The DirecTV/Dish Merger Isn't Brain Surgery But It Does Require Rocket Science

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The DirecTV/Dish Merger Isn't Brain Surgery, But It Does Require Rocket Science

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There was a time when I was knee-deep in the direct broadcast satellite (DBS) business. I was a young business development person working at the Nielsen Company back in 2002 when DBS was challenging the cable TV business.

In fact, much like streaming today, people were forecasting the death of cable. It seems that with any change, someone or something must always die.

At the time, I was introduced to a guy by the name of Chris Monteferrante. Chris was working for Sony and they had a deal with DirecTV to sell its TV ad time. Chris knew that if he had Nielsen TV ratings for DirecTV, he could sell more ads.

Together, Chris and I developed a Nielsen service specifically for DBS clients. DirecTV and Dish both signed up and to my knowledge are still Nielsen clients.

If you’ve never investigated it, you might not realize the technological sophistication that goes into the DBS business. These companies put satellites into space via rockets.

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Dish used to have models of the rockets displayed in the lobby of its headquarters in Colorado. They would have launch parties to go watch them take off. It’s an amazing business!

Fast-forward a couple of decades and I was working for infamous political consultancy Cambridge Analytica (CA). At CA, there was saleswoman who I worked with on a lot of sales pitches. Her sister worked for the Ergen family, the family of Dish’s founder Charlie Ergen, and I was introduced to two of his kids -- one of them on a trip to Mexico to pitch Dish Mexico on a TV set-top box project.

The woman who introduced us turned out to be the famous whistleblower – Brittany Kaiser. She was a talented salesperson.

Yesterday when I heard about the Dish/DirecTV merger, I was excited. The two companies have been trying to merge for a long time. In the past, the deal had been nixed by the Federal Communications Commission and the Department of Justice as it was considered anti-competitive for the only two U.S. DBS companies to merge into one.

This morning, CNBC came out with a very negative story about the deal. The fact that Dish was sold for $1 and $9.75 billion in associated debt makes it look like it was a fail.

My question is: Was it really a failure or did they sell Dish for $9.75 billion and structure the deal as a debt transfer to avoid having to pay taxes on the capital gain? Moreover, was the debt related to Dish or was it the result of Echostar’s multi-billion-dollar spectrum investment expense for its wireless phone business?

In essence, Dish is trading its DBS business for another business that it believes to have more potential: Boost Mobile.

Others might argue that even if it is a $9.75 billion dollar sale, the company was valued at $28 billion back in 2014, which is a huge reduction in value.

Well, hindsight is 20-20. Dish was hoping Sling would gain traction and enable the company to transition to streaming. As with so many legacy TV companies, they’re all struggling with the same challenge. Look at what’s going on at Paramount and all the write-downs related to the lost value of its TV businesses. It's no different.

The DirecTV and Dish combination makes a lot of sense. According to the National Cable & Telecommunications Association, only 85% of homes have high-speed, cable and internet access available.

The millions of rural homes that don’t have access to cable probably never will. It’s just too inefficient to wire them.

Those households will always be great prospects for DBS and provide a beachhead for the DBS business. Moreover, the combined Dish Sling and DirecTV Now streaming services will be that much more competitive in the larger portion of homes that do have access to cable TV and high-speed internet.

Down the road there will likely be more consolidation. Wouldn’t it be great if you could bundle DirecTV and satellite radio? I would be interested.

Dish Founder Charlie Ergen is an amazing entrepreneur who created a truly great company that started as a little tiny business that offered big satellite dishes to people in places that had poor TV reception. He ran it for decades and sold it for billions of dollars.

It’s a phenomenal achievement whether Ergen got $28 billion or $9.75 billion. What a great run, not to mention that Ergen’s Echostar still owns the rights to all that spectrum for its Boost Mobile business, which will be in better financial shape because of the Dish sale.

If anyone sees the Dish sale to DirecTV in a negative light, I suggest they look a little deeper. If that’s what failure looks like, sign me up.

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October 1, 2024 at 02:28PM