How Much of a Market Is There for DirecTV?

AT&T says it's not planning to offload its stagnant satellite video offering, but if it does it may sell for far less than the $67 billion it paid in 2015.

Hedge fund Elliott Management's activism has put DirecTV under the microscope for parent AT&T, which is reviewing its options for the flagging asset that some Wall Street observers say has dropped in value to $40 billion after the telecom giant shelled out $67 billion to acquire it in 2015.

It remains to be seen whether AT&T CEO Randall Stephenson will divest of the asset, and COO John Stankey told The Wall Street Journal on Sept. 24 that the unit is not for sale. "We’re constantly looking at the portfolio," he told the paper. "That’s the normal course of business and it’s not unique to DirecTV."

But if AT&T were to look for buyers it may not find many bidders outside of the obvious — Dish Network, which tried and failed to merge with DirecTV in 2002.

While that merger was derailed over regulatory concerns, this time might be different, as neither Dish nor DirecTV is in growth mode. In the latest quarter, DirecTV and U-verse lost 778,000 subscribers while even DirecTV Now, its cut-rate skinny bundle, shed 168,000. Some see Dish and DirecTV in a boat similar to the one Sirius Satellite Radio and XM Satellite Radio were in circa 2008, when regulators approved a merger despite the creation of a monopoly because they sought to boost a struggling industry.

Observers view John Malone as a potential bidder, as he largely controls SiriusXM Radio, though one insider suggests his interest only would be piqued if the price sinks to $25 billion, a point at which AT&T is better off not selling. Between U-verse and DirecTV, AT&T still serves 20 million-plus video customers, which it can use to market its phone services and monetize its upcoming streamer HBO Max.

"DirecTV has billions of dollars of satellites 22,300 miles in the sky above Kansas and elsewhere at the equator that offer an awful lot of pipe to carry an awful lot of profitable content," says Carmel Group analyst Jimmy Schaeffler, who adds that foreign companies might also bid for DirecTV should it officially go on the block.

Dish may not even be interested in DirecTV if a merger of Sprint and T-Mobile is approved, as that would "put Dish in an entirely different business," says CFRA analyst Keith Snyder, given that the deal would include selling Boost Mobile, Virgin Mobile and Sprint prepaid customers to Dish.

Most observers expect Dish founder Charlie Ergen to at least kick the tires on DirecTV. At the Goldman Sachs Communacopia conference on Sept. 17, Ergen noted, "We already went through the pain and trauma that DirecTV is going through." Ergen was referring to Dish shedding thousands of customers to focus on its most profitable core after the service dropped HBO, Univision and other channels.

President Trump, who tweeted his disdain for AT&T's purchase of Time Warner before it was approved, is a wild card. "Regulation by tweet is tough to game," says analyst Steven Birenberg.

Adds Snyder: "Politically, Dish and DirecTV would have to appease both the right and the left. It's about the optics. They could offer concessions, but I don't see what they could offer that wouldn't make it a pure monopoly that hurts consumers."

Alex Weprin contributed reporting. 

This story appeared in the Sept. 25 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.