A DirecTV Merger With Dish? Believe It or Not, EVERYBODY Wins

by Will Ashworth | March 28, 2014 1:37 pm

A DirecTV Merger With Dish? Believe It or Not, EVERYBODY Wins

Reports of merger talks[1] taking place between Dish Network (DISH[2]) and DirecTV (DTV[3]) has lit a fire under both companies’ stocks.

directv logo A DirecTV Merger With Dish? Believe It or Not, EVERYBODY WinsThing is, this isn’t the first time Dish Network and DirecTV have wanted to hook up — back in 2002 they tried but were denied by federal regulators. So why should this time be any different?

Because everybody wins. That’s why.

The big cable conglomerates can drag out their lobbyists to try to quash a combo of Dish Network and DirecTV, but if the federal regulators are paying attention to what’s happening when it comes to television viewing habits[4], they’ll know that there’s a sea change underway.

In fact, stopping the DISH-DTV marriage would ultimately hurt consumers, content creators, shareholders and the many average people employed by the media industry.

How a DirecTV-Dish Network Merger Helps Consumers

The argument against media mergers has always been that combinations reduce choice and restrict competition. However, the cable lobby will say that the Comcast (CMCSA[5]) tie-up with Time Warner Cable (TWC[6]) isn’t restricting competition because the two companies have very little geographic overlap. In most markets it’s one or the other; not both. But Dish Network marrying DirecTV would mean 100% overlap.

At least, that’s what the cable companies want you to believe.

The truth is a merged entity still would have to provide competitive prices with cable. Most people decide between cable and satellite, and then between Dish Network and DirecTV. With just one choice, consumers will likely spend more time debating the cable/satellite question instead.

A merger in this situation does little to affect consumers. In fact, it probably helps.

Both Dish Network and DirecTV have their pros and cons as consumer services go. Together, they can make one offer that combines the good stuff from each service.

For example, Dish Network signed a deal in early March[7] with Disney (DIS[8]) that gives it access to ESPN and all the other great Disney content. Dish will use this content as the backbone of a new Internet streaming service. This makes sense given the younger generation[9] (specifically trailing millennials between 14-24) more often than not watches movies and TV shows on devices other than traditional TVs.

A combined entity would be able to deliver the best streaming service possible (shared resources, etc.) rather than a watered-down version from one or the other.

Together, Dish Network and DirecTV can compete for the best content going while remaining competitively priced to cable. From where I sit, this is a good deal for consumers.

Shareholders Win, Too

This one is a no-brainer. Leon Cooperman’s sixth-biggest holding in his $7 billion hedge fund, Omega Advisors, is none other than Charlie Ergen’s Dish Network, at 3.9 million shares. In an email[10] to The Street, Cooperman stated “I have nothing to add other than it makes great sense.” I’m certainly not going to argue with one of America’s great investors.

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Last June, I suggested that DirecTV was the better of the two companies[11]. However, Cooperman is a big believer in Ergen’s management style. The Disney deal is a specific example of Ergen’s genius. Together, with Ergen as Chairman and Mike White as CEO, the synergies alone would move the needle.

Sirius Broadcasting took 17 months[12] to get its merger with XM Radio approved by the Federal Communications Commission, so this combination could take longer. But I don’t care how long it takes — in the end, both sets of shareholders are better served tossing in with the other.

Charlie Ergen is no dummy. If he’s pushing for this, Mike White is surely listening. A second failure could ultimately be fatal to either Dish Network or DirecTV.

I do believe the FCC will see things differently this time around.

Content Creators? Yup, They’d Be Happy

One of the biggest effects of a TWC/CMCSA merger will be the price that content creators like Disney, CBS (CBS[13]) and all the rest are able to charge the merged entity.

A stronger Comcast will likely stand up to any fee increases proposed by content creators limiting their potential upside revenue. These firms want to be able to conduct as many negotiations as possible, playing one cable company against the next to leverage the best possible deals. As a result, you can be sure that content creators are likely going to be against a Dish Network-DirecTV merger … but they shouldn’t be.

The reason: One of them might not be around in a decade.

I know that might seem implausible, but whichever firm is able to win the Internet and wireless battles is going to be the last satellite provider standing. By coming together, the merged firm will have the financial resources necessary to compete with Comcast for exclusive content. In the end, I see content creators winning in this merger rather than losing.

Time will tell if I’m right.

Bottom Line

There is a constant argument about development that takes place in the Toronto neighborhood where I live. Many of the long-time residents don’t want tall buildings ruining the neighborhood’s small-town feel. The problem with this ideal: Development’s going to happen whether they like it or not. With that in mind, it makes greater sense working to ensure the buildings that are built are attractive and a welcome addition to the neighborhood.

How does this relate to a Dish Network merger with DirecTV?

The TV landscape is drastically changing. The two companies can fight to the death for satellite TV bragging rights, or they can come together to provide consumers with a first-rate bundle of services.

Nobody wins blocking a merger — except the lawyers.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Endnotes:
  1. merger talks: http://money.cnn.com/2014/03/26/technology/dish-network-directv/
  2. DISH: http://studio-5.financialcontent.com/investplace/quote?Symbol=DISH
  3. DTV: http://studio-5.financialcontent.com/investplace/quote?Symbol=DTV
  4. television viewing habits: http://recode.net/2014/03/26/teens-twentysomethings-spend-more-time-watching-tv-on-other-screens/
  5. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  6. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC
  7. deal in early March: http://investorplace.com/2014/03/5-things-driving-dis-stock-roof/#.UzWHhty52bw
  8. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  9. younger generation: http://recodetech.files.wordpress.com/2014/03/deloitte_digitaldemocracy_tv-1.pdf
  10. email: http://www.thestreet.com/story/12557119/1/how-to-bet-on-a-dish-and-directv-merger.html?puc=yahoo&cm_ven=YAHOO
  11. DirecTV was the better of the two companies: http://investorplace.com/2013/06/stock-showdown-directtv-vs-dish-network/#.UzWXzdy52bw
  12. 17 months: http://www.cato.org/publications/techknowledge/lesson-xmsirius-merger
  13. CBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBS

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