Could Buffett Drive A Dish-DirecTV Combination?

Could Berkshire Hathaway be angling for a say in the expected consolidation in the TV distribution business? It’s certainly intriguing to envision CEO Warren Buffett inviting the leaders of the top satellite distributors to some hideaway on the Nebraska plains to urge them to merge.

The three-man summit would include Charlie Ergen, the chairman of Dish Network, and Mike White, who heads DirecTV. With a combined 34 million customers, their companies control a huge chunk of the pay-TV subscriber base. (Maybe the trio have already met in Sun Valley or the golf course in Augusta?)



Buffett – or at least executives at Berkshire -- apparently have no fears about cord-cutting or the two satellite companies being unable to compete without stronger broadband offerings. In recent months, Berkshire gave a vote of confidence to their businesses by purchasing shares in Dish to go with a massive stake in DirecTV.

Yes, the Dish buy was pocket change for Berkshire, covering only about 550,000 shares with a value of about $24 million. But anytime Berkshire buys into your company, it represents a special endorsement considering the cachet Buffett, the Oracle of Omaha, carries as an investor.

It will be interesting, of course, to monitor if the Dish stake accelerates. Berkshire has bet big in recent years on DirecTV, where it now holds 37 million-plus shares and about 7% of the company’s outstanding shares, worth somewhere north of $2 billion.

Make no mistake: Berkshire stands to make a mint on a Dish-DirecTV combination.

Is Buffett really driving the satellite TV gambling, though? Maybe not. As he has ceded some control of Berkshire investing, a pair of money managers Todd Combs and Ted Weschler have brought DirecTV into the company's fold as part of the portfolios they control. It’s possible one or both engineered the Dish investment. (The two are considered possible Buffett successors.)

It’s pretty clear Dish and DirecTV want to merge for a slew of reasons, including gaining some heft in negotiating carriage deals with content owners. Investors are hungry for the nuptials. But, neither company appears fully convinced the regulatory climate is ripe for a merger of that scale.

If anyone could convince them to give it a go, though, it might be Buffett. One would imagine he’s a pretty tough guy to say no to. And, as an early Obama supporter, he’s probably got some sway with the administration, which could trickle down to the Federal Communications Commission (FCC).

Dish and DirecTV tried to marry years ago, only to have the FCC knock down the proposal. The TV distribution business has changed markedly since then, though, with AT&T and Verizon now robust competitors and consumers having more options to obtain content -- whether via Netflix, Hulu or Aereo. Meanwhile, Google’s $35 Chromecast, which delivers online content to the TV screen, has had a very successful launch, while Intel is expected to jump into the distribution arena. And, who knows what Apple will do?

As Dish and DirecTV mull whether to take a shot at persuading the government that their merger would be good for consumers -- which could be hard with rising bills -- speculation that cable operators will look to merge continues to percolate. And Berkshire looks to beneficiary with any action there, too.

Liberty Media Chairman John Malone, whose company recently took a stake in cable operator Charter, is said to be pushing the consolidation. Berkshire owns 5.6 million shares in Liberty, good for about 5% of outstanding shares.

Berkshire also owns a notable amount of Viacom shares, which means last summer the company had an interest on both sides as Viacom networks were off DirecTV in a carriage dispute.

Berkshire recently dropped all its Gannett shares. It would be curious if that came before the announcement that Gannett would buy Belo and create a massive station group, reducing the impact of its newspaper holdings.

Who knew Berkshire had such a wide media footprint? If Buffett is indeed tough to say no to, maybe in his spare time he can show off any mastery of the industry and do something about this CBS-Time Warner Cable mess.

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