Wall Street Analysis

By Paul Dykewicz, Senior Analyst/Senior Editor

The DirecTV satellite TV service stands to benefit most from the current multichannel video landscape. The company’s prospects rose further with the deal it struck last week with the National Rural Telecommunications Cooperative (NRTC) to shore up the company’s rural marketing and sales efforts.

DirecTV is projected to boost its net new subscriber additions this year partly due to the migration of customers to the provider from Pegasus Satellite Television, which currently resells the satellite TV service in selected rural territories across the country. DirecTV undercut Pegasus last week by terminating an existing agreement with the NRTC and striking a new deal that benefits nearly all of the NRTC member organizations much more than did Pegasus. Specifically, Pegasus only receives a portion of the compensation other NRTC members were offered by DirecTV for each subscriber Thomas Eagan, a satellite analyst with Oppenheimer, wrote in a research note last Friday that he did not expect DirecTV to boost its offer to pay $675 for each Pegasus subscriber, despite DirecTV agreeing to pay $1,050 per subscriber to the other NRTC member organizations. Although Pegasus Satellite Television filed for Chapter 11 bankruptcy protection last week to shield its interests in the wake of the new NRTC-DirecTV deal, the judge is unlikely to “reach back” and nullify the pact, Eagan predicted. Previous court decisions have ruled in favor of DirecTV and the NRTC forging their own agreements. However, Pegasus may seek and obtain a ruling from the bankruptcy court judge to “stay” a federal district court’s June 10 deadline for Pegasus to pay a $63 million damage award to DirecTV, Eagan wrote to his clients.

The bankruptcy also may not protect the parent company, Pegasus Communications [PGTV], from becoming a target of damage claims from DirecTV. Eagan speculated the parent company’s assets should be available for the creditors of its subsidiaries. If so, Pegasus Communications faces a painful financial hit of its own.

It looks as though DirecTV remains on the ascent, while Pegasus is losing ground quickly.

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at [email protected].