Merger mania continues: AT&T to acquire DirecTV
The media landscape and video entertainment industry continue to change as mega-mergers redefine the industry. Comcast-Time Warner Cable have a pending merger, and chatter of a deal between SoftBank-owned Sprint & T-Mobile continue to appear in the media. Now joining the fray is AT&T with their announcement they will acquire DirecTV in a transaction reportedly worth nearly $48 billion.
Boston University School of Management professor Samina Karim, an expert on corporate restructuring and strategy, says AT&T is in a tough position and faces significant competition from all sides. She expands on her thoughts in the following opinion piece:
With the acquisition bid for DirecTV, AT&T seems to be following a similar strategy as Comcast – to expand its distribution platform and obtain greater leverage for sourcing content. With the fast growth of online streaming, distribution has become commoditized with little differentiation – thus we see the dive into content production by players like Netflix and Amazon.
Though we would like to see more competition in the distribution space, it’s a tough market to crack – even a prominent firm like Intel (with its OnCue TV service) couldn’t pull it off. Ultimately, I see competition coming from elsewhere in the future – from content providers as they forward integrate, similar to what HBO did with HBO GO.
AT&T is in a tough position, facing significant competition from all sides. On the cellular market front, SoftBank Corp may succeed where AT&T failed with the acquisition of T-Mobile; if this occurs, AT&T fears a price war in which SoftBank could steal away market share. That leaves AT&T with its media service front, in which both Comcast (that announced its acquisition deal for Time Warner Cable a few months ago) and Verizon (that acquired OnCue) are shoring up their delivery offerings.
AT&T is gambling on the coupling of its U-verse service with DirecTV to give it more market power both upstream and downstream: cheaper access to content and potentially winning over subscribers by offering even more bundled services. It’s a gutsy move but one that needed to be made to keep up with the competition. If regulators approve the Comcast and Time Warner deal, I would expect that the AT&T and DirecTV deal would be approved as well to maintain ‘even’ competition (with regards to number of subscribers) between the two.
The big question now is what will happen with Dish since its future will likely have an effect on these markets. Scenario 1, Dish Network could try to acquire T-Mobile (as Dish once tried to acquire Sprint), or Scenario 2, Verizon could try to acquire Dish. Either way (or perhaps in some other scenario), I foresee that Dish will need to eventually be part of something bigger.
If these other acquisition deals for Comcast and AT&T get approved, Dish is going to be hit by the same double whammy that will hit consumers – the markets for cellular and media services are both converging (vying for the same content and customers) and consolidating (with fewer players controlling more market share) which makes competition tough.
If I had to place my bet it would be on the latter (Scenario 2) – that Verizon may eventually acquire Dish — not because this is necessarily the best outcome for Dish but more so because I think SoftBank has a strong case for acquiring T-Mobile. So the former option (Scenario 1) may not even be available for Dish.
And why do I think SoftBank will get approval for the T-Mobile acquisition? Well – it’s the lesser of two evils: keep the current status quo of virtual oligopoly — though there are technically four players – or allow market consolidation but with some chance of ‘real’ competition against AT&T and Verizon.
Like most others, I am usually wary of consolidation. As a consumer, the current acquisition events regarding Comcast and AT&T make me concerned about their growing dominance, but in the case of SoftBank and T-Mobile I’d be willing to take my chances.
Contact Karim at 617-353-4289 or firstname.lastname@example.org.
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