Dish Network and DirecTV Merger at Hand?

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In the world of satellite TV, Dish Network and DirecTV are known to be the two companies vying for the position of number one. But that may change with the Federal Communications Commission (FCC) decision which gave the green-light to the AT&T and T-Mobile consolidation, a case analogous to Dish and DirectTV situation; and if FCC were to approve such a merger between the two satellite giants, as it did with AT&T and T- Mobile, it would pave the way for consolidation of the two major satellite TV providers.  Though such things are only being contemplated at this point.

History

Although both parties have yet to formalize an agreement, the theoretical merger has been abuzz for some time.  The plan of merging the two satellite TV companies started in 2001, at least according to Forbes writer Eric Savitz.

Back in 2002, the FCC rejected a proposed combination of the satellite TV providers Dish Network and DirecTV, asserting that a merger of the two companies would hurt consumers by reducing competition, in particular, for rural customers who lacked access to local cable television services.

This did not daunt the two companies from trying their luck again. There were reports in 2008 that a MEGA satellite TV company was going to be created by the combining of Dish and Direct, however the deal was never pushed through. Alex Harris of Open Market believes it may have been due to a similar case, the XM-Sirius consolidation, where FCC regulators only decided to act after a year with “draconian conditions” imposed on condition for the approval of XM & Sirius.

Changing Market
Many industry observers think that now, more than ever, is the right time for these two satellite companies to merge. Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, was reported on Bloomberg’s wire service to have said that AT&T’s proposed $39 billion acquisition of T-Mobile USA Inc., if approved, may indicate the regulatory environment has transformed enough for a deal [Dish Network and DirecTV merger] to be approved.

Government clearance aside, the introduction of new players in the market has minimized the fear over the antitrust issue. Stifel Nicolaus analyst Rebecca Arbogast who was interviewed by Forbes said: With the Telco video rollout and incremental cable deployment, more consumers now have access to four facilities-based multichannel competitors, and almost all have access to three,” she notes. “That would lower the antitrust concern where a [satellite TV] merger would leave three multichannel providers, and narrow the scope of the video duopoly and monopoly concerns.

Also, competition from Internet video services such as YouTube and Hulu and services like Netflix has largely changed the industry in so far as the scope of the market has widened enough to offer alternatives that lessen the chance of a monopoly if ever Dish Network and DirecTV consolidate forces.

Done Deal?
DirecTV’s Chief executive Michael White told CNBC in an interview that the merger is “a pretty tough hill to climb.” While Bloomberg wire reports that new Dish CEO Joseph Clayton had this to say: “I don’t discount any possibility. It’s probably easier from a regulatory environment today than it was 5 to 10 years ago, when it was originally proposed. We’re looking at anything that will help enhance shareholder value.”

There is consolidation movement within the industry, with Dish Network’s $1.375 billion offer for TerreStar Networks’ assets which has just been approved by a U.S. bankruptcy court judge, making the bid the “stalking horse” bid for the assets. The satellite company run by Charlie Ergen also controls EchoStar Corp and Blockbuster Inc, and in March won a bid through Dish Network to acquire bankrupt DBSD North America. Plans for wireless spectrum and deals with content companies such as Sirius, Hulu and Pandora are also being considered. The merger may be a tough hill to climb, but with Ergen around, who knows what the future may hold.

Written by: Teresa Tandoc

Sources:

Eric Savitz of Forbes, Dish Chief Won’t Rule Out Combination With DirecTV

Alex Harris of Open Market, Dish-DirecTV Merger Next?

Reuters, Judge approves $1.375 billion minimum bid for TerreStar

Steve Schaefer of Forbes, Dish Network Interested In Sirius, Pandora In Content Quest

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