AT&T Closes DirecTV Spinoff, Video Services Branded DirecTV Stream

AT&T and TPG Capital have closed their transaction establishing a new company named DirecTV. The new company will own and operate the DirecTV, AT&T TV and U-verse video services previously owned and operated by AT&T.

The newly branded DirecTV Stream will become the single brand for video streaming services previously launched by AT&T, excluding HBO Max. The transition will happen later this month. As a part of the deal, AT&T satellite, streaming or IP video customers will automatically keep their video service, any bundled wireless, internet or HBO Max services, and associated discounts with no action needed.

Not included in the transaction are WarnerMedia’s HBO Max streaming platform and regional sports networks, both of which are part of the pending WarnerMedia-Discovery transaction; Vrio (AT&T’s Latin American video operations, which are being sold to Grupo Werthein); U-verse network assets; and AT&T’s Sky Mexico investment. DirecTV will continue to offer HBO Max to subscribers along with any bundled wireless or broadband services and associated customer discounts.

DirecTV had approximately 15.4 million premium video subscribers at the end of the second quarter of 2021.

AT&T contributed its U.S. video business unit to the new entity in exchange for preferred units as well as a 70% interest in the common units of DirecTV. TPG contributed approximately $1.8 billion in cash to DirecTV in exchange for preferred units and a 30% interest in common units of the new company.

The DirecTV board will include Bill Morrow, CEO of DirecTV, and voting board members Steve McGaw and Thaddeus Arroyo, appointed by AT&T; and David Trujillo and John Flynn, appointed by TPG.

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“This is a watershed moment for DirecTV as we return to a singular focus on providing a stellar video experience,” Morrow said in a statement. “Building on our recent momentum, we are well-positioned to bring unparalleled choice and value to all of our customers under one iconic brand, whether they beam it or stream it.”

At close, AT&T received $7.1 billion in cash ($7.6 billion net of approximately $470 million cash on hand) and transferred approximately $195 million of video business debt.

Walmart Expands Board With Ex-AT&T Boss Randall Stephenson Appointment

NEWS ANALYSIS — Walmart has named former AT&T CEO Randall Stephenson to its board of directors, effective March 3, expanding the board to 12 members. Stephenson, who retired less than 12 months ago with a reported $270,000 monthly pension and benefits after 13 years as CEO of AT&T, is being sought for his “leadership skills and insights in finance, technology, retail and brand management,” according to Greg Penner, chairman of the Bentonville, Ark.-based retail behemoth’s board.

“We look forward to working with him as we drive Walmart’s strategy forward and continue providing effective governance for all our stakeholders,” Penner said in a statement.

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Stephenson will join a board whose annual compensation per member ranges from $260,000 to Penner’s $500,000 — with virtual meetings occurring as often as determined to be “necessary or appropriate.”

No doubt Stephenson has experience at the highest levels within corporate America. He also has a fiscal legacy some might question as less than effective. When the 60-year-old Stephenson departed AT&T, he left the telecom-turned-Hollywood player saddled with a staggering $180 billion in debt — a fiscal burden AT&T continues to labor downsizing to manageable levels.

The bulk of that debt was incurred following two high-profile Stephenson-led acquisitions: The 2014 purchase of DirecTV for $67 billion, including the assumption of satellite TV operator’s debt; and the 2016 acquisition of Time Warner for $85 billion, plus assumption of the media giant’s outstanding debt. Time Warner properties Warner Bros., HBO (and HBO Max), and Turner operate under the WarnerMedia umbrella.

Following closure of the Time Warner deal former President Trump’s Justice Department tried to derail, citing antitrust issues, activist hedge fund Elliott Management sent a letter to Stephenson and the board questioning why AT&T needed to own a movie studio, and wondering if the telecom could pay off its debt, among other issues. Elliott later sold all of its 5 million AT&T shares.

Indeed, no sooner had the ink dried on the DirecTV deal than the pay-TV operator began hemorrhaging subscribers to over-the-top video competitors such as Netflix — a common theme within linear TV. Subsequent efforts to hitch a ride to online TV via DirecTV Now failed. The platform is now called AT&T TV Now, with AT&T announcing a $10 monthly rate hike, effective in April. AT&T’s legacy pay-TV platforms lost a combined 617,000 subscribers in 2020.

Through Dec. 31, 2020, AT&T wrote off $15.5 billion for the DirecTV business. That came in addition to a $13.8 billion AT&T fiscal loss in the fourth quarter and a $5.2 billion loss for the fiscal year. In February, AT&T spun off 30% of DirecTV in a $8 billion cash deal with private equity group TPG to to create “New DirecTV,” encompassing satellite, online TV and cable service U-verse.

“The AT&T deal with TPG is good, it will keep investors, workers, customers and executives happy,” analyst Jeff Kagan wrote in a March 1 blog post.

AT&T Spinning Off Pay-TV Units in $8 Billion Cash Deal

As expected, AT&T Feb. 25 announced a $8 billion cash deal with private equity group TPG to create a new company, dubbed New DirecTV, encompassing satellite TV operator DirecTV, online TV platform AT&T TV and cable service AT&T U-verse.

The telecom giant said it would use the funds to pay down debt accrued in its $85 billion acquisition of Time Warner in 2016, in addition to focusing company interests on WarnerMedia, HBO Max and 5G.

Under terms of the transaction, which is expected to close in the second half of the year, New DirecTV will be jointly governed by a board of directors with two representatives each from AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T’s U.S. video unit. Following the close of the transaction, AT&T will own 70% of the company and TPG will own 30%.

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AT&T expects to receive $7.8 billion ($7.6 billion in cash and the assumption from AT&T of $200 million of existing DirecTV debt). TPG will contribute $1.8 billion in cash to New DirecTV in exchange for preferred stock units.

“[The deal] supports our deliberate capital allocation commitment to invest in growth areas, sustain the dividend at current levels, focus on debt reduction and restructure or monetize non-core assets,” CEO John Stankey said in a statement.

AT&T has for some time tried selling off its pay-TV units, with little success. The premium TV business is shrinking as consumers gravitate toward over-the-top video services, including online TV. The company reported a loss of 617,000 subscribers in the most-recent fiscal quarter. It ended 2020 with 16.5 million combined DirecTV, AT&T TV and U-verse subs, down from 19.5 million at the end of 2019.

That AT&T TV is included in the deal underscores the telecom’s ongoing challenges in the niche market — as well as offering TPG a stake in an online TV ecosystem led by Disney-owned Hulu+Live TV with more than four million subscribers.

“As video consumption habits evolve, the new DirecTV will continue investing in its offering to provide value to its customers, including through next-generation streaming pay-TV services,” said David Trujillo, partner at TPG.

Redbox Owner in Talks to Buy AT&T’s DirecTV Business

Apollo Global Management, the investment group that acquired Redbox in 2016 for $1.6 billion, reportedly is in the running to acquire AT&T’s satellite operator DirecTV.

Apollo, along with Churchill Capital Corp. IV, have submitted separate bids around $15 billion for control of the El Segundo, Calif.-based DirecTV, which AT&T acquired in 2015 for $66 billion, including debt, according to The Wall Street Journal. AT&T would still be majority owner while relinquishing operational control of the pay-TV unit. A decision is expected early next year.

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The telecom is attempting to reduce its triple-digit billion-dollar debt load after acquiring Time Warner for $85 billion in 2018, which led to the creation of WarnerMedia.

DirecTV, like most pay-TV distributors, is losing video subscribers to less-expensive over-the-top video platforms such as Netflix, Disney+, Hulu and Amazon Prime Video. AT&T is staking much of its future on streaming video through the launch of HBO Max and separately as a major distributor of high-speed Internet.

Speaking Dec. 8 on a virtual investor event, AT&T CEO John Stankey said that he is pleased with the company’s progress in managing costs and corporate structure and overhead and will continue these efforts. He said a focus on corporate efficiency has resulted in lower distribution costs even as volumes continue to improve and that the coronavirus pandemic has further accelerated a move to digital customer engagement that was already underway. Stankey reiterated that AT&T continues to take a deliberate and thorough approach to monetizing non-core strategic assets such as DirecTV.

“We still have opportunities to do some things around rejiggering our portfolio,” Stankey said. “We’ll continue to force ourselves to look at those hard decisions.”

 

AT&T Ups Effort to Sell DirecTV, Xandr and Crunchyroll

After years of acquisitions, AT&T is on a sales mode. The telecom’s on-again, off-again love affair with satellite pay-TV distribution appears to be off again. The company has reportedly hired a major investment banker to help unload DirecTV, which it acquired in 2015 for $48.5 billion just as online TV and subscription streaming video-on-demand was flourishing.

AT&T is also looking to offload anime-based streaming service/publisher Crunchyroll and Xandr, the online advertising unit launched just two years (following the $1.8 billion acquisition of AppNexus), but has struggled to gain traction due to a variety of issues in the rapidly changing digital ecosystem.

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With nearly $180 billion in debt following the $85 billion purchase of Time Warner (now WarnerMedia), AT&T has been looking to cut non-core assets. The debt is now down to $152 billion, and despite repeated denials from senior executives over the years, DirecTV appears to be on sales block.

The Wall Street Journal reports AT&T is working with Goldman Sachs to find a buyer willing to pay around $20 billion for 50% stake in the El Segundo, Calif.-based pay-TV operator. The sale is challenged by ongoing secular changes in home entertainment underscored by the loss of 7 million combined DirecTV/AT&T U-verse video subs in the past year.

As subscription streaming video-on-demand services such as Netflix, Amazon Prime Video and Hulu proliferate, AT&T has attempted to straddle traditional linear TV distribution with over-the-top video. The company has now moved much of its content distribution future into HBO Max, the $15 monthly SVOD platform, which plans to offer an ad-supported tier in 2021.

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“To the extent that we’re able to get those [pay-TV] customers engaged with us on those [streaming] platforms, then we’re in a good place, and we’re OK with that,” CEO John Stankey told CNBC in July. “And if that takes us down a path that says satellite delivery is less important, so be it.”

A possible merger with rival Dish Network is a favorite proposition for Dish founder/CEO Charlie Ergen, but some observers say the idea would trigger anti-trust issues from the government.

Xandr, which generated about $2 billion in revenue in 2019, had hoped to capitalize on the burgeoning digital ad market focusing on non-video displays. That strategy has apparently backfired as online video ads dominate and online TV publishers were reluctant to sell their ad inventory through Xandr due to AT&T’s competing HBO Max platform, The Journal reported, citing sources familiar with the situation.

Crunchyroll, which AT&T acquired in its purchase of Otter Media, is on the block for a reported $1.5 billion with interested suitors including Sony Corp.

Movies Anywhere Adds DirecTV

Cloud-based library service Movies Anywhere has added DirecTV as a participating digital retailer.

The launch includes a limited-time promotion through Sept. 9 allowing new and existing registered Movies Anywhere users to choose a complimentary digital movie to add to their collection when they connect any digital retailer to their Movies Anywhere library for the first time. Users will get their choice of one Warner Bros. digital movie from five available in up to 4K resolution:  The Lego Movie 2: The Second Part, Smallfoot, The Meg, The Matrix and Crazy Rich Asians.

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“With consumers spending more time at home, Movies Anywhere will be a welcome addition for our DirecTV subscribers,” Tim Gibson, VP of video and application marketing for AT&T Communications, said in a statement. “Along with the limited-time offer for a complimentary digital film, we hope this makes it even easier for customers to enjoy a night-in at the movies.”

“We are thrilled to be able to expand our availability within the pay-TV ecosystem with the addition of another one of the nation’s largest providers,” Karin Gilford, Movies Anywhere GM, said in a statement. “We know DirecTV subscribers are passionate about movies and will benefit from Movies Anywhere’s ability to bring their favorite movies together. Now, they can access their collection across a multitude of devices using the Movies Anywhere app or the DirecTV platform, regardless of where they initially purchased or redeemed.”

In addition to DirecTV, other participating digital retailers include Apple TV, Prime Video, Vudu, Xfinity, Google Play/YouTube, Microsoft Movies & TV, and FandangoNow.

The Movies Anywhere service includes movies from Sony Pictures Entertainment, Universal Pictures (including DreamWorks and Illumination Entertainment), The Walt Disney Studios (including Disney, Pixar, Twentieth Century Studios, Marvel Studios and Lucasfilm), and Warner Bros. Entertainment.

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Movies Anywhere recently launched a new co-viewing feature that enables users to Watch Together via a synced experience across devices. The service also recently launched a feature in beta, Screen Pass, that allows users to share their movies with family and friends.

Dan York Named CEO of Cox Media Group

Dan York, former chief content officer at DirecTV and MediaPlay News “Digital Driver,” has been named CEO of Cox Media Group.

York will be responsible for all aspects of managing the company’s media platforms and will oversee CMG’s long-term strategic priorities.

Steve Pruett, who was interim CEO, will continue as executive chairman of CMG. He said York’s success in media, content, distribution, operations, and successfully leading large organizations, makes him essential.

Dan York

“Most importantly, [York] embraces contemporary thinking as the media landscape continues to evolve,” Pruett said in a statement. “We have full confidence he is the right person to lead CMG in the next phase of the company’s growth.”

As CCO at DirecTV, York developed a reputation for being a hard negotiator, including driving programmers to tears during all-night contract proceedings, according to a 2016 Los Angeles Times profile.

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York helped build AT&T’s video business over the past 15 years from a start-up to one of the nation’s largest pay-TV provider and the world’s largest licensor of content. During his tenure he oversaw all content activities, including licensing, operations, strategy, investments, original content, compliance, and ran AT&T’s ad sales and regional sports networks.

Indeed, it was York who allegedly was instrumental in preventing DirecTV from picking up the Los Angeles Dodgers’ regional cable channel, SportsNet LA, which is controlled by the former Time Warner Cable (now part of Charter Communications). The heavy-handed tactics resulted in the Justice Department lawsuit against AT&T-owned DirecTV.

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“We all negotiate hard to get good deals,” a veteran TV executive told the Times. “But Dan mashes your face into the cement.”

DirecTV and other AT&T cable systems finally ended the Dodgers blackout in April 2020.

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 Content Chief Dan York Leaving

AT&T has confirmed that longtime entertainment executive Dan York is leaving the telecom, effective March 1. His position will be assumed by Rob Thun, SVP of content and programming.

York, who had been chief content officer at DirecTV since 2012, transitioned over to AT&T after the telecom acquired the satellite TV operator.

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“We appreciate Dan’s many years of service,” Thaddeus Arroyo, chief executive of the company’s consumer and communications unit, told the Los Angeles Times in a statement. “His contributions significantly shaped our content strategies and we are grateful for his leadership and commitment to providing our customers with their favorite live sports and entertainment.”

Dan York

York, a former “Digital Driver” at Media Play News, was known for his negotiating skills with content holders. Yet, in recent years, DirecTV has lost millions of subscribers as AT&T transitions focus on WarnerMedia Entertainment and HBO Max.

York was responsible for securing DirecTV’s exclusive “NFL Sunday Ticket,” a multi-game programing deal that reportedly costs the satellite operator $1.5 billion annually in license fees.

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