DirecTV-Dish merger on the cards as market flounders

Talk of a merger between DirecTV and Dish has resurfaced once again, but this time the broader market conditions could make such a move more likely to get regulatory approval.

The two US pay TV operators – one a spin-off from AT&T, the other on the cusp of launching its own mobile service – are holding talks that could lead to a merger, the New York Post reported earlier this week, citing anonymous sources. The companies are currently trying to iron out the details of a deal, they said.

There have been merger rumours and active moves towards a tie-up from the pair for the past 20 years or thereabouts. US regulators quashed a deal two decades ago on antitrust grounds and, according to the paper, blocked another attempt in the past couple of years. However, its sources believe that this time around the discussions could lead to a more fruitful outcome…and they might just be right.

The pay TV market globally is under pressure from streaming services and so on, and the US in particular is feeling the pinch. Both DirecTV and Dish are losing customers – as are their domestic rivals – and the regulators are not unaware of that. Should a deal emerge, there will naturally be a raft of competition concerns to overcome, but with the market wobbling, the regulators may just take a different approach on this occasion.

According to Leichtman Research Group (LRG), the largest pay TV providers in the US between them lost a net 650,000 customers in the third quarter of last year, compared with a decline of 90,000 in the year-earlier quarter. The picture looks even bleaker when you consider that the analyst firm’s figures include three of the big OTT providers – Hulu + Live TV, Sling TV and fuboTV – which together added nearly 680,000 new customers. The big cable, satellite and telco players all lost customers, and the bigger they are, the more they shed.

DirecTV and Dish are among the big boys, ranking third and fourth in overall market respectively, behind only Comcast and Charter. LRG’s numbers show that DirecTV lost 412,000 customers in Q3, the most of all the players, reducing its customer base to 15 million, while Dish’s base fell by 130,000 to 8.4 million. With numbers like that, the authorities might be sympathetic.

There are also indications that some internal changes at the companies in question could play a part in getting a deal over the line.

Seeking Alpha has floated the idea of a partial merger, which could be more palatable to the regulators.

The firm points to the appointment last week of John Swieringa to the position of president and COO of Dish Wireless. Swieringa was already operating chief of Dish’s retail wireless business, so the move essentially brings all of Dish’s wireless operations under his control. Seeking Alpha speculates that this could be a step towards establishing Dish’s mobile business as a standalone entity, at the same time positioning the video side of the operation “to realise its value.” While Dish would no longer be able to use the cash flows from the pay TV business to fund the 5G project, it would bring in a fair lump of cash instead.

DirecTV was spun out of AT&T last year; its telco parent still holds a 70% stake, with the remainder in the hands of private equity firm TPG. The latter is reportedly the driving force behind this new merger attempt, which makes sense, since it is doubtless keen to make some return on that investment.

It will need to win over a number of parties, not least of which is Dish chairman Charlie Ergen, who, to put it bluntly, will be keen to extract his pound of flesh from any deal. Nonetheless, the Post quoted a source close to Ergen as saying that the companies are close to a deal, albeit a complicated one. “It absolutely will happen,” apparently.