May 1, 2014
DirecTV Acquisition Mulled Over By AT&T
Peter Suciu for redOrbit.com - Your Universe Online
On Thursday the Wall Street Journal reported that according to people familiar with the matter AT&T has approached DirecTV about a possible acquisition of the satellite pay TV service. This latest shake-up in the television industry could result in a pay TV giant on par with Comcast Corp. when it completes its now pending acquisition of Time Warner Cable.
AT&T’s landline-based TV business now currently has around 5.7 million subscribers, while DirecTV is currently the nation’s second largest pay TV operator (after Comcast) with about 20 million customers. That would place it a bit behind Comcast’s 30 million subscribers – once the TWC deal is completed.
The WSJ reported that such a deal would run at least $40 billion, which is DirecTV’s current market capitalization. That is still a fraction of AT&T’s $185 billion market capitalization.
As noted, DirecTV is the second largest pay-TV subscriber in the United States, but since 2010 has actually seen its rate of subscriber growth fall each year compared with the prior year. Last year the satellite service also lost subscribers in a single quarter for the second time ever. Much of this is blamed on the firm’s inability to offer Internet access that is competitive with cable and phone companies.
However, there is also increased competition in the pay TV market, which could have limited DirecTV’s growth.
“It is also that satellite has been saturating its addressable market,” said Greg Ireland, research manager for multiscreen video at IDC. “For a long time it was the only alternative to cable. Now we have telco services that can offer a triple play. The telcos offer a viable alternative to cable. That hadn’t existed in years past.”
DirecTV does have some bundles as well, but Ireland told redOrbit that one real issue is that is that there has been increased competition, while at the same time it has been more selective with its customers.
“They’re increasing credit checks before signing up new customers,” added Ireland. “This is a way that ensures that they don’t have to chase customers to get paid. That in turn has limited their ability to grow.”
Moreover DirecTV has been chasing the international market, even as the US market has stagnated. DirecTV now has 17 million customers in Latin America, according to USA Today.
This is not the first time that DirecTV has been named as a potential merger candidate. USA Today also reported that in March, unconfirmed reports surfaced that DISH Network had put out feelers for a potential merger with DirecTV. The two companies had tried to merge more than a decade ago, but were unable to get approval from regulators.
The WSJ also noted that even now a merger between AT&T and DirecTV could still face some challenges, especially as the Comcast/TWC deal faces tough regulatory scrutiny.
“A second pay-TV merger would likely intensify regulatory and political questions surrounding consolidation in the industry,” the Wall Street Journal reported. “Any acquisition would likely be evaluated by the Justice Department for its impact on competition and would require approval by the Federal Communications Commission. The companies would have to prove to the FCC that the transaction would be in the public interest and the combined company would be able to offer consumer benefits not possible outside the merger.”
The paper added that persons familiar with this merger predicted it stood a “solid chance” as the business of offering video or voice service alone is very much viewed as a dying business and a combined company could find itself in a better position to compete against Comcast.
However, competition in the broadband market will likely remain a central issue in any regulatory review.
DirecTV and AT&T both declined to comment on the rumors of this potential merger.