Feeling the competitive pressure from the recent Comcast-Time Warner Cable merger, AT&T plans to purchase DirecTV for $48.5 billion (excluding the assumption of debt), making this AT&T’s largest takeover in more than eight years.
The agreement was approved by both boards but still faces regulatory approval from the Federal Communications Commission (FCC), much like the Comcast-Time Warner deal.
AT&T’s move to acquire DirecTV was seemingly made to address two major trends in the media industry: slow growth in pay-TV subscriptions and explosive growth in streaming video.
Sports Network Fees Will Be Challenged
After the acquisition, AT&T’s pay-TV subscribers in the U.S. would jump from 5.7 million (on its U-Verse TV platform) to 26 million and catapult the new company into second place behind only Comcast-Time Warner, which hosts 30 million subscribers.
With a larger audience comes significantly more leverage when negotiating with sports networks over carriage fees, which includes the properties of ESPN, Fox Sports networks, regional sports networks owned by Comcast, league networks like the NFL and NHL networks, etc.
The negotiations will, of course, only take place when carriage deals are up for renewal in the next few years. But when the new AT&T-DirecTV media monster comes to the table, expect more protracted, animated discussions than in the past. Sports networks account for approximately 20 percent of the fees paid by cable and satellite operators, according to SNL Kagan.
Online Video Will Be Big Priority
AT&T executives have long spoken of the company’s desire to move more aggressively into streaming online video.
Just last month, AT&T and The Chernin Group announced a $500 million deal to create a new venture that acquires, invests in and launches over-the-top video services.
However, in order to truly beef up their streaming services, Dish Network—the nation’s second largest satellite company that is sitting on an abundance of spectrum rights to help increase bandwidth—would have been the more appropriate partner than DirecTV.
Yet with such a strong balance sheet, AT&T’s acquisition of DirecTV will not impact AT&T’s plans to participate in the FCC’s spectrum auctions later this year. AT&T plans to bid no less than $9 billion in acquiring new spectrum rights.
Instead, the acquisition of DirecTV gives AT&T a new toy—the nation’s premier satellite user base—in its quest to build online streaming products.
Not only that, but with ownership of ROOT SPORTS Networks and minority stakes in both the MLB Network and NHL Network, DirecTV may be the perfect gateway for AT&T to develop creative, online sports content with these partners to be delivered through its own over-the-top video service.
NFL Sunday Ticket Gets Complicated
The crown jewel of broadcasting rights—the NFL—may become adversely affected by the acquisition. Currently, DirecTV is in negotiations with the NFL to extend its exclusive rights to the NFL Sunday Ticket package which is set to expire at the end of the 2014-15 season.
DirecTV pays the NFL an estimated $700+ million a year for these rights.
DirecTV CEO Mike White said that the AT&T-DirecTV deal “won’t affect” DirecTV’s negotiations to renew its deal for NFL Sunday Ticket, which is straightforward enough to understand but impossible to believe. Adding pressure to the negotiations are reports that if the NFL Sunday Ticket deal is not renewed on terms that are largely expected, the merger would fall apart.
The introduction of AT&T’s broadband/wireless network and aspirations for an over-the-top streaming service are exactly the sort of talking points the NFL would want to hammer out in a deal to make sure it has a firm grip and razor-tight clarity on the digital distribution of league games.
Instead, the digital offerings in any NFL-DirecTV package have become murkier, not clearer.
We could be witnessing a golden age of media mergers, and the latest AT&T-DirecTV acquisition is one of many moves that will surely have ramifications on the sports industry as executives search for new ways to reach sports fans in the ever-evolving media landscape.