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A Second Death Star?

Jeff Baumgartner

5:40 PM -- Joseph Clayton, Dish Network LLC (Nasdaq: DISH)'s new CEO, sure came out firing, didn't he?

Not even on the job for a month, and the new guy is already weighing the possibilities of a merger with DirecTV Group Inc. (NYSE: DTV), noting that such a deal would have an easier time passing muster than it did in 2002 when the feds scuttled it. (See Dish CEO: DirecTV Merger Possible .)

Of course, he was just trying to answer a question, though it's hard not to think that his answer was also part foreshadowing and part wishful thinking. Dish, which has been busy buying Blockbuster Inc. , snapping up wireless spectrum and putting a new video streaming strategy together, is undergoing quite a transformation these days. So the idea of merging with DirecTV isn't exactly nutty. (See Dish Makes Its Adaptive Streaming Move and Charlie Ergen's Spectrum Grab .)

It didn't seem crazy almost 10 years ago, when the cable industry shuddered at the idea of a combined satellite-TV giant that some coined the "Death Star." And the pay-TV landscape was a tad different. Back then, "over-the-top" wasn't a video threat, but a reference to a horrible Sylvester Stallone flick about truckers and arm wrestling…as opposed to all the really good movies about truckers and arm wrestling, of course.

Before Clayton even suggested the possibility, the idea of a renewed merger had been bouncing around. In April, Sanford C. Bernstein & Co. Inc. analyst Craig Moffett postulated it's an idea that makes strategic and financial sense for both sides and could indeed fare better if regulators approve the AT&T Inc. (NYSE: T)-T-Mobile US Inc. deal.

For starters, "the go-it-alone end game isn't particularly pretty" for the satellite-TV guys, Moffett wrote, noting that the industry enjoyed a 12.8 percent growth in 2002, versus 2 percent now. Dish has been losing customers in some recent quarters (it actually gained 58,000 subs in the first quarter), but Moffett thinks DirecTV also runs the risk of shedding subs before long, making a merger something "easier for regulators to endorse."

Moffett also believes a combined company would command lower program rates, gain leverage in retrans disputes with broadcasters, and reduce R&D.

And he's doesn't believe the technical obstacles faced by a combined entity (i.e., incompatible conditional access systems, the use of different modulation schemes) would be a deal-breaker. Dish and DirecTV "wouldn't need to consolidate the box fleets to make the synergies of a merger real and compelling," he argues.

But, for now, such a deal, despite its attractiveness, is pure pie-in-the-sky. And even if Dish and DirecTV give it another shot, the regulators still may nix it. After all, even the second Death Star met an explosive fate.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 5:04:09 PM
re: A Second Death Star?

With Charlie Ergen stepping away from the day-to-day so he can spend all his time on Dish's long-term future, makes me wonder if there's indeed some fire to go along with the smoke.  An M&A exit would pretty much seal up that long-term thinking. But does anyone think Charlie can truly let go? JB

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