Rumblings are getting louder about a potential merger of leading satellite TV distributors DirecTV and Dish, with stocks in both services’ parent companies gaining ground in Friday trading.
Dish shares rose 2.5% to $37.10, their highest level in a year and a half. AT&T shares closed the week at $32.49, up more than 1% for the day.
The scenario being floated on Wall Street would have AT&T spinning off DirecTV, which it bought for $67.1 billion in 2015, to Dish. Such a deal would relieve mounting pressure on AT&T in terms of its debt, which grew substantially after the $81 billion Time Warner deal closed last year. For Dish, the additional scale would improve its prospects, especially after its acquisition of broadcast spectrum has failed to bear fruit in terms of a long-promised wireless network buildout.
While the consolidation of the two dominant satellite TV players once would have been unthinkable — and, in fact, was scuttled by regulators in 2002 when they had different owners — longtime industry observers say the landscape is much different now.
“The video market has changed meaningfully,” UBS analyst John Hodulik wrote Thursday in a widely circulated research note. In 2002, “internet TV was in its infancy (YouTube founded in 2005), social media non-existent and MVPDs were enjoying robust growth.” Today, he continued, traditional distributors are de-emphasizing video as ratings and subscribers keep falling. Virtual MVPDs and subscription streaming offers ever-growing competition. Washington’s OK for the XM-Sirius satellite radio merger, and possibly the pending T-Mobile-Sprint combination, bode well, Hodulik added.
Both satellite businesses are in secular decline, with Hodulik projecting they will shed a combined 2.8 million subscribers — 14% of their total subscribers — in 2019 alone. AT&T’s premise for buying Direct, echoed by Comcast’s recent purchase of Sky, was to acquire the personal information for a wide base of subscribers, which could drive customer acquisition and synergies elsewhere. But efforts like DirecTV Now, the internet-delivered, “skinny” companion service launched in 2016, have met with mixed success.
On Friday, Bloomberg ran a story on its professional terminal service — the contents of which were then reported by Reuters — that Dish is “open” to possibly adding DirecTV. Official merger talks, the report said, have not started.
A rep from Dish declined to publicly acknowledge the merger speculation. AT&T did not respond to Deadline’s request for comment.