Why DirecTV (DTV) Should Acquire Cablevision (CVC)--多伦多大学代写essay范文

多伦多大学代写essay范文:“Why DirecTV (DTV) Should Acquire Cablevision (CVC)”，这篇论文主要描述的是DirecTV公司在美国的电视行业中是处于领先的水平，DirecTV以的业务提供收费的电视服务的主，通过其大量的客户基础为公司带了了稳定的收入，但数字电视行业的竞争比较激烈，本文以DirecTV与CVC为例，分析电视行业收购的原因。

DirecTV is  the leading satellite-dish television system provider in the United States. The nature of its service directly competes with cable television, and thus the industry could be referred as pay television or premium television, or simply, pay-TV.  According to its latest 10-K report filed on February 24, 2014 (Directv, 2014), its client base now consists of about 20.3 million subscribers, which is the largest in the United States at present. By leveraging on a large subscriber base, DTV is able to rake in substantial revenues through advertising. Brand recognition additionally contributes to its capacity to be exert influence in the advertising agency.

DTV is in direct competition with Dish Network (DISH), which is another provider of satellite television. The pay-TV industry is highly competitive because premium TV channels enjoy high demand among American homes. However, satellite TV providers also face indirect competition from cable TV providers, and more recently, from video over the Internet. In particular, cable TV providers bundle their services with phone and Internet broadband access. The following industry analysis using Porter's Five Forces model is provided for getting a brief picture of the condition of the pay-TV industry.

Industry rivalry

There is stiff competition between DTV and DISH in the satellite TV service, especially in the United States. In addition to the competition between satellite TV providers, the pay-TV industry also consists of fierce competition from cable-TV providers. Market players like Comcast, Time Warner Cable, Verizon, and AT&T are able to bundle cable TV with their telecommunication services through their well-established cable and fibre-optic cable infrastructure (Sherman, 2013).

Threat of substitutes

Contemporary TV viewers are now increasingly watching their favorite shows through the Internet, for free (Sherman, 2013). Content providers such as YouTube are now enjoying more views from Internet-savvy generation, who typically shun the time-consuming advertisements that conventional TV (including pay TV) bombards them. Uploading of digital content through the Internet is enhanced further by the predominance of social media (e.g., Facebook and Twitter), through which the new generation source most of their information. The Internet thus presents a threat as a substitute to pay TV. But existing pay-TV players, such as Comcast, have more or less hedged that risk by bundling their cable TV service with broadband.

Bargaining power of buyers

The continuing rise of content-on-demand has good implications to the sustainability of the pay-TV industry. However, the new generation of content viewers (which consists today of mostly non-earning young people) are demanding more and more free content. As a matter of fact, content providers such as Bloomberg, CNN, and even ESPN are uploading shows through free Internet channels. Although the value provided by pay-TV subscriptions are still considered premium over the content uploaded through the Internet, the bargaining power of today's viewers could be considered strong.

Bargaining power of suppliers

The satellite dish and content-distribution system used by companies such as DTV and DISH are highly specialized. Although satellite TV providers are installing proprietary dish and system to their subscribers, the bargaining power of suppliers of equipment components do not really exert direct influence. The evidence for this may be found in examining the COGS for DTV (Morningstar, 2014a). The COGS, which includes the expenses for the equipment, is typically within 50% of the revenues earned. However, as pay-TV is increasingly replaced by digital content over the Internet, the decrease in the number of suppliers of satellite equipment and systems could be anticipated. Consequently, a smaller number of suppliers could potentially increase the product prices, which means that the bargaining power of suppliers moving forward could increase.

Barriers to entry

The pay-TV industry is capital intensive due to the substantial size of infrastructure required for making the service work over a geographic area. Due to the high costs of installing equipment and putting up the cable network, the barriers to entry may be considered steep for new entrants to the industry. Additionally, as more content viewers are demanding for free content, the costs of putting up a pay-TV service could prove unprofitable in the end.

Background of the Company and Management

DTV is a provider of satellite TV services. A dominant chunk of its subscriber base is in the United States, at about 20.3 million subscribers as of February 2014 (Morningstar, 2014a). In the most recent 10-K report, DTV management led by president and CEO, Michael White, the increase in broadcast programming costs has been taking a toll on the profitability of the business. The company also has wide presence in Latin America (Directv, 2014, p. 50).

The board of directors of DTV is composed mostly composed of members who also serve the board in other companies (Directv, 2014). For example, the chairman of the board, David B. Dillon, also servers The Kroger Co.; the  co-CEO, Charles R. Lee, is also connected with Verizon Communications, Inc. It is important to note that Verizon's FiOS competes (somewhat indirectly) to DTV's pay-TV business.

But the large subscriber base of DTV is its strongest leverage against its competitors. Even if the board members seem to have conflict of interest over the welfare of DTV, the company nevertheless remains competitive in the pay-TV industry, at least as of now. The threat presented by Internet-uploaded content is becoming stronger, as the management admits (Directv, 2014, p. 12). DISH, as a matter of fact, has been in discussions about pursuing wireless partnerships with other groups.

In order to ensure long-term profitability for DTV, the company must start venturing into the cable business as well. Competitors such as Comcast and TimeWarner Cable are leveraging on their capability to bundle their cable TV services with broadband services.

Cablevision Systems (CVC) is a cable TV provider in the United States. Based on its most recent profile (Morningstar, 2014b), CVC is considered as the fifth largest provider of cable TV in the United States. Just like many cable-only service providers, CVC has been experiencing dwindling subscriptions as consumers are shifting to satellite TV. The advent of digital content over the Internet further add to the erosion of subscription to cable TV (Sherman, 2013).  In its most recent 10-K filing, CVC has been utilizing its cable infrastructure, especially in the New York metropolitan area, to provide broadband Internet access to homes (Cablevision, 2014). Despite such move, CVC has been experiencing an average of –3.50% revenue over the last three years, as shown in Appendix 1. In other words, the revenue growth has been negative, which severely reflects the erosion of subscriptions due to the shift to satellite TV.

Thus, CVC is quite suitable as a target for merger by DTV. The synergy between DTV's large subscriber base for satellite TV, and CVC's existing infrastructure for cable, the resulting merger could be provide an entirely new fusion product of satellite TV with broadband capabilities. The fusion product would be unlike what Comcast, Verizon, AT&T, and TimeWarner Cable are currently offering. Furthermore, the current market price of CVC shares, as of June 4, 2014, is at $17.50 per share. This market price is much cheaper than the fair value of CVC, which is determined using a discounted cash flow (DCF) valuation method, as illustrated in Appendix 1.

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