DirecTV-Dish Merger: Both Companies are Open to the Idea but Likely to Face Regulatory Hurdles
by Peter Galace
Los Angeles, Calif., September 27, 2013--Given the fast changing configuration of the satellite-cable TV market, is the merger of DirecTV and its chief rival Dish Network now appropriate and sensible? The answer is a clear “yes” from both companies.
Mike White, DirecTV’s chairman and CEO, told the Goldman Sachs Communacopia media conference this week that consolidation between the USA’s two giant DTH players would benefit the consumer and yet still be competitive. He was quoted in an earlier forum saying while it might take a lot of work to do a deal he’d “never say never.”
In a conference early last month, Dish Network chairman Charles Ergen said large companies are essentially monopolies whose market power is pushing pay TV providers toward consolidation. He said a merger with DirecTV makes a lot of strategic sense.
“You have a general momentum, a gravity toward consolidation because programming rates are going up four times the rate of inflation,” said Ergen during Dish’s second quarter earnings conference on August 6.
While not mentioning them, Ergen said the largest TV programmers – 21st Century Fox, NBCUniversal, Time Warner, Inc., and Walt Disney Co.—are really monopolies and lashed at Congress for not doing anything to level the playing field.
White and Ergen have repeatedly criticized TV programmers for demanding high price increases for the right to carry their channels. Executives from the pay TV providers said their retransmission consent costs have gone up 50 percent this year after a 500 percent to 600 percent rise since 2010. White said DirecTV customers may become even angrier in 2014 as prices will have to go up again.
Analysts say it is clear consolidating DirecTV and Dish Network could offer meaningful cost savings from administrative and operating expenses and will offer better negotiating clout in dealing with programmers.
But merging the two operators will continue to go through a regulatory environment that remains unclear and “very challenging”. The likelihood of government opposition remains a huge roadblock to such a transaction. The Federal Communications Commission and Justice Department opposed a proposed merger of Dish, then known as EchoStar, with DirecTV in 2002. The ruled that a merger would reduce competition in the television service market, in particular for rural customers.
However, pay TV competition among cable and satellite providers may have actually diminished because of the advent of online TV and even mobile TV, provided by companies like Hulu, which offers subscription services for TV shows, movies and other media. The main stumbling block could be the merged DirecTV-Dish company’s improved ability to increase pricing.
Even then, White said they need to start educating regulators that there were now “other considerations” than simply the number of players – and potential suppliers – of media services. “It is a very challenging regulatory environment for any deal to get done. That is true in our space as well. If you only focus on distributors, consumer prices will continue to rise,” he added.
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