DirecTV Group is the largest satellite television provider in the U.S., with up to 20 million customers. It also owns satellite operations in Latin America: 93% of Sky Brazil, 41% of Sky Mexico, and 100% of PanAmericana. The last provider covers the rest of the region, with heavy concentration in Argentina and Venezuela. These businesses serve about 18 million customers combined (Hodel, 2014).Being a volatile part of the world with issues of political strife and often extreme economic fluctuations, Latin America presents an area of the constant risks for DirecTV business operation in the region.
To start with, Latin America is considered a very unstable part of the world in political terms, where the shift of political power is concentrated within hands of diverse political parties and formations. These shifts are the source of unfavorable regulatory changes, satellite failures and digital piracy, if being more precise about the impact over media business and communications. Scalability is currently considered as the primary competitive advantage for DirecTV in Latin America, as the potential expansion to a different region requires low capital intensity. A growth in household formation of Latin America has been observed recently, as millions of people are becoming a part of the Latin American middle class. A larger pool of disposable income attracts more television providers, making DirecTV in a winning position in regards to its satellite technology advancements and operations ownership.Such expansion, however, is a subject for potential regulations from local governments. As reported by Hodel (2014), DirecTV owns 15% of its revenue and has 25% of EBITDA generated in Venezuela, which is the source of the major political fluctuation in the region.
Since the beginning of the previous year, Venezuela’s political climate is described with ongoing protests and civil unrest as a reaction to Maduro’s regime, and short supply of basic goods and services. The country faced currency devaluation due to the plunging price of oil, which is its biggest export good. A particular action of the government that undermined DirecTV’s belief in the market profitability was the implementation of SICAD, a public bidding system for private entities that import goods (Yao, 2014). This led to devaluation charge forecasts on behalf of DirecTV, which consequently raised prices for the company services in the country.Argentina, which is another large market for DirecTV, poses political risks from its constantly high inflation rate which is a result of numerous mistakes made by its government. Moreover, upcoming presidential elections are likely to activate trade unions’ power, which are going to demand salaries above the inflation rate, causing the government to turn on protectionism schemes and regulatory controls.Brazil’s political risks are lower comparing to other Latin American countries, since it has already gone through the recent presidential elections and works towards establishment of favorable investment opportunities from abroad. For DirecTV, it might be worth considering a more targeted coverage of the Brazilian market comparing to Argentinean and Venezuelan ones.
A protection from the unfavorable political fluctuation could be also possibly reached through emphasis …