Could DirecTV and Dish merge?

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There has been widespread gossip in recent days that DirecTV and Dish Network might be ripe for some sort of merger. A Bloomberg report on June 7th said that while no active talks were going on, Dish Network was “open” to discussions. The Dallas Business Journal (AT&T has a HQ in Dallas) added that AT&T were also open for talks.

On June 6th an analyst from investment bank UBS made a compelling case for some sort of coming together for these two pay-TV giants.

John Hodulik says that the two would lose around 14 per cent of their core subscribers this year, and with this evaporation not helped by cord-cutting (or ‘Dish Scrapping’) in favour of Netflix, Amazon, Hulu and further threatened by promised OTT offerings from Warner Media and Disney.

Some 17 years ago a similar merger was proposed between the (then) General Motors-owned DirecTV and Echostar’s Dish Network. The FCC and Dept. of Justice nixed that merger, but today’s pay-TV environment – plus the likes of YouTube – is hugely different with ample competition between the players and with 5G just around the corner.

Hodulik says a combination makes sense, with tax advantages for AT&T (DirecTV’s owner) and the duo would save anything between $1.5-$2.5 billion in synergies, reduced programming costs, lower hardware replacement and the inevitable staff reductions. He argues that DirecTV is the “weakest piece in the AT&T puzzle”.

He says there are plenty of way such a merger could be structured but suggests the most likely – in his view – is for Dish to acquire DirecTV but with AT&T holding onto a minority stake in the NewCo.

Combined, he says there would be revenues of around $44 billion, and be a true pay-TV giant of 25 million subs. Hodulik says that Dish’s programme costs are about $62 a month/sub, while cable business Charter has costs of $59 a month and Comcast just $52. Saving just $3 per sub/month would save the NewCo about $1 billion annually.

As to the threat of a satellite monopoly being created, observers point to the similar state of play between Sirius Radio and XM Satellite Radio and their permitted merger in 2008.

Dish is especially vulnerable having seen its subscriber base eroded from 14.1 million in to 9.64 million over the past few years. While some have migrated to the lower cost SlingTV, Dish/Echostar have no phone, broadband or cellular service to bundle for subscribers. AT&T/DirecTV can – and does – bundle such services.


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