The news this week that AT&T was planning to sell a significant share of DIRECTV to a company named TPG prompted many people to ask, ‘Who is TPG?”
And when the sale was officially announced today, the next question was, ‘How will TPG change DIRECTV?’
The two questions could also be followed by one more:
‘What makes TPG think anyone could change DIRECTV now?’
After all, the satellite TV service has lost more than six million subscribers since AT&T purchased it in 2015. And while the satcaster’s losses are far greater than any other pay TV service, the industry as a whole is reeling. Millions of cable and satellite subscribers have cut the cord in recent years due in part to the sudden availability of relatively cheap streaming services. (Escalating prices for cable and satellite, triggered by increasing fee demands from programmers, is another cause.)
But TPG, like most equity firms, does not often invest in a company when it’s doing well. It’s all about turning a company around and then reaping the benefits from a sale and/or increased profits.
So let’s take a closer look at TPG to see if we can forecast what the equity firm might do with DIRECTV.
Who Is TPG?
TPG, which is headquartered in San Francisco and Fort Worth, Texas, was founded in 1992 by three businessmen, William Price III, James Coulter and David Bonderman (now a part owner of the Boston Celtics and the Seattle Kraken, the new NHL expansion team). The company’s mission is to invest in struggling (but potentially viable) companies that lack the capital and/or resources to execute their visions. TPG recoups its investment when the company turns things around and, in some cases, is sold to another company. (Think Dish.)
Over the years, the firm has invested in scores of companies in every conceivable category, including film (MGM Studios), TV (Univision), Internet and digital media (Spotify, Vice, Survey Monkey) and technology (Hotwire, McAfee, Seagate). There’s no doubt that TPG’s management team has an understanding of how entertainment and technology intersect in today’s world.
Would TPG Run DIRECTV?
Probably not. The company tends to invest the capital and then place insiders on the company’s board to help shape its future. TPG would probably allow AT&T’s current executive team to continue running DIRECTV, but it would provide guidance on overall direction, and perhaps add a key executive or two. This is why AT&T announced today that AT&T executive Bill Morrow will serve as DIRECTV’s new CEO when the deal closes. But TPG will have two of the five board seats. And don’t be surprised if you see a TPG favorite or two land high-ranking jobs at the new DIRECTV.
Would TPG Change DIRECTV?
TPG prides itself for being a disruptor rather than a status quo company. In an 2019 interview with Bloomberg, Coulter said “as we have been building our teams, we have focused on innovation. And we find that innovators are attracted to innovation…If you look at our portfolio, you would find many more disruptors than traditional incumbents. If you are an incumbent, you are more at risk than any time in my career and probably any time in the last 100 years.”
As a satellite TV provider, DIRECTV has been an industry ‘incumbent’ for years; AT&T has offered little change to its technology and services since it purchased the TV service in 2015. (One of the reasons why DIRECTV has lost roughly six million subscribers since that purchase). So it will be interesting to see how TPG’s influence might change the satcaster. The equity firm’s history would indicate that DIRECTV would definitely do a few things differently with TPG on board.
Why Would TPG Want DIRECTV?
DIRECTV has struggled since the AT&T purchase, but it still has more than 15 million subscribers and it dominates a relatively small category (satellite TV, which also has Dish and Orby TV, maybe, that is.) With the right moves, the satcaster could conceivably maintain its market share for a few years, setting up a big payday with a Dish merger. TPG might see this as a ‘buy low and sell high’ proposition.
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— Phillip Swann