Some breakups were meant to be. That was certainly the case with AT&T and DirecTV, a wildly unsuccessful merger that saw the telecom giant try – and fail – to transform itself into a media juggernaut. So DirecTV splitting from AT&T to become its own company should have set it on the correct path, right?
Unfortunately, a storybook happy ending remains elusive.
When DirecTV spun out of AT&T in 2021 – two years ago on Wednesday – cord-cutting was already heating up. The streaming wars and the rise of Disney Plus, HBO Max alongside established players like Netflix meant a shift in consumer dollars. A myriad of low-cost, easy-to-setup live TV services lured other customers away from traditional cable and satellite TV options, which still required complicated and timely installations and big monthly bills.
It’s not all doom and gloom. DirecTV has spent the last two years regaining control of its identity with splashy ad campaigns featuring Serena Williams (as Wonder Woman) and baseball legends such as Alex Rodriguez and Ken Griffey Jr. It also doubled down on sports content with NFL RedZone and the NFL Network. The company has been a healthy contributor of free cash flow to AT&T, which is still its majority owner.
“Within the framework of a pay TV market that’s imploding, they’ve done pretty well,” said Walt Piecyk, an analyst at Lightshed Partners.
But just like Comcast, Charter and fellow satellite provider perennial rumored merger partner Dish hit a buzzsaw with the cord-cutting wave, DirecTV struggled to find an answer as well. A report in January estimated that the number of subscribers – satellite and streaming – was at around 13.3 million, a little more than half the 25.5 million subscribers it had when AT&T purchased it in 2015.
Because it’s private, the company doesn’t offer subscribers information anymore.
To fully understand the how DirecTV got here, it’s best to go back to the beginning of this twisty story.
“A Fundamentally Different Company”
AT&T was just four years removed from its failed attempt to supersize its wireless business by acquiring T-Mobile – a deal squashed by the Justice Department – when it decided to change its heading. Rather than expand its wireless business – something regulators have signaled they wouldn’t approve, the telecom giant would expand in a new area.
In May 2014, AT&T shocked the world by announcing that it would purchase DirecTV for $48.5 billion, or $67.1 billion including debt. The company touted the potential of selling multiple services through one “truck roll,” with installers offering a bundle of internet, satellite TV, cable TV and wireless services. DirecTV’s then-large base of customers across the nation would theoretically give it more bargaining power when negotiating rates with the content companies.
“Within the framework of a pay TV market that’s imploding, they’ve done pretty well.”
Lightshed Partners analyst Walt Piecyk
While the company faced an uphill battle convincing regulators to approve the deal, it ultimately got approval, and AT&T closed the acquisition of DirecTV in July 2015.
“We’re now a fundamentally different company with a diversified set of capabilities and businesses that set us apart from the competition,” then-AT&T CEO Randall Stephenson said in a release touting the deal’s closing. He hailed it as a move to give customers more choice for great video.
It was almost immediately an ill fit, with the company going back and forth phasing out the DirecTV name while holding on to its own U-Verse TV service, which in many cases competed against DirecTV. Then there were the sheer number of services, from AT&T Now, which was DirecTV Now, to AT&T Watch TV and AT&T TV, that ended up confusing consumers. Time after time, it failed to offer a coherent strategy that would capitalize on the potential of the combination.
A little more than a year into the deal, AT&T was ready to pivot again, striking a deal to buy Time Warner for $85.4 billion. The company touted it as a “combination unlike any other,” combining its media assets with the video delivery services from DirecTV and AT&T.
That was true, but not in a good way.
Making a Break
The combination of all three assets made a complicated situation even more awkward, and the shine of Time Warner, which drove several AT&T executives to move west to Burbank, California, meant a lot less love and attention for DirecTV.
After a few years, which included continued experiments with different services and packages that never really stuck with consumers, and AT&T getting overtaken by rival T-Mobile in its bread-and-butter wireless service, things took a turn. John Stankey, who took over as CEO from Stephenson, decided the experiment in media was over.
AT&T worked to separate DirecTV first. In the fall of 2021, It split off as a separate company that AT&T would still hold a 70% stake in, with private equity firm TPG holding the balance of the company. While TPG had the minority stake, it would be driving a lot of the work with the DirecTV alongside CEO Morrow.
As part of the deal, DirecTV would get its core satellite TV service and U-Verse TV, with its streaming services falling under the DirecTV Stream. DirecTV CEO Bill Morrow said the deal would bring “unparalleled choice and value to all of our customers.”
The company has adapted to changing consumer preferences, touting the option to go with our without a satellite dish. It’s offering new hardware, like the Android TV-powered Gemini Air. It has also shored up its business side, ensuring that 300,000 commercial establishments are subscribed to DirecTV for its key sports programming. Last month, DirecTV struck a deal to be on flights run by Southwest Airlines.
But because it’s private, DirecTV doesn’t disclose its numbers publicly. A spokesman declined to provide any numbers, but said the company was performing well against its own expectations.
Courtship with Dish?
A standalone DirecTV also invites the question of when it would merge with Dish Network, which has renamed itself Dish Wireless.
A combination would bulk up its customer base and give it access to a burgeoning wireless service that Dish CEO Charlie Ergen is building out, but still doesn’t address the core cord-cutting problem both players face.
It had appeared TGP was keen to do a deal after the separation, but nothing has materialized after two years.
AT&T CFO Pascal Desroches said last month that DirecTV has been a consistent contributor of free cash flow over the last two years and is pleased with its performance. “Before we would decide to do something with another party, whether it be Dish or somebody else, I think there is a fairly well-defined bar that we had,” he said during a Q&A at a Bank of America investor conference.
One possible issue might be Ergen himself, given his reputation of a maverick that’s difficult to work with.
“Ergen is someone known to not have great relationships with the industry,” Piecyk said.
Dish and AT&T have a deal to let the Boost Mobile service, which recently partnered with Amazon, run on AT&T’s network. But it’s unclear if AT&T wants to form a closer relationship with the company.
DirecTV, for its part, continues to chart its course as an independent company. While it’s made progress regaining some semblance of agency, it’s been a rough first two years. It’s next two years and beyond could be equally turbulent.