Commentary
AT&T's Pay-TV Spinoff Complete, DirecTV Stream Emerges
- by Karlene Lukovitz @KLmarketdaily, August 3, 2021
AT&T and private-equity firm TPG Capital have completed their deal to spin off AT&T’s DirecTV, AT&T TV and U-verse services into a standalone joint-venture video company — and the new company, dubbed DirecTV, is launching a streaming services platform dubbed DirecTV Stream.
DirecTV Stream will become the umbrella brand for all video streaming services previously owned by AT&T, with the exception of HBO Max, which is part of the pending WarnerMedia Discovery merger. The new jointly owned company, operated by TPG, is named DirecTV.
DirecTV Stream will offer access to a variety of streaming services, including HBO Max, Netflix and Amazon Prime Video —giving satellite TV operator DirecTV, which has been losing subscribers to such streaming services, new competitive positioning.
AT&T satellite, streaming and IP video subscribers will retain their video services and bundled wireless and internet services, including HBO Max.
DirecTV had about 15.4 million premium video subscribers as of the end of Q2 2021.
The video-businesses spinoff reflects AT&T’s need to reduce debt as it pushes into 5G and other wireless. The transaction is intended to help AT&T reach a net debt-to-adjusted EBITDA of below 2.5X by year-end 2023.
In February, AT&T agreed to sell a 30% stake in DirecTV to TPG for $16.2 billion — far less than the $49 billion, or $67.1 billion, including debt, that it paid for DirecTV in 2015.
AT&T contributed its U.S. video business unit to the new entity in exchange for preferred units and a 70% interest in the common units of DirecTV. TPG contributed about $1.8 billion in cash to DirecTV in exchange for preferred units and a 30% interest in common units of the new company. At close, AT&T received $7.1 billion in cash ($7.6 billion net of approximately $470 million cash on hand) and transferred approximately $195 million of video business debt.
Karlene Lukovitz is editor of MediaPost's "Digital News Daily" and writes the weekly "Video Insider" and "Advanced TV Insider" columns. You can reach her at karlene@mediapost.com.
As I recall, one of the reasons---perhaps the main one----for AT&T's acquisition of Direct TV was the plan to create a huge commercial GRP base for an "addressable TV" business as the supply of local cable ad positions was very limited. This may also have been behind the purchase of the Turner cable channels---the idea being to tap into their in-program breaks to obtain more addressable GRPs---all of which would be sold to eager---or so they thought---advertisers at very high CPMs. If this is what really happened---and I think it's a distinct possibility---this is a classic case of huge debt loads being taken on based on starry eyed predictions of a complete flip flop in the ways TV ad time was---and still is, bought and sold. That's what the buzz was feeding us at the time---but buzz and reality often are two quite different things---as AT&T learned---the hard way.
Hey Ed - do you know who is running this new biz by chance?
Sorry, Gabe, I don't know who's in charge now.