The acquisition of Dish Network will make DirecTV the largest pay-TV operator in the US by far, but the merger of rival satellite services probably won’t do much to slow the disintegration of the legacy distribution model.
Under the terms of the deal announced Monday morning, DirecTV agrees to pay one dollar ($1) for the EchoStar satellite unit, a sum that will be settled by assuming $9.75 billion in Dish’s debt. Pending regulatory approval, the deal is expected to close in the second half of 2025.
When the two companies first proposed a merger in 2002, the plan was rejected by the FCC and the DOJ, which cited concerns about the regulatory impact on the DBS (direct broadcast satellite) space. At the time, the government estimated that DirecTV and Dish boasted a combined reach of 18.6 million subscribers; excluding vMVPD platform offerings Sling TV and DirecTV Stream, 13.2 million households currently subscribe to core satellite-TV products.
Assuming a constant annual rate of 15%, the number of households signing up to one of the two legacy DBS services could be reduced to 11.2 million by the time the deal closes. Therefore, the prospect of integration is no longer tainted by the kind of antitrust issues that plagued the first attempt 22 years ago.
Rather than a threat to the free market, the DirecTV-Dish tie-up may only serve to kick the can down the road a bit. DirecTV, which lost 1.55 million DBS subscribers last year alone, is inheriting an aging satellite fleet that will allow for fewer synergies up front for video distribution. Dish’s scrambling technology is not compatible with DirecTV’s own orbital tech, which effectively means that the Dish set-top box cannot communicate with the DirecTV satellite. That’s especially unfortunate, since the cost of replacing all those Dish boxes after a merger can be astronomical.
On the other hand, EchoStar’s bid to get out of the pay TV racket will relieve it of nearly half of its debt, while allowing the company to focus on its 5G wireless network. Soon, Dish will receive cash to help pay off a $1.98 billion bond due in mid-November. Last month, EchoStar’s chief financial officer Paul Orban told investors that the company did not have enough cash to fund its operations in the fourth quarter; as of June 30, Dish’s parent company had $521 million in cash and cash equivalents in the hopper.
In a recent note to investors, MoffettNathanson analyst Craig Moffett made it clear that he believes the proposed merger is the only thing standing between them and bankruptcy. “It is hard to imagine that regulators would block the deal,” he wrote. “It’s better to have it [DBS operator] without anything.”
Still, since the merger should keep the wolf at the door for a while, Moffett’s long-term outlook for the DBS business remains bleak. “It would be a mistake to overestimate [the deal’s] importance,” he wrote. “Adding a year or more to the expected life of satellite TV will not change the narrative for programmers, distributors, or satellite TV.”
In total, the two satellite carriers lost 5.48 million subscribers as of the second quarter of 2022. DirecTV’s site contracted at an annual rate of -19%, while Dish lost ground by 12%. On the cable front, operators lose about a tenth of their combined base each year; In total, the traditional bundle sank to 49.8 million homes at the end of June, representing a 42% write-off over the past five years. Once in nearly 90% of all US TV households, mass penetration has been reduced to 40%.
Predictably, the continued erosion of mass has led to a rapid decline in overall TV consumption. In the past five years, US HUT (the industry standard for “Homes Using Television)” rates have dropped 36%, while the impact on young adults has been catastrophic. Per Nielsen, TV consumption among adults aged 18-34 has dropped 68% since 2019.
If the DirecTV-Dish deal had been in effect even a few years ago, the results might have helped boost the fortunes of regional sports networks with similar problems. Two years after Dish founder and former CEO Charlie Ergen said he was not interested in renewing the company’s expiring cart deal with Diamond Sports, Dish dropped its last RSN (NESN) at the end of 2021. DirecTV, on the other hand, is famous for its RSN. -friendly, and it was re-installed with Diamond in the spring.
Separately, private equity firm TPG, which owns 30% of DirecTV, said it would acquire the remaining stake from AT&T for $7.6 billion. TPG said its transaction is not contingent on the successful completion of the DirecTV-Dish deal.
“On a larger scale, we expect that a combined DirecTV and Dish will be better able to work with broadcasters to realize our vision for the future of TV, which is to aggregate, curate, and distribute content that aligns with customers’ interests,” said DirecTV CEO Bill. Morrow in a statement released Monday. Morrow went on to say that the merger will serve to “realize efficiencies, while building customer value through additional investment.”
More from Sportico.com
Best of Sportico.com
Sign up for Sportico’s Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.
Source link
