Dish Network and DirecTV are in "fresh talks" about merging, with both sides feeling more confident that a deal could pass regulatory muster, the New York Post reported, citing unnamed people familiar with the situation.
Dish and DirecTV officials declined comment. But if the report rings true, it would mark a step forward in Charlie Ergen's self-fulfilling prophesy that a combination of the two companies is a fait accompli. "Make no mistake, whether it's a year from now or ten years from now, I believe that it's inevitable that those companies go together," Ergen said in late 2020.
EchoStar/Dish and DirecTV failed to merge two decades ago, when the US Department of Justice blocked the deal over concerns that a fusion of the nation's two major satellite TV players would harm US consumers. More recently, the DoJ reportedly told Dish and AT&T in 2020 that a merger of the two would have to wait until 5G becomes more widely available in rural markets. As Dish and other mobile players push ahead with 5G buildouts and upgrades, it appears those prior concerns are fading.
Ergen has argued that a merger makes perfect sense because a combo would bring more scale to the struggling satellite TV business and the pay-TV landscape is more competitive due to the presence of a wide array of streaming options. Plus, Ergen could use more cash flow to help fund Dish's 5G ambitions.
The other big change is the ownership makeup of DirecTV. AT&T spun it off last year, with TPG nabbing a 30% stake and AT&T retaining 70%. TPG reportedly wants out now. "TPG is driving the conversations. They want their investment back," the Post reported, citing a source close to the situation.
In November, Ergen said he assumed TPG could see the business logic of a merger of Dish and DirecTV. However, it's Ergen – always one to drive a hard bargain – who "appears to be dragging his feet on finalizing a deal, demanding significant voting shares and a say in key decisions at the combined company despite his minority position," the report said. But it also appears to merely be a function of the negotiation, as both sides are "trying to iron out the details," the report added.
Infrastructure bill could still loom large
Some industry watchers have been less confident that a deal will ultimately come together. Last year, MoffettNathanson argued that President Biden's then-proposed infrastructure bill would deliver a "body blow" to a potential merger.
While the new law could make it easier for a deal to fly by the DoJ, its focus on rural America also represents "the most critical backstop for the satellite industry," the analysts warned. Dish Network is still losing video subs (-13,000 in Q3 2021), but Dish has tempered those losses by focusing on broadband-starved rural markets. The entry of broadband to unserved and underserved markets would open the door for streaming options and possibly erase satellite TV advantage in those areas and, therefore, lower the value of a merger and cut into its synergies.
The infrastructure legislation stands to "gut the last reliable defensive stronghold for satellite TV," MoffettNathanson argued.
But it appears that both sides still see enough value in a merger that would build scale (a combined Dish and DirecTV would have about 23.4 million subs) and establish stronger negotiating power with programmers. The Post estimates that a merger could result in $1 billion in cost savings.
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- DirecTV separates from AT&T, unveils 'DirecTV Stream' brand
- Biden's broadband bill could torpedo a DirecTV-Dish combo – analyst
- AT&T, TPG to spin DirecTV into a separate company
— Jeff Baumgartner, Senior Editor, Light Reading