Sample Essay on Directv in Latin America

DirecTV offers digital television entertainment services across the US, as well as in Latin America. The satellite-TV operator has benefited immensely due to rapid growth of Latin America, which saw its profit rise by 31% in 2013. The company has increased its focus to Latin America, where the entertainment services are not heavily exploited. However, every growth goes with a cost. Latin America is usually volatile, as the region is often trying to calm political strife. The region is also affected by extreme economic fluctuations that inhibit business expansion.

  1. What major political events in Latin America are the biggest threats to DirecTV’s financial performance? What steps can be taken to protect against these risks?

DirecTV has a huge, competitive product, which has maintained it in Latin America, but the operator requires broadband capabilities. The company also faces political challenges in its endeavor to expand its operation in Latin America. The death of President Chavez in Venezuela created economic uncertainty, which could not encourage potential foreign investors. The attempted coup that occurred in 2002 was a discouragement to the foreign investors who had already invested in the country. The weakening of democracy in Venezuela increased the political risk and discouraged private business operations.[1]

The first step that DirecTV should take in minimizing political risk should be conducting a research on the extent of the risk in the host country. DirecTV can cushion itself from the above risks by acquiring a political risk insurance, which could safeguard the company from specific government actions. However, the company must check whether the benefits of doing so exceed costs. Premiums may be high, and can discourage the company from purchasing the political risk insurance. In case the political insurance is not practical, DirecTV can negotiate with the host country for an appropriate compensation in case of any damage.

  1. What major international financial or economic risks in Latin American economies should DirecTV’s financial management team worry about the most? What can they do to hedge against these risks?

Companies that plan to invest in international market usually face financial challenges that limit their expansion and revenue accumulation. DirecTV has faced economic challenges in its attempts to expand its market in Latin America. Some countries in Latin America have recorded slow growth while currency fluctuations and inflation has affected the growth of DirecTV in the region.[2] The currency decline in both Argentina and Venezuela caused a fall in average revenue per subscriber. DirecTV claimed that it has experienced currency devaluation risks in Venezuela, which resulted from the new monetary exchange system that was imposed by the government.[3] Lower revenue per subscriber, as well as high costs of subscription are things that should make DirecTV get worried, as the company’s strategy is to expand its market share internationally. Competition from other companies that offer satellite services in the region is also a major concern, as the company cannot predict its revenue at any given time.

DirecTV should adopt the American success strategy to invest in Latin America. The company should utilize its purchasing power to lower the cost of its set-top boxes. In the future, DirecTV should measure its monetary assets using the SICAD rate, even though the rates do not cushion the company from incurring a devaluation charge. Investing in new technology could enable the company to expand its Internet services. Hedging can help in protecting the company from economic fluctuations, as hedging commits an investor to selling his/her stock at a specific price in the future, thus, avoiding market fluctuations.

  1. What major business risk from international competitors do you think DirecTV might face? What can it do to protect against these risks?

Although DirecTV is performing well today in Latin America, the company still faces numerous risks in its operations. The Latin American business has been a boost to the company, and should be the source of expansion for the next few years. However, competition in the region is growing fast, especially in Brazil, where other network operators have invested heavily. Any company that engages in international competition should always be prepared to face risks, such as foreign exchange risk, as well as political risk. According to The Wall Street Journal, some analysts have already forecasted a depreciation of some Latin American countries’ currency when compared with the dollar.[4] Aggressive marketing and promotional offerings that have been experienced from phone and cable companies could make DirecTV to lose some of its customers on the global level.

Despite political and economic limitations, international businesses can make attempts to hedge their foreign exchange risk on the currency market. They can also obtain political risk insurance to cover their investments from particular government actions. DirecTV should deviate from investing heavily on fixed-line networks, which tend to be quite expensive to establish and to maintain. The company should extend its investment in other areas, such as Internet access services, where it has the possibility of increasing its returns with minimum costs. The company could utilize the market share that it has to expand its revenue through providing Internet services to its entertainment customers.

Bibliography

Baker, Liana B. and Marina Lopes. “Latin America could be jewel of AT&T-DirecTV deal” Reuters, May 19, 2014 http://www.reuters.com/article/2014/05/19/us-att-mergers-directtv-idUSBREA4I02320140519 (accessed on 30 October 2014).

Ramachandran, Shalini and Ben Fox Rubin, “DirecTV Profit Rises on Latin America Growth” The Wall Street Journal, February 14, 2013. http://online.wsj.com/articles/SB10001424127887324162304578303830891601880 (accessed 30 October 2014).

Venezuela Telecommunications Report – Q1 2014. London: Business Monitor International, 2014. http://search.proquest.com/docview/1459481442?accountid=1611.

Yao, Deborah. “DIRECTV Faces Currency Devaluation Risks in Venezuela.” SNL Kagan Media & Communications Report (Feb 25, 2014). http://search.proquest.com/docview/1503166888?accountid=1611.

 

 

 

[1] Venezuela Telecommunications Report – Q1 2014. London: Business Monitor International, 2014. http://search.proquest.com/docview/1459481442?accountid=1611.

[2] Liana B. Baker and Marina Lopes, “Latin America could be jewel of AT&T-DirecTV deal” Reuters, May 19, 2014 http://www.reuters.com/article/2014/05/19/us-att-mergers-directtv-idUSBREA4I02320140519 (accessed on 30 October 2014).

[3] Deborah Yao, “DIRECTV Faces Currency Devaluation Risks in Venezuela.” SNL Kagan Media & Communications Report (Feb 25, 2014). http://search.proquest.com/docview/1503166888?accountid=1611.

[4] Shalini Ramachandran and Ben Fox Rubin, “DirecTV Profit Rises on Latin America Growth” The Wall Street Journal, February 14, 2013. http://online.wsj.com/articles/SB10001424127887324162304578303830891601880 (accessed 30 October 2014).