AT&T surprised no one last week by announcing it was selling a 30 percent stake in DIRECTV to private equity firm TPG. However, the structure of the deal was somewhat eyebrow-raising. AT&T said DIRECTV would become a separate company that would also house U-verse and AT&T TV. In addition, TPG would hold two of the five board seats for the new company as well as have significant operational input.
The deal is expected to close in the second half of 2021 so what can we expect from the new DIRECTV when it does? Here are four possibilities.
1. Cutting Costs
With DIRECTV and U-verse rapidly losing subscribers to cord-cutting, you can expect considerable cost-cutting under new CEO Bill Morrow who served as AT&T’s cutter-in-chief for the last two years. AT&T officials last week tried to downplay the significance of appointing Morrow as DIRECTV’s new CEO, but the intention was clear nonetheless. The company didn’t pick someone with a history of implementing grand (and expensive) visions; it chose a shrink expert.
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How will Morrow and his team trim DIRECTV’s sails? You can expect programming packages with fewer channels to save on content costs. When a carriage deal is up for renewal, DIRECTV will take an even closer look at the channel’s value to its subscribers.
Plus, don’t be surprised if DIRECTV steals a page from Dish’s handbook and engages in lengthy channel blackouts in part to save money during the impasse. (The pay TV provider doesn’t have to pay the programmer during a blackout.)
By reducing overall expenditures, DIRECTV will increase profitability and make it more enticing for a prospective buyer, such as Dish.
2. Swinging for the Fences
While DIRECTV will seek to cut costs, both AT&T and TPG are anxious to increase the satcaster’s value to entice a potential buyer in a few years, whether it’s Dish or someone else. And one way to do that is to add exclusive features, or programming, that will attract new customers, and keep old ones.
For instance, while many analysts think DIRECTV is not interested in retaining the NFL Sunday Ticket when its contract expires after the 2022 season, it might bid for the exclusive rights in the pay TV category, and let a digital company such as Amazon, Google, ESPN+ or Comcast’s Peacock take the streaming rights. The cost would still be high, but it could be worthwhile.
The power of the football package to win over sports fans is not lost on industry officials, including Dish Chairman Charlie Ergen who commented last week that DIRECTV’s Sunday Ticket exclusive remains a gold standard for pay TV operators.
“We value programming as to how many people watch it. So for lack of a better word, cost per viewing hour, and what are the alternatives to get it. So obviously, to the extent that we had football exclusively, we had NFL season ticket that was an exclusive,” Ergen told financial analysts in a conference call.
If the Sunday Ticket is deemed too expensive, the new DIRECTV will still have friends in Hollywood who can whip up some exclusive programming; AT&T owns several content creators, including Warner Bros., Turner and HBO.
3. Changing Names and Eliminating Confusion
AT&T and TPG will likely imprint the DIRECTV name on all three TV services. They want to build value for DIRECTV so there’s no point in marketing U-verse as a brand, or even AT&T TV. AT&T is looking to exit the pay TV business sooner than later so it no longer needs to develop AT&T TV as a brand.
In addition, I think you’ll see the three services offer similar, if not identical, lineups and price points. (And they will be slimmer lineups than the ones DIRECTV has offered to date.) If you live in an area where high-speed Internet is unavailable, you’ll be able to get DIRECTV by dish. But if you just want DIRECTV as a streaming service, you’ll be able to get that. (U-verse will become DIRECTV, but will only serve the existing U-verse homes; the company will not try to market the U-verse IPTV system to new homes.)
The new DIRECTV, of course, will push streaming as the primary option because it’s cheaper to distribute. But company officials know that many rural residents need a satellite dish so it will continue to offer one. (Charlie Ergen is keenly aware of that, too.)
4. Eliminating the 2-Year Contract
AT&T last month decided to eliminate AT&T TV’s two-year contract requirement when it merged the streaming service with its sister business, AT&T TV Now. The company obviously realizes that the contract, which comes with a termination penalty if you cancel early, is a significant obstacle to attracting new customers. The new DIRECTV will roll the dice and eliminate contracts for all three TV services in the hope that it will slow customer defections.
Whether the new DIRECTV implements these four actions, or does something else, change is coming. John Stankey, AT&T’s CEO, said last week that TPG has some definite ideas on how to improve DIRECTV’s value.
“There are a couple of different avenues or ideas that I think our partners have around what we might be able to do to
position the asset differently moving forward and allow it to create some more value,” he said. “I think just like we evaluated every opportunity for this first step, we will be very diligent in evaluating second step options and weighing them out and looking at them, and they cover a fairly broad landscape of things we can consider.”
The TV Answer Man will continue to monitor the stake sale of DIRECTV to TPG and report back in these pages when new developments occur. Until then, happy viewing, and stay safe!
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Not mentioned, but I think it is safe to say the customer service will be a cost cut area, so the service will get much worse, not better.
The so called NON existing customer Service
could NOT get any Worse.
It basically does NOT exist
Please don’t shoot the messenger. I can’t agree with you more! It’s just that even well to do companies like Ring was bought out by Amazon, and they sent their support offshore and it totally sucks too. I also have experience offshoring help desks, so I know the driving force behind it is purely cost, and they really don’t care to much about the quality of the service. I too remember with Direct TV support was on shore and excellent.
Do you have any information on MOVING
Customer Service back to the US ?
That is MOST important IMPROVEMENT they could do.
My guess would be they will look for even cheaper offshore options.
There is NO WAY that ANYONE can pull what is left of DirecTV out of the HELL FIRE.
THEY are TERMINAL and when the stock starts to fall at AT&T there will be NO stopping it.
The FOOLS at TPG obviously are going senile and are ell in with a terminal disease company.
I can not imagine this deal ACTUALLY closing because the CLOSER they get to ACTUALLY PARTING with the MONEY, the MORE TPG will realize that they are paying AT&T for a DEAD HORSE.
DIRECTV will NEVER come back for the abyss it is in.
SATELLITE TV is DEAD. NO ONE wants to work for DIRECTV or AT&T and the VERY VERY limited ppl that know ANYTHING of AT&T won’t even consider working with what is left.
AT&T destroyed EVERTHING is touched and THIS is NO EXCEPTION.
MY prediction is that TPG will N-O-T close (as in fork over the doe) and AT&T will have to TERMINATE what is left of Directv.
Dish will pick up the stragglers and NOT have to fork over a PENNY…
You sound like your pretty confident in this statement, my guy.
If DirecTV/TPG is eventually sold to Dish and Charles Ergen is still in charge, I will bail as a customer faster than a local yokel running from the sherriff. I don’t like his management style and his willingness to inconvenience the customer for the sake of his bottom line. I would hope that a new reorganized board of directors would vote to unseat him and send him packing.
I wonder, what will the name be next month.
I have never seen a “company” change names so often.
I think they all ready said they would drop the AT&T name from all three brands, and just call it Direct TV.
I am a 26 year customer of Directv. I am wondering should I switch to Dish now or ride out what ever is going to happen with this sale?
That might be jumping out of the frying pan, and into the fire. I think the picture quality, especially with local channels is much better with Direct TV. Also by waiting, they may give you a more attractive offer to switch. Just my opinion only.
NO, Dish has the worst customer service in the business. I had Dish (2000-03) and Direct TV since 2003. Customer Service dropped when AT&T brought Direct TV but it is still better than Dish.
DirecTV will be gone before you know it well dish may or may not have the same programming at this stage the way DirecTV is bleeding it really won’t matter so if you want to save yourself the trouble go to Dish because at least they’ll still be here AT&T will file bankruptcy within the next 5 years the first sign of a failing business is selling assets and AT&T is selling everything they can and it still won’t help them pay their debt they overpaid for everything and they’re toast they’re gone they’re history and 5G will not save AT&T now or in the future
Charles Ergen is still a jerk, he doesn’t run his company to any advantage for the customer, his channel packages are more off than they are on. If you are into sports DISH’s offerings suck. I would say that neither satellite service is being run properly and they likely will BOTH shut down in 10 years+ time as the station keeping fuel runs out for both satellite clusters. Neither company is building or launching new sats. I don’t see DISH acquiring DirecTV either. DISH continues to lose customers at a little less rate than DirecTV, but he has less of them. As long as DISH continues to invest in his broadband infrastructure, he will not have the funds to acquire another satellite holding. Long term, both satellite services are kaput.
Customer service will be fully established back into the states by the end of the 4th qtr. That’s already been talked about and agreed on.