Telecommunications service AT&T’s recent agreement to buy satellite television provider DirecTV for $48.5 billion is about more than just getting into streaming video — its about dominating television, and creating a serious competitor for the recent Time Warner-Comcast Cable merger.
If the deal goes through, AT&T will gain some serious weight in the wireless market for streaming premium content to customers — including the NFL Sunday Ticket — and add 20.3 million U.S. subscribers to its 5.7 million U-verse TV customers, making it a television heavyweight overnight.
“All of a sudden you’re talking about the No. 2 pay-TV provider in the country,” business consulting firm Frost & Sullivan analyst Dan Rayburn said in a Verge report. “That means you can negotiate for better programming, and at a better price.”
Rayburn described the acquisition of content like the NFL as a “game-changer” for AT&T, and said DirecTV is way ahead of the telecom provider in terms of high-profile licensing agreements. During a Monday investors call, AT&T CEO Randall Stephenson said the buyout would let the company start streaming such content to TVs, smartphones, cars and airplanes.
Football in particular is so vital that AT&T spelled out in its terms that the company can legally walk away from the deal entirely if DirecTV fails to renew its exclusive contract with the NFL.
Wireless customers won’t be the only ones to see some improvements — with AT&T’s broadband infrastructure, it will offer 15 million current DirecTV customers in rural areas high-speed Internet as part of their satellite television packages. That’s a market the cable provider was previously unable to effectively compete in.
“The one big thing we’ve been missing is a two-way broadband pipe to the home,” DirecTV CEO Mike White said. “With this deal we can bundle video and broadband to combat the dominance of cable.”
Cable still stands to retain the upper hand if the Time Warner-Comcast Cable deal goes through. Comcast’s $45 billion-bid to merge the two will create a combined 33 million cable subscribers, with an almost equal number of broadband users according to The Washington Post.
AT&T will reportedly seek to make up the initial difference outside the U.S., as DirectTV already boasts more than 18 million customers in Latin America, where Stephenson announced the aggressive new AT&T expansion during Monday’s call.
“If you think back to the ’90s the marketplace was full of small companies, we’ve seen wave after wave of mergers and now there are fewer and larger companies,” independent analyst Jeff Kagan said about the deal. “Going forward, we’re going to see even fewer and even larger competitors going forward or moving toward a national, competitive marketplace for television, telephone, Internet, wireless.”
Both will likely undergo intense anti-competitive regulatory scrutiny from the federal and state governments before being approved, and going on to make massive shifts in the telecommunications and media industries.
“You’re talking about a world where two companies control 60 percent or more of the paid-TV and Internet market,” Rayburn said. “If you thought the net neutrality folks were angry before, this is really gonna set them off.”