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AT&T-DirecTV deal to further transform media and telecom landscape

BusinessTelevision IndustryDirecTV Group Inc.ConsumersComcast CorporationTime Warner Cable Inc.Satellite and Cable Service
AT&T-DirecTV deal is expected to spark even more consolidation
'This is I think going to be a pro-competitive, pro-consumer transaction,' AT&T CEO says
DirecTV CEO says AT&T deal is a 'significant win for consumers'

AT&T is acquiring satellite broadcaster DirecTV for nearly $49 billion, the latest in a series of big deals that are transforming the media and telecommunications landscape.

The purchase will turn AT&T into a massive player in the pay-television space because DirecTV has more than 20 million subscribers in the U.S. and an additional 18 million in Latin America.

For DirecTV, the deal will allow it to package its TV service with the telecommunication giant's phone and broadband offerings. AT&T has almost 120 million wireless subscribers and 16.5 million broadband customers across the nation.

"This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens — mobile devices, TVs, laptops, cars and even airplanes," AT&T Chairman and Chief Executive Randall Stephenson said Sunday.

The sale comes just three months after cable giant Comcast Corp. struck a deal to acquire Time Warner Cable for $45.2 billion, which would be the nation's largest cable operator with about 30 million subscribers. It would also control 40% of homes with broadband Internet.

Both AT&T and Comcast still need to clear regulatory hurdles. Media watchdogs and consumer activists have quickly sounded alarm bells about the rapid pace of media consolidation and whether it is good for the public.

"The captains of our communications industry have clearly run out of ideas," said Craig Aaron, president of the media reform organization Free Press. "Instead of innovating and investing in their networks, companies like AT&T and Comcast are simply buying up the competition. These takeovers are expensive, and consumers end up footing the bill for merger mania."

Driving the desire to merge is a combination of fear and opportunity.

Traditional media and telecommunications companies are bulking up to compete against the giants of Silicon Valley, including Google, Apple, Netflix and Amazon. But they also hope their new size will give them the leverage to reduce costs such as programming.

The deals by Comcast and AT&T are expected to spark even more consolidation. Other companies seen as potential merger candidates include satellite broadcaster Dish Network, telecom giant Verizon and cable operator Cox Communications.

Pay-TV is not the only sector of media undergoing a seismic shift. There has been tremendous consolidation in the local television industry as well. Broadcasters including Gannett Co., Sinclair Broadcast Group and Los Angeles Times parent Tribune Co. have been aggressively buying local TV stations, believing bigger is better.

Programmers are also starting to team up. Last week, Rupert Murdoch's 21st Century Fox and private equity firm Apollo Global Management reached a preliminary agreement to create a joint venture that would include TV production juggernaut Endemol and Shine Group.

Under the terms of the deal, AT&T is paying $95 a share for DirecTV in cash and stock. Of that, $66.50 will be in the form of AT&T shares and the remaining $28.50 will be cash.

DirecTV, which is based in El Segundo and employs 3,000 people, will stay put after the deal closes. Both companies expect necessary approvals will take about a year.

On a conference call with reporters, AT&T's Stephenson said that although he expected a thorough review from the Federal Communications Commission and Department of Justice, he didn't anticipate major hurdles.

"This is I think going to be a pro-competitive, pro-consumer transaction," he said, adding that the combination of a nationwide video, wireless and broadband platform will create "a whole different competitive dynamic."

DirecTV Chief Executive Mike White added that the combination is a "significant win for consumers" because the combined company will be able to "deliver a competitive alternative to the cable bundle."

Delara Derakhshani, policy counsel for Consumers Union, isn't so sure consumers will be the winners and said regulators need to be on high alert.

"AT&T's takeover of DirecTV is just the latest attempt at consolidation in a marketplace where consumers are already saddled with lousy service and price hikes," she said.

Some analysts are also not convinced the two companies will make a good marriage.

"Like any merger born of necessity rather than opportunity, the combination of AT&T and DirecTV calls to mind images of lifeboats and rescues at sea," telecommunications analyst Craig Moffett of Moffett Nathanson Research wrote last week.

"Never mind the fundamentals ... just spin the bottle," he opined, adding "the combination smacks of strategy-by-process-of-elimination."

There has been speculation that AT&T, based in Dallas, would end its small video service U-Verse if it acquired DirecTV. But Stephenson said that wouldn't be the case.

That might ease some regulatory concerns because a video competitor won't be removed from the marketplace.

AT&T and DirecTV also said they plan to aggressively pursue the creation of an Internet-delivered video service to complement U-Verse and DirecTV. This year, AT&T formed a venture with well-regarded media executive Peter Chernin to invest more than $500 million in an online video service.

DirecTV rival Dish Network also has plans to launch a so-called over-the-top video service this year and has a deal with Walt Disney Co. to include some of its channels, including ESPN.

AT&T and DirecTV have had on-again-off-again flirtations about combining for years, AT&T's Stephenson said.

Talks heated up after Comcast unveiled its plans to buy Time Warner Cable. The deal came together quickly, with both companies forming due diligence teams. Lawyers for both sides also researched the hurdles and scrutiny the sale would face from lawmakers and regulators.

Besides being able to offer better video, DirecTV appealed to AT&T because it kicks off a lot of cash. In 2013 the company posted $8 billion in profit on $32 billion in revenue.

As part of the deal, AT&T said it would divest its stake in the Latin American wireless company América Móvil, a move that regulators there would have probably required because of DirecTV's large video presence in the region.

joe.flint@latimes.com

Copyright © 2014, Los Angeles Times
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BusinessTelevision IndustryDirecTV Group Inc.ConsumersComcast CorporationTime Warner Cable Inc.Satellite and Cable Service
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