The pay-TV rabble-rouser has used that word before to describe the longtime satellite rivals, and he stipulated during a call with Wall Street analysts after Dish’s third-quarter results that he had no new inside information to impart. But he said private-equity firms controlling DirecTV — the most likely near-term scenario as bids are evaluated by AT&T — means that “whether it’s a year from now or 10 years from now, I believe it’s inevitable those companies come together.”
AT&T has not commented publicly on the process of retooling its pay-TV operations, which lost more than 600,000 subscribers in the third quarter. A spokesperson declined to comment on the status of the DirecTV discussions when contacted by Deadline. CNBC recently reported that one scenario being considered would see AT&T remain an investor while shifting the ailing asset off its debt-ridden balance sheet. Apollo Global Management is seen as one candidate to take the lead role in operating DirecTV, though offers from others are in the mix and the process is expected to last for another month or so.
After buying DirecTV for $49 billion in 2015, AT&T is said to be fielding offers valuing it in the $15 billion-$20 billion range, making the acquisition one of the least successful in recent media business history. With $151 billion in net debt, AT&T is exploring a range of asset sales as well as cost reductions. The company’s stock has recently slumped to about $27, a 10-year low, and it remains committed to paying a shareholder dividend. It is unlikely to be able to suspend the dividend given the high level of individual ownership of the stock, as opposed to institutional holders who don’t necessarily count on dividend income.
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While the traditional satellite business is in secular decline, streaming TV packages have shown flashes of promise. Dish’s Sling TV gained more than 200,000 subscribers in the third quarter, reaching almost 2.5 million overall, and YouTube and Hulu both have surpassed the 3 million mark. AT&T TV Now, which launched in 2016 as DirecTV Now, has stumbled badly over the past couple of years, reporting 683,000 subscribers last month, about one-third of the nearly 1.9 million it had at its peak.
One reason for the steady dropoff has been a shift in corporate focus, with AT&T emphasizing AT&T TV, a streaming TV setup it rolled out nationally in March. Unlike the Now offering, AT&T TV requires a contract and hardware. Former CEO Randall Stephenson said in 2019 it would be the “workhorse” for the company, making it clear that DirecTV had lost that status.
David Gandler, CEO of emerging streaming TV provider FuboTV, which recently went public and projects having at least 410,000 subscribers by the end of 2020, says private equity money is not a cure-all for DirecTV, especially its internet bundle. “It requires technical innovation and a commitment to delivering a product that consumers genuinely love,” he said in an interview. “It’s not just something you throw money at.”
Ergen said one driver of a potential Dish combo is that many programmers doing distribution deals with satellite operators “have their own OTT product that competes well with what we do,” making it important to have muscle. Also, despite regulators’ concerns, he argued, “It’s in the consumer’s interest that there be scale.”
The restructuring of DirecTV likely would need to happen before AT&T is willing to take on “regulatory risk,” Ergen said. The company’s $85 billion takeover of Time Warner was waylaid for months after it was near Justice Department approval. The DOJ’s antitrust division filed an eleventh-hour lawsuit seeking to block the deal, but it was firmly rejected by a federal judge, a decision upheld on appeal. The experience of fending off the suit was a lengthy and costly one that AT&T is unlikely to want to repeat.
Elsewhere during the earnings call, Ergen said linear sports programming is “part of the ecosystem” and a sector that is “going to be around for a long time.” Despite dropping the 22 formerly Fox-owned regional sports networks now run by a Sinclair Broadcast Group-led consortium, “We haven’t given up on sports.”
Ergen said it is increasingly vital for the economics and details of sports TV to be overhauled. “Things have to change,” he said, including the traditional model of assessing carriage fees to all subscribers for programming only some of them watch.
Asked about T-Mobile’s just-launch TVision service, whose packages start at $10 a month, Ergen called it “aggressive and competitive.” He added, “We’ll have to be on top of our game to compete. They’re obviously knocking the ball out of the park in terms of execution.”
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