Elliott Management this week dropped a real conversation starter on AT&T when it called for the company to divest assets including DirecTV, the satellite provider AT&T paid $67 billion for just four years ago.
The hedge fund, which now owns a $3.2 billion stake in AT&T, explained its reasoning by pointing to DirecTV’s continued, massive video subscriber losses.
“In fact, trends are continuing to erode, with AT&T’s premium TV subscribers in rapid decline as the industry, particularly satellite, struggles mightily,” the fund wrote in a press release. “Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”
At an investor conference this week, AT&T CFO John Stephens artfully dodged a question about the letter Elliott sent to AT&T, and said that assets like DirecTV still hold significant value. He wasn’t talking like a man who wanted to cash in his chips.
But, Elliott’s suggestion still begs the question: if divesting DirecTV became necessary for AT&T, who would buy it?
Michael Goodman, director of digital media strategies at Strategy Analytics, first clarified that DirecTV is almost certainly not on the auction block.
“Honestly, I don’t see [AT&T] selling it off at this point in time,” he said, adding that AT&T would likely get cents on the dollar for what it paid and that AT&T corporate still sees video (and the related customer relationships) as a big part of the strategy.
But, hypothetically speaking, Dish Network would make the most sense as a buyer, though Goodman said that he doesn’t see that happening.
Michael Greeson, president and co-founder of TDG Research, also suggested Dish as a remote M&A possibility, but said that Dish is suffering from the same subscriber declines and has a big 5G network buildout to focus on.
“Unless the deal comes at very, very low price and some additional perks, I doubt Dish would make a move. And, major cable operators and tech-media companies are moving forward with streaming, not backwards into DBS,” said Greeson in an email. “Buying high and selling low is not a formula for success, but neither is hanging onto a dying legacy brand as AT&T moves further into streaming.”
Although DirecTV is losing subscribers at a rapid pace, it’s not exactly a lost cause. Brett Sappington, senior research director and principal analyst at Parks Associates, said the satellite operator still has approximately 19 million subscribers and another incremental 13.5 million video subscribers in Latin America. It’s just a case of finding a strategic alignment with a potential acquisition partner.
“Good potential acquisition partners would be companies wanting to either establish a video service foothold in the Americas or to expand their current holdings in these markets,” said Sappington in an email. “Altice is an example of a European company that bought its way into the Americas through acquisition. Other global providers might consider the same approach.”
Alternatively, he said that a mobile, broadband or video service provider from Latin America may see DirecTV’s Latin America holdings as an interesting acquisition target, but said that AT&T may be unlikely to carve off the Latin America portion of its satellite network.
AT&T TV, the company's new streaming TV service, launches nationwide next year and CEO Randall Stephenson said it will be the “workhorse” video product for AT&T. If that future materializes, AT&T could one day soon find it no longer has much use for DirecTV. But for now, the satellite giant likely isn’t changing hands.