AT&T has hired investment bank Goldman Sachs to advise it on a sale of its DTH pay-TV operation DirecTV.
AT&T bought DirecTV back in 2015 and – including the operator’s borrowings – paid some $67 billion overall ($49 billion plus debts).
But the AT&T purchase happened with the rise and rise of rival content bouquets from the likes of Netflix and Amazon Prime, not to mention the more recent OTT rivals from HBO, Hulu, Disney, Comcast, YouTube TV, Sling and Apple+. Joining the temptations for consumers are very low-cost devices such as Roku, Fire TV, Nvidia Shield and others, each chasing after user loyalty.
The Wall Street Journal says that Apollo Global Management and Platinum Equity are seen as potential buyers. Besides asking ‘why anyone would be foolish enough to buy DirecTV?’, the answer is probably in the platform’s free cashflow. Back in January 2020, AT&T told the LA Times that DirecTV had generated some $22 billion of free cashflow since 2015. That’s real money, and even in a “managed decline” (a phrase used by many observers) that could be useful to a new buyer looking to trim costs.
However, some 7 million of AT&T’s television subscribers (made up of DirecTV, U-Verse and AT&T TV and AT&T Now services) have deserted the business since mid-2018. AT&T’s Q3/2020 overall subscriber numbers were 18.4 million. There’s also a question concerning the value of DirecTV’s expensive sports rights: Globally, sports rights are going down in value and they are seen by some operators as being less important. Trimming those costs could benefit an incoming buyer.
The WSJ says that AT&T’s plan is to hold on to 50 per cent of DirecTV, but the larger question is how much an incoming buyer would pay for what is a declining asset in terms of subscriber numbers.
Most observers suggest any payment would be much less than the $49 billion paid in 2015 with some pessimists including John Butler of Bloomberg Intelligence – talking about only $20 billion.
There’s always the possibility that Charlie Ergen could step into the breach and propose a merger between his DISH Network and DirecTV. A report on CNBC on August 31st said that AT&T was not talking to DISHNetwork. A past attempt in 2001 to merge the two DTH rivals was stymied by arguments that a monopoly would be created. That argument would not work today, given the number of pay-TV rivals.
However, perhaps an incoming buyer would take the business back to its original basics which was to provide multichannel TV to non-urban areas and the millions of Americans who live in smaller, isolated rural communities.
Launched in 1994 DirecTV, then owned by Hughes Electronics and with help from Thomson Consumer Electronics, it made much of its digital images (using the then sexy new MPEG-2 compression technology) and a truly massive choice of channels and services.
But AT&T must move. Its $178 billion of net debt, not helped by its purchase of Time Warner (now Warner media) for $109 billion and the TV and movie production shut-downs because of the Covid virus means something will be done sooner than later. And don’t rule out Charlie Ergen!