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Discount DIRECTV Packages Brings in Leading ROIC

Via Directsattv.com - DIRECTV Leads the Group in ROIC
Recently, Vijay Jayant of the Citadel Group along with a team of financial analysts analyzed and compared cable and satellite service providers based on ROIC. ROIC (return on invested capital) gives us an indication of how well a company is using available money in order to generate returns. Vijay and his group came up with results that were surprising to some: DIRECTV was at the head of the pack.

Often, the industry discount DIRECTV packages that provide more channels at a lower rate than TWC offers, TWC continues to have a larger client base. That leads many to undervalue the discount DIRECTV packages and to overvalue TWC’s apparent success.

As it is in this case, the truth is usually a lot more complex. Size of client base and the value of discount DIRECTV packages is just a small part of a bigger picture. The ROIC analysis by Vijay Jayant and the Citadel Group gives us insight into a part of that picture that few of us get to see. Sure, those on the boards know it, and the industry insiders know it, but the rest of us typically don’t.

Using this analysis, the Citadel Group asserts that steep acquisition costs for cable assets, which includes new clients, has substantially reduced potential investor returns. A provider like DIRECTV can acquire a new client (an asset) with a substantially lesser premium than TWC can. That’s because it costs less on average to install satellite than it does cable.

At the same time, we must recognize the value of the discount DIRECTV packages and not overly emphasis the difference in acquisition premiums. Otherwise, how do we explain TWC being able to outperform other satellite companies in terms of ROIC? There are intangibles and other aspects at play here as well.

Something else we must consider, which the Citadel Group did not factor in their research and analysis, is the rate at which DIRECTV acquires “raw” installations. In areas where cable service is available, most new customers come to DIRECV with their house wiring already in place because they were at one time cable TV subscribers.

On the other hand, when a cable company like TWC is acquiring a new client, more often than not, they must prepare a residence that has never had any form of service and therefore the costs are higher.

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