In one of AT&T’s recent “it’s not okay to be okay”
commercials, a tattoo artist tells his concerned and inquisitive client to “stay
in his lane bro”. Maybe, just maybe,
this is advice that AT&T should take.
As the second largest wireless telecom firm in the
U.S., AT&T decided to branch out from its core business and acquire DirecTV
in 2015 for $49 billion dollars. At the
time, despite annual declines in subscriptions, the deal made some sense as the
satellite service would be a complementary business to wireless and provide
traction to a strategic decision to enter the media space. And, to stem the subscriber losses, in 2016, AT&T
introduced DirecTV Now, its skinny bundle of 65 channels, to attract
cord-shavers/cord-cutters who might see it as an attractive alternative to the full
cable/satellite bundle (including DirecTV) priced two to three times higher.
All looked good for a while. But, then came the fourth quarter of
2018. In addition to losing 403K DirecTV
customers, AT&T reported losing 267K DirecTV Now subscribers. What’s going on? Is the DirecTV Now value-proposition not as
attractive anymore to customers in an increasingly crowed streaming services
market or is the one quarter of data an anomaly? How should AT&T react if there are
additional quarters of subscriber losses?
Would it be time to sell its “out-of-lane” business? If so, would the right buyer be DirecTV’s
closest competitor, Dish? Would regulators approve the deal when they were dead
set against it 18-years ago? (In a lot
of ways this hypothetical tie-up would be like the T-Mobile/Sprint deal.)
In 2001, DirecTV and DISH (Echostar) announced their
intentions to merge. Regulators,
however, struck down the deal as the horizontal merger would reduce the number
of pay-TV providers per market by one. (The satellite providers competed in
each local market with one other and with a cable operator and possibly a
telecom firm). At the time, FCC Chairman, Michael Powell, wrote “the combination of EchoStar and DirecTV would have us
replace a vibrant competitive market with a regulated monopoly. This flies in
the face of three decades of communications policy that has sought ways to
eliminate the need for regulation by fostering greater competition.” But, a lot has changed since. The two satellite providers are struggling to
be noticed in a crowded field of streaming services offered over multiple
platforms. Maybe, just maybe, its time
to make satellite a stronger competitive force in the media space. Two is not always better than one.
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