AT&T Keeping DirecTV Cards Close to Vest

Dish Network’s Charlie Ergen may think it’s “inevitable” about a satellite TV merger with AT&T’s DirecTV, but AT&T COO John Stankey is keeping his cards close to the vest.

Speaking March 3 at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco, Stankey appeared open to industry consolidation while underscoring the strength of satellite TV’s rural customers.

Characterizing any merger as “a little problematic” due to regulatory issues, Stankey reiterated that the $48.5 billion acquisition of El Segundo, Calif.-based DirecTV in 2015 was always about securing video customers for future distribution technology, i.e. over-the-top video and high=speed Internet.

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“We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not prevalent, oftentimes, more rural or less dense suburban areas,” Stankey said. “We’ll continue to offer it for customers on a stand-alone basis, who find its superior content offering to be something that they wish to have.”

AT&T’s WarnerMedia Entertainment is about to launch subscription service HBO Max in May, while just-released AT&T TV (formerly DirecTV Now) bowed March 2.

“We’re really pleased with what we saw [with AT&T TV] … that we would be able to replicate how customers were receiving the product in the other markets that we would enter where we own facilities and are able to pair video with broadband,” Stankey said.

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Regardless, at the time of the 2015 acquisition, AT&T U-verse and DirecTV had a combined 26 million customers in the United States and more than 19 million customers in Latin America, including Mexico and the Caribbean.

Flash-forward to the end of 2019 and AT&T had 19.5 million domestic pay-TV subscribers, with another 13.3 million in Latin America. That’s a decline of 25% and 30%, respectively.

Wall Street analyst Craig Moffett contends regulatory issues shouldn’t be a problem for DirecTV and Dish as they were in 2002 when the Justice Department sued to block a deal, saying the merger would stifle competition and hurt consumers.

“Satellite TV was growing by leaps and bounds at the time. Now it is in free fall. That alone may be enough to settle the debate; sure, two would be better than one, but both are credible bankruptcy risks on their own. Heck, they’d be a credible bankruptcy risk even together,” Moffett wrote in Sept. 30, 2019 note.

He contends a merger argument could best be presented to regulators as an act of preserving pay-TV for rural Americans without access to high-speed Internet.

“[That] would be a reasonably persuasive one,” Moffet wrote.

 

Charlie Ergen: Dish Network, DirecTV Merger ‘Probably Inevitable’

With Dish Network and DirecTV losing nearly 4 million combined linear TV subscribers in 2019, it seems just a matter of time before the two satellite TV operators combine operations.

That’s the sentiment coming from Dish CEO Charlie Ergen who is aggressively transitioning his company into a wireless telecommunications provider featuring a nationwide 5G network.

Speaking on the Feb. 19 fiscal call, Ergen said is “probably inevitable” Dish and DirecTV would merge due to ongoing consumer migration away from linear television.

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“Growth in TV is not coming from linear satellite TV providers,” Ergen said.

Indeed, it’s not. DirecTV and AT&T U-verse lost 945,000 subs in the fourth quarter, while Dish lost 194,000, which was an improvement from 338,000 subs lost in the fourth quarter 2018.

Ergen said industry growth is being driven by “huge programmers and trillion-dollar companies” putting immense resources into streaming video. The executive contends over-the-top video has become so pervasive that regulatory issues regarding a possible merger between Dish and DirecTV would be minimal.

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“Obviously there still could be regulatory issues there. And we’ll have to see how that all develops, but [a merger] to me seems, and maybe each company only has two subscribers when you put them together, but eventually those two are probably going to, that’s going to make some sense,” Ergen said. “Because you can’t swim upstream against a real tide of big OTT players.”

While AT&T has 3 million fewer pay-TV subs since acquiring DirecTV in 2015, COO John Stankey contends the pay-TV operator — via high-speed Internet service — is integral to the successful launch of HBO Max.

Stankey has suggested DirecTV suffers competitively by not being able to bundle high-speed Internet to consumers as Comcast does.

“Where we’ve built better broadband, the [pay-TV] business is performing just fine,” he said late last year.

 

AT&T Reportedly Considering Spinning Off DirecTV or Merging Unit With Dish Network

Facing mounting mergers-and-acquisition debt, criticism from an activist investor and changing consumer habits toward pay-TV, AT&T is reportedly considering spinning off its DirecTV subsidiary or combining it with competitor Dish Network.

The Wall Street Journal, citing sources familiar with the situation, said CEO Randall Stephenson is exploring the option despite telling an investor event this week he still the supports the satellite TV business AT&T acquired in 2015 for $49 billion.

While nothing could come of the situation, Dish co-founder/CEO Charles Ergen Sept. 17 told the same investor group he welcomes merging the two satellite providers. Ergen tried pursuing DirecTV in 2014, but lost out to AT&T.

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Indeed, with 12 million subscribers — largely buttressed by standalone online TV service Sling TV — Dish would benefit from consolidation. AT&T has projected it would lose more than 1.4 million satellite subs in 2019, including rebranded DirecTV Now (AT&T TV) online subs.

However, when the former parents of Dish and DirecTV considered merging in 2001, federal regulators quashed the idea on antitrust issues.

The Trump Administration is still licking it wounds from a failed attempt to block AT&T’s acquisition of Time Warner — a move some observers contend was largely based on politics involving the president’s dislike of Time Warner subsidiary CNN.

How that would impact a Dish/DirecTV combination is anyone’s guess.

“From a regulatory perspective, it hasn’t been successful and I don’t know that there is any change in that regulatory perspective,” AT&T CFO John Stephens said recently. “I understand the industrial logic, but quite frankly it’s been tried and has been rejected.”

Dish Chairman Charlie Ergen: Streaming Video ‘Bloodbath’ Coming

With a slew of new subscription streaming video services about to enter the market, Dish Network co-founder/chairman Charlie Ergen believes the competition to establish market share against Netflix, Amazon Prime Video and Hulu, will get intense.

Speaking Sept. 17 at the 28th annual Goldman Sachs Communacopia confab in New York, Ergen said the landscape “is going to be a bit of a bloodbath for a while,” as services fight for content licenses and lure consumers with loss-leader subscription plans.

While no stranger to digital distribution, Dish Network was a pioneer launching Sling TV in 2015 featuring the first standalone access to ESPN and other premium pay-TV channels.

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“The game now is to load up your [content] channels and get as much shelf space as you can, while you undercut them [pay-TV] with your direct-to-consumer offering,” Ergen said.

Sling TV ended the most-recent fiscal period with almost 2.5 million subscribers. Dish, which buttresses ongoing pay-TV sub losses with online TV, is pivoting with a strategic move into wireless distribution.

In a shrewd deal, Dish helped facilitate T-Mobile/Sprint merger anti-trust issues with regulators by getting the two telecoms to sell prepaid wireless service Boost Mobile and related spectrum assets to the satellite TV operator for $5 billion.

The prepaid businesses, including Boost Mobile, have about 9.3 million customers in all 50 states and Puerto Rico.

“Sling TV is a long-term play with technology that will pay dividends for us, particularly as we go into wireless,” Ergen said.

Dish will activate all new wireless customers on the New T-Mobile network. Existing prepaid customers will be supported on the Sprint legacy network and will eventually transition to the New T-Mobile network.

“These developments are the fulfillment of more than two decades’ worth of work and more than $21 billion in spectrum investments intended to transform Dish into a connectivity company,” Ergen said. “Taken together, these opportunities will set the stage for our entry as the nation’s fourth facilities-based wireless competitor and accelerate our work to launch the country’s first standalone 5G broadband network.”

Dish Consolidates Satellite TV Holdings

Dish Network May 20 announced it is combining certain EchoStar operations and other assets that comprise the company’s satellite business, including nine direct broadcast satellites and the certain key employees responsible for operations.

The 22.9 million stock transaction, which includes select real estate properties, will be distributed to EchoStar shareholders.

Dish in 2017 acquired select EchoStar assets to better deliver linear pay-TV and online platform Sling TV to subscribers. Key broadcast satellite operations and services remained with EchoStar, which is also owned by Dish chairman Charlie Ergen.

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“This transaction brings those operations, including the BSS satellites, associated assets and key team members, in house and we expect those additions will create operational efficiencies and improve both free cash flow and pre-tax earnings,” Dish CEO Erik Carlson said in a statement.

The transaction is structured to be a tax-free exchange and is expected to close in the second half of 2019, subject to satisfaction or waiver of closing conditions.

Dish Expects More Sub Losses When HBO’s Final ‘Game of Thrones’ Season Begins in April

Dish Network lost more than 1 million video subscribers in 2018, including 334,000 in the fourth quarter, ended Dec. 31, 2018. The satellite pay-TV operator attributed the losses to ongoing carriage disputes with Univision and HBO.

With HBO set to begin the airing the eighth and final season of “Game of Thrones,” on April 14, Dish chairman Charlie Ergen believes sub losses could increase unless an agreement is reached. He said Dish subs have learned to live without HBO due in part to the channel’s lack of significant new programming in Q4 (with the exception of “True Detective”).

“I think that realistically you would expect that when “Game of Thrones” comes on you may see a pickup in defections,” Ergen said on Feb. 13 fiscal call – adding that losing long-time distribution partners underscored the changing dynamics of pay-TV in an era of over-the-top video.

Indeed, some analysts attributed 200,000 of Dish’s Q4 sub losses to the HBO dispute – a figure management didn’t entirely dispute – and the reality consumers can access the premium channel as standalone product HBO Now and via Amazon Channels.

CEO Erik Carlson said that with HBO owner AT&T an active satellite competitor (via DirecTV), negotiations remain at an impasse.

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“HBO is demanding a [carriage] contract that would have forced Dish customers to subsidize both HBO and Cinemax even if customers chose not to subscribe to those services,” Carlson said.

Dish charged subscribers $15 and $10 monthly for HBO and Cinemax, respectively, under the previous contract.

The executive said AT&T/HBO’s negotiating strategy underscores Dish’s ongoing opposition to the AT&T/Time Warner merger that created AT&T’s  WarnerMedia unit.

The merger, which has been appealed by the Justice Department, is currently under review by a federal appeals court judge.

“Our view hasn’t changed: AT&T’s uncompromising stance remains the fundamental negative of their merger with Time Warner,” Carlson said.

 

Dish Network Owner Eyeing U.K. Satellite TV Market?

NEWS ANALYSIS — On the heels of 21st Century Fox, the Walt Disney Co. and Comcast collectively coveting U.K. satellite TV operator Sky, Denver-based EchoStar Corp. is also gazing across the pond.

Headed by Charlie Ergen, majority owner of Dish Network, EchoStar reportedly made an offer for Inmarsat, a London-based satellite telecommunications company with more than $1.4 billion in revenue in 2017.

While Inmarsat’s stock price jumped 14% following the undisclosed financial offer, the company considered it below its market value and rejected it.

“It very significantly undervalued Inmarsat and its stand-alone prospects,” the company said in a June 8 statement. “The board remains highly confident in the independent strategy and prospects of Inmarsat.”

Unlike Disney, Fox and Comcast’s interests in Sky’s 10 million pay-TV subscribers, Ergen is more interested in Inmarsat’s radio spectrum portfolio.

As media distribution increasingly becomes wireless, spectrum plays a key role in how that distribution channel works. Most major industries rely on wireless technologies that depend on spectrum access to function, including cellular, broadcast and satellite.

In the United States, regulatory responsibility for the radio spectrum is divided between the Federal Communications Commission (FCC), and the National Telecommunications and Information Administration (NTIA).

In 2017, Ergen reportedly spent $6.2 billion acquiring spectrum rights in government auctions – second only to T-Mobile. Dish reportedly owns about $35 billion worth of spectrum rights in the U.S., despite not yet operating a wireless network – as do Verizon, AT&T, T-Mobile, Sprint and Comcast.

Cellular distribution was one of the reasons Dish acquired the bankrupt Blockbuster Video chain in 2011. It had hoped to use the video store’s retail footprint to jumpstart branded and third-party mobile devices. That strategy stalled in 2013 when Dish shuttered the remaining Blockbuster-owned stores.

In 2015, Dish Launched Sling TV, the industry’s first online TV service. With more than 2 million subscribers, Sling TV represents Dish’s future as traditional linear TV declines.

With AT&T launching DirecTV Now, Charter operating Spectrum TV Plus, and Disney bowing ESPN+, Ergen has voiced interest in launching a wireless network by 2020 to better accommodate Sling TV to mobile consumers.

A year ago, Comcast did just that bowing Xfinity Mobile – a wireless service targeting the cabler’s 25 million broadband subscribers.

“Wireless is hyper competitive,” Dave Watson, CEO of Comcast Cable, said last year.“We will measure our success very differently than other wireless carriers. It will be designed to support the core cable business.”

Indeed, Ergen has similar designs involving Dish Network, and could license his spectrum portfolio or use it as leverage to entice merger and acquisition offers from third parties. Last December, Ergen stepped down as CEO of Dish to focus on wireless. Maybe that will include revisiting the Inmarsat offer.