A DirecTV-Dish Merger Would Create a Mega-Pay TV Operator, But Won’t Stop the Industry’s Decline | Analysis

After over a decade of on and off talks, a merger between DirecTV and Dish is poised to become a reality. The deal announced on Monday for the former to acquire the latter for $1 and $9.75 billion in debt will form the largest pay TV operator with around 18 million subscribers — leapfrogging past Charter Communications and Comcast — as it looks to stem satellite TV’s bleeding from cord-cutting.

Still, while analysts told TheWrap that they anticipate the merger will pass regulatory scrutiny, the combination will have minimal benefits and would not do anything meaningful to stop the pay TV industry’s subscriber declines, they said.

“Linear TV is getting more expensive while its content is becoming less exclusive and less valuable — this merger does not stop those trends,” eMarketer Senior Analyst Ross Benes told TheWrap. “It creates a giant entity that will be strangled by debt, eager to slash jobs.”

Instead, the deal is about finding a “sense of stability” in a declining market as they look to transition the DirecTV and Dish brands to streaming, Leichtman Research Group founder Bruce Leichtman told TheWrap. He noted it allows them to focus on their “high subscriber acquisition cost” business and competing with cable companies, virtual MVPDs like YouTube TV and major streaming services, rather than each other.

Shares of EchoStar, which fell 11.4% on Monday following the deal announcement, extended their losses on Tuesday, closing down another 2.4% at $24.22 per share. AT&T’s stock has risen about 1% since Monday, closing at $22.13 per share on Tuesday.

And on Tuesday, rating agencies S&P Global and Fitch put DirecTV on negative credit watch , reflecting the loss of some governance protections from private equity firm TPG, the 30% owner of DirectTV, buying out AT&T’s remaining stake.

When DirecTV and Dish launched in 1994 and 1996, respectively, the satellite TV giants offered more channels and a bundle with telecommunications giants that the cable operators didn’t have.

“They’ve always divided the market,” Leichtman said. “DirecTV was the service to the suburbs and urban areas and had the image of being this high-end sports service. On the other hand, Dish was always the value brand that was more popular with rural areas.”

But satellite TV viewership peaked at around 34 million subscribers in 2014 and has been on a downward spiral ever since, exacerbated by cord-cutting due to the rise of streaming. Since 2016, DirecTV and Dish have collectively lost 63% of their satellite customers.

DirecTV revealed it has a total of about 10 million pay TV subscribers, down from the 11.3 million subscribers as of the end of 2023 estimated by LRG. Meanwhile, EchoStar reported a total of 8.07 million pay-TV subscribers as of the second quarter of 2024 — including 6.07 million Dish TV subscribers and 2 million Sling TV subscribers.

“There is little that can be done to reverse the fortunes of their core products,” Benes added. “They hope a merger will boost their business, but given the struggles that each service has had, the odds of a combined DirecTV-Dish service becoming profitable and growing its subscriber base is unlikely.”

Scaling up

DirecTV CEO Bill Morrow said the transaction would provide increased scale that will help incentivize programmers to allow them to deliver smaller packages at lower price points.

“We are a pure play video aggregator and distributor. We don’t have other products to sell. This is our sole livelihood,” Morrow said during a Monday call with analysts. “We will be able to provide customers with a different kind of choice with better value, where they can choose the content of their choice.”

In its recent carriage deal with Disney, DirecTV won the ability to  bundle select video packages with Disney+, ESPN+ and the upcoming ESPN flagship, while also offering smaller, genre-based packaging to its customers around sports, entertainment and kids & family.

“While DirecTV and Dish are similar [in] size, they will be able to leverage who has the better contract with station groups and cable networks at close,” Lightshed Partners analyst Rich Greenfield said in a blog post on Monday. “With 25% of combined MVPD/vMVPD video subscribers, we expect the newly enlarged DirecTV will be far more capable of forcing smaller, genre-based bundles. The merger will accelerate the demise of the one-size fits all ‘fat’ bundle.”

Other benefits the satellite TV giant touted include making the company better positioned to bring multiple content sources together in one easily accessible place, enhancing the company’s ability to make investments required to improve its streaming offerings, and improving the viability of its satellite platform through efficiencies of some shared fixed infrastructure and operating expenses.

“This will allow us to have a stronger financial profile and more opportunities to invest in this concept that we have about providing a simple one stop service to consumers,” Morrow added. “We hope that the regulatory bodies will understand the value creation, the opportunity to keep competition alive, and to do so in a way that the programmers themselves cannot do with their direct to consumer offering.”

As for EchoStar, the deal would allow the company to avoid bankruptcy and mitigates the risk of a delay in payments from Dish to programmers. The company will receive $2.5 billion in financing that will help pay off Dish’s $2 billion bond due in November. The deal is also expected to help EchoStar cut its debt by $11.7 billion and reduce its refinancing needs through 2026 by $6 billion, according to an investor presentation.

Synergies and benefits will have a minimal impact

This isn’t the first time the two parties have attempted a merger. Back in 2002, EchoStar beat out Rupert Murdoch’s News Corporation to acquire DirecTV from General Motors’ Hughes Electronics, though regulators later blocked the deal EchoStar went on to close its acquisition of Dish this January.

But the industry has changed — and declined — significantly since then, with traditional pay TV providers’ penetration in U.S. households now less than 50%.

“In the original merger, the idea was that it would block competition. These businesses were increasing at the time, satellite was a more important competitor to cable,” Leichtman explained. “Given the state of the industry, I think regulators would be hard pressed to say it doesn’t make sense to have one satellite company in 2025.”

DirecTV estimates its merger with Dish has the potential to generate cost synergies of at least $1 billion per year, which it expects to achieve by the third anniversary of the deal’s closing. It expects to have a leverage position just over two times and plans to reduce that to under two within 12 months.

They hope a merger will boost their business, but given the struggles that each service has had, the odds of a combined DirecTV-Dish service becoming profitable and growing its subscriber base is unlikely.” — Ross Benes, eMarketer senior analyst Ross

The transaction, which was unanimously approved by the board of directors of both companies, is expected to close in the fourth quarter of 2025, subject to regulatory approval, consent from Dish’s bondholders and other customary closing conditions.

Despite gaining some negotiating leverage with programmers in 2026 and beyond, analysts with MoffettNathanson said Wall Street has been anticipating a merger for nearly two decades and that any protections for affiliates have largely been baked in already in previous carriage agreements.

“We wouldn’t expect any [carriage agreements] to allow for the kind of pick-and-choose provisions that once factored large in cable mergers,” the firm wrote in a research note on Monday, noting “the combined company will be smaller than either DirecTV or Dish was on its own just a few years ago.”

While a deal would give the satellite TV giants more time, the firm argued that $1 billion in synergies would only amount to a life extension of about 15 months, as the combined EBITDA of Dish and DirecTV has declined by $825 million over the past year.

“Assuming the merger does get approved, getting it across the finish line is expected to take as long as two years,” MoffettNathason added. “By then it is likely that the combined business will have shrunk by another 25%.

AT&T exits the entertainment business

If approved, the deal will also mark an end to AT&T’s involvement in the entertainment business and close the books on one of the worst M&A transactions in history, analysts said.

In 2015, AT&T acquired DirecTV for $49 billion, or $67 billion when including debt. But by 2021, AT&T had taken a $15.5 billion write-down on the video business, sold its WarnerMedia unit to Discovery Inc. and divested a 30% stake in the satellite TV operator for $16.25 billion to TPG. Now, TPG will acquire the remaining 70% stake, giving it complete control of the combined entity.

AT&T “sparked the flame” on pay TV losses when it began losing interest in the video business back in 2019, Leichtman said. He pointed out that DirecTV’s subscriber losses at that time were three times that of Dish and that the company has accounted for more than half of the total net losses for the pay TV industry.

“Before they ever were able to use the content synergies of that merger, they abandoned video, and they never used the synergies,” Leichtman said. “While TPG is not a public company, they know how to run this business and they will be focused on that.”

AT&T agreed not to sell its stake in DirecTV for a three-year period, which expired on July 31.

In that period, the company “achieved financial outcomes consistent with its expectations that underpinned its decision to retain a 70% financial interest in DIRECTV,” AT&T said in a statement. “This sale allows AT&T to continue to focus on being the leading wireless 5G and fiber connectivity company in America. This transaction also continues to strengthen AT&T’s balance sheet by pulling forward cash expected over the next several years.”

Since forming the joint venture in the third quarter of 2021, AT&T expects to report a total of about $27 billion in cash payments, including $7.6 billion in cash received upon its initial formation, $11.4 billion in quarterly cash contributions through the second quarter of 2024 and another $7.6 billion of additional cash payments from now until the end of 2029. The deal is expected to close in the second half of 2025.

S&P Global and Fitch put DirecTV on negative credit watch on Tuesday. Fitch warned that DirecTV’s credit ratings would be pressured by secular industry challenges, including the declining satellite pay-tv subscribers and decreasing revenue trends. S&P added that the benefits of the merger would be “insufficient to counterbalance” competitive forces that include programmers giving their best content to their own streaming services and YouTube TV’s growing share in the pay TV market.

S&P estimated that DirecTV subscribers declined 15% year over year in the second quarter of 2024 and expects similar trends to continue to occur across the industry. Fitch anticipates that the companies’ combined revenues will decline in high single to low double digits in 2024 and 2025, primarily due to declines in pay-TV satellite subscribers and U-Verse subscribers, partly offset by higher average revenue per user.

Additionally, S&P warned that DirecTV’s credit metrics will deteriorate with higher debt, noting that it will be “assuming roughly $10 billion of Dish DBS’ debt at a multiple of about 3.5x EBITDA.”

The firm estimated that synergies could total at least $1 billion by 2029, representing about 15% of Dish’s total operating expenses, but noted that would occur gradually over three to four years, starting at about $400 million in 2026. They include reduced content spending, call centers and sales, the consolidation of streaming platforms and the elimination of friction created by customers switching between the two satellite TV giants.

Fitch projected that DirecTV’s EBITDA margins will grow to the mid to high 20% range, supported by acquisition synergies and free cash flow after tax distributions would range between $2 billion and $2.5 billion annually in 2026 and 2027. S&P projected EBITDA margins will remain at or above 25% through 2028 due to operational efficiencies enabled by the merger.

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