Only a 'small percentage' of rural satellite TV subs switch between DirecTV and Dish, and most leave for streaming options, says DirecTV's CEO. That scenario will enter play as regulators review the proposed DirecTV-Dish combo.
DirecTV and Dish satellite TV subscribers have been pivoting to various streaming services – rather than switching between the two traditional pay-TV rivals – particularly in rural areas, DirecTV CEO Bill Morrow said today in outlining reasons why he believes regulators should approve DirecTV's proposed acquisition of EchoStar's pay-TV business.
He said studies conducted by both DirecTV and Dish in rural areas show that when customers do leave a satellite TV service, there's "clear evidence" that they tend to jump to subscription video-on-demand or other types of over-the-top streaming TV services.
"It's a small percentage that actually moves between [the satellite TV services of] Dish and DirecTV," even in areas where FCC data shows there to be little to no broadband service availability, Morrow said. "There's such overwhelming, compelling data that shows that the amount of customers that are going to SVoD-type services is clearly the majority."
Morrow didn't provide a lot of detail about those studies Monday morning in a call with reporters and analysts, but he said DirecTV and Dish are eager to show regulators those details when they start to review today's proposed deal. That deal aims to have DirecTV acquire Dish's satellite TV and Sling TV businesses for $1, plus assumed debt.
Rural impact expected to be a focus of a regulatory review
It's expected that regulators will take a close look at how pay-TV competition will be impacted, particularly in rural areas, if the number of satellite video service providers were reduced from two to one. The removal of a satellite TV competitor was a primary reason why regulators shot down a proposed merger between DirecTV and Dish/EchoStar in 2002.
Morrow believes the evidence will cause regulatory bodies to share DirecTV's and Dish's conclusion that there will not be a loss of video competition by bringing the two companies' video services together.
"It is a very different [competitive environment] than 20 years ago, as we've all experienced first-hand," Morrow said. DirecTV and Dish estimate they have collectively lost 63% of their satellite TV customers since 2016 due to cord-cutting fueled by growing consumer adoption of direct-to-consumer (DTC) streaming services.
Some policy experts agree.
"While the rural market will be one of the key issues" in any coming review of the proposed deal, "we think the situation has changed sufficiently to allow the deal to proceed without the government ultimately rejecting it," New Street Research policy analyst and former FCC official Blair Levin said in a research note issued today.
Levin points out that, since 2020, wireless companies have built out fixed wireless access services to more areas, the government has moved ahead with more rural-focused broadband projects such as the Broadband Equity Access and Deployment (BEAD) program and that, thanks to services such as Starlink, there is much more availability of satellite-based broadband.
Update: Word of the rural-focused research from DirecTV and Dish "is another data set that supports the view that unlike in 2002, the rural issue is not an Achilles Heel for the deal," Levin said Tuesday (October 1) in a follow-up research note.
Morrow also amplified reasons why he believes a combination of DirecTV and Dish are necessary in a video service market that is shifting toward streaming. That includes the ability to forge new deals with programmers that result in less expensive, genre-based packages and the development of an aggregation platform that can integrate DTC video services.
"We believe [a combination] will increase the scale to better work with programmers to deliver smaller packages at lower price points, which is exactly what consumers have told us that they want," he said.
"We hope that the regulatory bodies will understand the value creation, the opportunity to keep competition alive and to do so in a way that programmers themselves cannot do with their direct-to-consumer offering," Morrow said.
He noted that he was scheduled to discuss the proposed agreement with FCC Chairwoman Jessica Rosenworcel soon after today's press call.
It's not immediately clear what plans DirecTV has with respect to unifying the packages of DirecTV and those from Dish's satellite TV service and Sling TV. It's also not clear if the combined company plans to support two separate streaming pay-TV services in Sling TV and DirecTV Stream.
"It's a little premature" to discuss those future details, DirecTV CFO Ray Carpenter said. DirecTV, he said, is still working through those plans, noting that additional integration planning and how the newly combined company might best optimize the platforms will occur between today's signing and the closing of the deal.
AT&T and DirecTV to maintain a commercial relationship
In a separate transaction, TPG plans to acquire AT&T's 70% stake in DirecTV and assume full ownership of the company, which also operates U-verse, the managed IPTV offering that was originally developed by AT&T. That deal, which would come more than three years after AT&T and TPG spun out DirecTV in 2021, is not contingent on DirecTV's acquisition of Dish.
Morrow said DirecTV and TPG will continue to have an ongoing commercial relationship after AT&T sells off its stake. DirecTV has had service agreements in place with AT&T since the spin-off, and the current term extends it to 2028.
"It's still very much a collaborative relationship," Morrow said. "It is commercial-based, and we expect to be able to sell each other's services as we go forward into the future and ... collaborate where it makes sense."
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