• by Karlene Lukovitz  @KLmarketdaily, October 5, 2023

With cord cutting still devastating traditional pay-TV distributors, and AT&T closely focused on building out its broadband network since its sale of WarnerMedia to Discovery in 2022, the telecom is exploring a sale of some or all of its remaining stake in DirecTV.

That’s according to knowledgeable Bloomberg sources, who described talks as still being in the early stages.

Neither AT&T nor DirecTV has commented on the report, which will once again raise the possibility of a DirecTV merger with head-on competitor Dish Network, along with speculation about why some other player would make such an investment.  

AT&T bought DirecTV in 2015 for $48.5 billion plus $17 billion in debt. After suffering heavy losses on DirecTV and being unable to sell it for a price anywhere close to what it paid for it, AT&T struck a $7.8 billion deal with investment asset company TPG Capital in February 2021. DirecTV was spun off into a standalone video company, with AT&T retaining a 70% stake to TPG Capital’s 30% minority equity position.

The DirecTV company controls all of AT&T’s remaining TV offerings, including the virtual/online DirecTV Stream and fiber-based U-verse services.

As the agreement deadline for AT&T to sell its stake approaches, the options for divestment include recapitalization, adding a new investor, or selling its stake and exiting the business as soon as August 2024, according to the report.

Dish Network and DirecTV have discussed a possible merger for years. But there’s now a major new dynamic: In August, Dish and EchoStar announced an all-stock merger that will combine Dish’s streaming services and 5G network with EchoStar’s satellite communications solutions, to deliver a broad set of communication and content distribution capabilities using terrestrial and non-terrestrial wireless.

Prior to that announcement, at an investor conference in June, AT&T CFO Pascal Desroches said that although AT&T routinely considers M&A opportunities, any deal — including a potential Dish merger — would have to be exceptionally attractive to be a viable option, because TPG does “a really good job in optimizing” DirecTV.

AT&T uses the DirecTV business to pay down debt. Last year, DirecTV produced $4.5 billion for AT&T, and this year, the projection is for $3.5 billion, Desroches said. “We have a really good line of sight over the next several years as to what cash flows will come out of that business,” he added. “And whatever we would do would have to be incrementally much better than that.”

Still, continuing subscriber losses at DirecTV and other pay-TV providers are obviously a critical factor in decisions by AT&T or any potential investor/buyer.

In 2022, the major pay-TV services lost a collective 5.9 million, or 8%, of their subscribers — up 5% from 2021’s 4.9 million collective loss, according to Leichtman Research Group. Among traditional pay-TV services, DirecTV lost an estimated 1.5 million, for a total of 13.1 million; Dish TV lost 805,000, for a total of 7.42 million; Verizon Fios lost 343,000 for a total of 3.3 million; and Frontier lost 74,000, to end the year at 306,000.

In this year’s second quarter, satellite providers and telcos lost a combined 688,000 subscribers, including 400,000 at DirecTV alone. In the full first half, DirecTV lost more than 750,000 subscribers.