a lower cost than its rivals.
DISH Network strategy to enhance Operational Effectiveness by increasing productivity and by strategically managing programming content costs to attain competitive terms and competitions, is keeping it to be a profitable and sustainable business, even though its ARPU is less than that of “DIRECTV”. DISH Network is imitating the strategic moves of its differentiator rival and has invested in technology to provide similar services to its subscribers. Since 2010, DISH Network is also providing TV Anywhere option, paying close attention to changing customer’s needs and keeping up with their rival’s technology moves.
By providing similar services in conjunction with the low price model, DISH will be able to retain its customer base. DISH Network as a cost leader aims for a sufficient level of differentiation which is obtainable at a low cost. In alignment with the business strategy to offer wide selection of channels than most pay TV providers, Dish Network offers more International packages than its competitors do. It was the first to launch a programming package in the US designed for Mexicans to offer unique service for a particular segment.
These strategies have helped in their subscriber’s growth, even though these are not the strategies which can not be adopted by rivals. DIRECTV has adopted the same strategy by being the exclusive provider of DISHA Indian channel for South Asian Indians in US (Exhibit C). DIRECTV and DISH Network are the two major players in the market of satellite television provider. There is a barrier to imitation for other competitors in the market place due to the astronomical upfront cost of launching or leasing satellites.
The upfront capital needed to lease or launch satellites, combined with low price charged by DISH from its subscribers creates a barrier for entry into the field of satellite television provider. It is interesting to watch DISH Network following the footsteps of its competitor, DIRECTV by increasing the flat price for their core programming packages in 2011. It will subsequently freeze prices for at least 2 years. This will lead to higher average revenue per user for DISH Network.
Since DISH Network is spending more on technology and is trying to stay close to its competitor, DISH Network is planning to increase prices to yield more returns to the company. Already low subscriber growth rated of DISH Network in comparison to DIRECTV’s subscriber growth rate, might further deteriorate DISH Networks’ subscriber growth going forward. At the same time, the price freeze for next 2 years might help in retaining customers. Charlie Ergen, founder of EchoStar, owns majority of the voting control of DISH Network.
DISH Network’s Chairman, President and Chief Executive Officer is the principal stockholder and controls DISH Network. The strategic decision of having the reins in one persons hand increases risk for the company. In our opinion, the voting controls should be distributed to more than one person, to have more than one voice in strategic decision-making. DISH Network would be safe as long as it can maintain its low-cost advantage, but if the competitors are able to develop new strategies that would lower their cost structure, then it will cause issues for DISH Network.