Dish and DirecTV are reportedly in talks to tie the knot – something that Charlie Ergen has long called 'inevitable.' If such a deal were to be consummated, analysts believe it would not have much trouble getting past regulators.
Will history finally prove Charlie Ergen right?
For years, the EchoStar chairman has been adamant that a merger of DirecTV and his Dish video business is "inevitable," holding that a combination of the two companies is the only way to save the reeling US satellite TV video sector.
Speculation has surfaced that the two sides are – once again – talking about tying the knot.
AT&T and TPG, the companies that teamed to spin out DirecTV in 2021, are in merger talks with Dish, the pay-TV unit of EchoStar, Bloomberg reported Friday (September 13). Citing unnamed people familiar with the situation, Bloomberg said the talks are in the "early stages" and may not result in a deal. The two sides have been rumored to be in M&A talks multiple times in recent years.
"Rumors about a potential transaction involving DirecTV and Dish are nothing new, but we don't comment on rumors and speculation," a DirecTV official told Bloomberg.
EchoStar/Dish and DirecTV tried to merge more than two decades ago, but the US Department of Justice blocked the deal on antitrust concerns, believing that such a combination would harm US consumers. Fast-forwarding to today, US satellite TV is shedding subscribers – DirecTV and Dish lost an estimated 495,000 subs in Q2 2024. Such results are only fueling a broader subscriber free fall in the overall US pay-TV sector, which shed 1.62 million subs in the period.
Both Dish and DirecTV have streaming options that are not coming close to making up for satellite TV losses.
EchoStar's full plate
Meanwhile, EchoStar, Dish's parent company, has other pressing issues to resolve. In addition to pushing ahead with a national 5G network buildout, EchoStar has about $2 billion of debt maturing on November 14 and doesn't have the cash on hand to fund Q4 operations or the coming debt maturity if it can't find a remedy. Execs said in August that EchoStar is in talks with outside parties to bridge that funding gap and is considering using a portion of its spectrum as collateral.
Merger seems likely to pass regulatory hurdles
If DirecTV and Dish were to strike a deal, analysts believe a merger would more easily pass regulatory muster this time.
"It's hard to imagine that regulators would block a deal," MoffettNathanson analyst Craig Moffett explained in an emailed note on the Bloomberg report.
"It's hard to argue that a merger shouldn't happen; it clearly should," he explained. "Consolidation during a period of secular decline is always to be expected."
Blair Levin, policy analyst at New Street Research, agrees the stakes would be different this time.
Notably, there is much more video competition thanks to the telcos and a wide range of virtual multichannel video programming distributors (vMVPDs) and other direct-to-consumer streaming options for entertainment and live sports coverage. He also points out that there is more competition for broadband that can deliver those streaming services thanks in part to the rise of satellite broadband and the recent success of fixed wireless access (FWA) competition.
"Much has changed since 2002, with every data point improving the odds of government approval," Levin explained in a research note that replayed the past, present and possible future of a DirecTV-Dish combination.
Such a deal wouldn't be a "slam dunk," but could be subject to some conditions.
If lawmakers were to account for today's diversity of video services and broadband connectivity, "the government would likely deem" that the market is "significantly more competitive, with the new proposed merger unlikely to cause an anti-competitive effect," Levin explained. He also expects a DirecTV-Dish deal to face less opposition than it did some two decades ago.
While streaming services do not boost competition among transmission networks on their own, "the presence of streaming options reduces the pricing power of the cable, telco and DBS [direct broadcast satellite] networks offering video bundles," Levin reasoned.
He also believes a proposed DirecTV-Dish merger would, in some ways, resemble the XM-Sirius satellite radio merger, which was approved by the DoJ in 2008.
Are the limited synergies worth it?
Moffett argues it's "better to have one than none" in the US satellite pay-TV game, but questions whether the synergies the companies could ring out would be as great as some may hope due in part because Dish and DirecTV operate in two distinctly separate technology silos.
"There are no synergies in the satellite fleet because the two use different conditional access (scrambling) technology; synergy here would require replacing one or the other's fleet of set-top boxes, and that's not remotely worthwhile," Moffett explained.
But he does reckon that a combined company would have some success reducing customer churn, particularly among subscribers that tend to move back and forth from Dish to DirecTV and vice versa.
"But today they each capture so few gross additions that cutting them, potentially even in half, wouldn't amount to much," Moffett added.
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