The Wall Street Journal reported Friday that AT&T is “exploring” a deal for DIRECTV, five years after it purchased the satellite TV service for $49 billion.
But there is something about the WSJ article that does not make sense.
It’s not that AT&T would want to sell DIRECTV, which has lost about six million subscribers over the last five years. The telco has stated clearly that it no longer believes that satellite TV has a future.
No, it’s that the story says AT&T has been “in talks” with private-equity suitors about buying a slight majority of DIRECTV with AT&T possibly holding on to the rest. The “suitors” mentioned in the article include Apollo Global Management and Platinum Equity.
What does not make sense to me is the absence of Dish, the most logical “suitor” for DIRECTV. The company whose chairman, Charlie Ergen, recently said that a merger between Dish and DIRECTV is “inevitable.”
”AT&T executives have previously explored parting with DIRECTV assets, including a potential spinoff or combining assets with rival Dish Network Corp., but obstacles, including antitrust concerns, have gotten in the way,” the article says.
The story later states that “AT&T executives have highlighted hurdles that would deter such a deal (with Dish). Antitrust enforcers could block a deal to preserve competition in the market for live TV channels in rural areas where satellites are often the only option available.”
I agree that the anti-trust concerns are valid. After all, the FCC rejected a Dish-DIRECTV merger attempt in 2002 for that very reason.
However, the competitive environment is dramatically different than it was 18 years ago. The explosion of streaming from services such as Netflix and AT&T’s own HBO Max has given consumers a multitude of viewing options.
And in rural areas, there could be workarounds including a binding commitment from a Dish-DIRECTV entity to provide fair market prices there for a period of time.
Dish and DIRECTV could even argue that the merger/sale is necessary now to keep the satellite TV business afloat in the coming years. Both services are losing subscribers due to cord-cutting. If there isn’t a merger soon, one or both could go out of business in the next few years.
So I don’t buy that AT&T is afraid of bringing a Dish-DIRECTV merger to federal regulators. I suspect the fears expressed in the WSJ article are to create more leverage in negotiations with Dish. It’s either that, or a sale to a private equity firm would ultimately include swapping assets to Dish.
Dish is arguably the only company on the planet that would benefit from buying DIRECTV for a fair price. With cord-cutting expanding, and competition growing in the streaming category, it’s difficult to envision a private equity firm being successful running DIRECTV. The problems that now hamper AT&T would also hamper the equity firm, and even more so because AT&T has resources the equity firm does not.
While Dish is also losing customers to cord-cutting, the acquisition of DIRECTV would give it around 25 million pay subscribers. That would make Dish the nation’s largest cable or satellite service.
With 25 million subscribers, and no competition in the satellite TV category, Dish could stay profitable for years by generating more advertising, and pressuring programmers to offer lower carriage fees. Think of it. Few programmers would want their channels suddenly removed from a pay TV service that reaches 25 million homes.
Dish is also uniquely qualified to run a satellite TV company with Ergen’s extensive experience in the industry. If anyone can make DIRECTV work now, it’s Ergen.
Bottom line: I still think Dish and DIRECTV will come together, assuming AT&T ultimately sells. The merger of their resources may be tied to an equity firm in some way, but it has to happen.
One could even argue that it’s “inevitable.”
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— Phillip Swann