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DIRECTV (DTV - Analyst Report) has announced an 8% rate hike from February 7 onwards owing to the mounting programming costs and the recent renewal of contract with Viacom, Inc.(VIAB - Analyst Report).

The disagreement between DIRECTV and TV network major – Viacom regarding programming fees has led to channel blackouts for the DIRECTV customers. However, settlement of dispute after increasing the program rates may hugely impact DIRECTV’s margins going forward. Moreover, the U.S. pay TV market is also getting saturated which is constantly hurting the company’s top-line growth.

Hence, to counter such a situation as well as to boost its ARPU, DirecTV plans to increase its rates from the beginning of next year. The company is continuously upgrading its low-end customers by offering high valued services like Video on Demand, HD channels and new Genie DVR services. Moreover, the company is also diversifying its business by offering high-speed Internet services through ViaSat Inc. (VSAT - Snapshot Report) to rural areas in the U.S., thereby creating other avenues to drive revenue growth.

Despite maintaining strict credit terms with its customers as well as removing less popular channels like GolTV and TVB Network from its channel list have not helped DirecTV to pass on the rising programming prices to its subscribers.

We are maintaining our long-term Neutral recommendation on DirecTV. Currently, the stock holds a Zacks #3 Rank, implying a short-term Hold rating.

El Segundo, California-based DIRECTV Group Inc. is a provider of satellite delivered digital television, video, and broadband and also the largest provider of direct-to-home (DTH) digital television services in the U.S.

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