DirecTV to merge with Dish Network?
May 3, 2011
‘These two arch rival should come together’ is the message contained in an investor’s note from Bernstein Research’s highly-regarded media analyst Craig Moffett. He suggests that DirecTV and Dish Network should merge into one operation. He adds that satellite TV’s real enemy is cable, ADSL and just about everyone else supplying or streaming content, and not each other. “A slow trickle of client inquiries on the topic has recently turned into a steady stream,” he says, and the idea is far from crazy.
Moffett cites as an example the current scheme to bring together AT&T and T-Mobile, two former telco rivals now seeking regulatory approval for their combination. “Consolidation stories are in the air, and the proposed (AT&T/T-Mobile) combination has redefined what might be possible,” he argues. “While regulatory approval of AT&T’s deal is no slam dunk, we believe we’re not far outside of consensus in suggesting that must be deemed more likely than not. At the very least, if the AT&T deal is approved it would be harder for the FCC or the Department of Justice to argue that a merger between DirecTV and Dish would be unthinkable.”
In fact, for some years now the received Wall Street wisdom has been that one of the telco giants (AT&T, or Verizon) would end up buying DirecTV. This thought is based on the knowledge that back in 2002 the Justice Department ruled out a proposed merger between DirecTV and the then EchoStar.
He suggests the time might well be right for that deal to be resurrected. After all, the DoJ approved the merger of XM and Sirius Satellite Radio, and looks like approving this latest AT&T/T-Mobile deal. The satellite industry, he argues, “just completed its slowest growth year in history (2% growth last year, compared to 12.8% in 2002)” as far as subs and revenue are concerned. He states that DSL, a natural ally for satellite, is in “unmistakeable decline,” losing ground to the cable competition. As time goes on more and more satellite viewers will have cable’s broadband connections. “The cable operators will increasingly hold satellite’s throat in their hands,” he states in his note. “Cable will have the wherewithal to slowly choke the life out of DirecTV and Dish simply by shifting their annual price increases from video to broadband.”
Moffett’s arguments are soundly made, saying that there would be substantial cost savings, plus huge savings in programming fees and the need for far fewer satellites.
Moffett admits there’s absolutely no sign that the two outfits are contemplating any sort of merger. “But they have to be giving it some thought.”