AT&T Buys DirecTV… So What?

DirecTVYou know how sometimes something happens in your life and everyone around you is excited about it, but you’re just not sure that you should be? It’s like there’s this one nagging thing you can’t get off your mind, and nobody seems to worry about it other than you?

That’s how I feel about the AT&T and DirecTV merger/acquisition of $67 billion. It’s not the $67 billion that bothers me. It’s not the FCC potentially blocking the deal that bothers me. It’s not even the fact that I personally don’t see how satellite companies can stand the test of time in a world where broadband is slowly becoming king. My issue is with–well, I’ll get to that in a second.

But let’s first talk about all the other things I find wrong with the deal. Starting with the fact that the merger of AT&T and DirecTV has very little in the way of synergies. Some say they might save money on programming fees for cable networks, but how much are they really going to save? Sure, combined they will have the second-most PayTV subscribers in the United States, but how much are they really going to save on the basis of that alone? If you have access to AT&T or DirecTV, it probably means you have access to another cable provider. So I don’t know how much leverage this new company gets at the negotiating table with cable networks.

AT&T and DirecTV will tell you how this is better for their customers. In their pitch to Wall Street the morning after making the deal, AT&T/DirecTV told folks that customers would benefit from having the ability to buy or be serviced by DirecTV in AT&T stores. Well, thanks for that. They also said the consumer, you and me, would benefit from their bundling of broadband, video and mobile into a single package. I suppose I’ll benefit from that in the same way I benefit from the already existing PayTV bundles out there, which have gone up year after year after year, right?

Oh, and when you get down to the brass tax of it all, AT&T and DirecTV calculated that this deal would save them $1.6 billion within 3 years of the merger. So essentially, over the first 3 years of the deal, the conglomerate will save about $533 million a year after a $67 billion deal. Big whoop.

The only thing that I’m even remotely excited about when it comes to this deal is that AT&T and DirecTV might feel inclined to challenge Dish on an over-the-top PayTV offering. This merger really doesn’t make OTT a more viable option than it was for DirecTV before the deal, but under the guise of synergies, and bringing content and broadband together, some are making the argument that OTT would be a good play for the newly combined entity. I’m not so sure, but like others before them, I hope they try.

But what really bothers me about this deal is the NFL.

That’s right! The big, bad, NFL is rearing its ugly head into matters of $67 billion. That’s just what they’re going to do until they’re a $67 billion company themselves. That said, this isn’t their fault. DirecTV did this on their own. They made a deal with AT&T that is essentially contingent on them having access to the NFL’s Sunday Ticket package–a deal that expires at the end of this upcoming NFL season.

Reportedly, in the agreement terms for this deal is a contingency that says that if the NFL broadcasting agreement is not renewed by DirecTV, AT&T can back out of its purchase–and might not even have to pay any type of breakup fee either.

This inherently gives the NFL what they call in the media game: leverage. Roger Goodell and 32 other owners, some of which are in the media business, could make or break a $67 billion deal and not even be in it. Thus, when DirecTV comes to the table trying to get the package, the NFL knows signing them is worth a lot more than just annual percentage increase over what they paid last time around. Now we’re talking about all kinds of lost “synergies,” “cost savings,” and most important of all, stock options (notice the lack of quotations on the last term–that’s because it’s real).

So will Goodell use that to his advantage? I can’t see how he won’t. Especially when Fox Sports and NBC Sports are likely already bidding for a piece of the NFL pie. While all signs point to the NFL coming to terms with DirecTV, and the two renewing their deal is just the sane thing to do, I just don’t 100% trust it to happen. If I had to bet my life one way or the other, surely I’d bet that this deal goes through. But who knows what the NFL is thinking? Maybe they want to go digital and sell the package to Xbox and this was just the opportunity they were looking for. Maybe they want to sell the package to Fox Sports 1 and help them rival ESPN; thereby, reducing some of the leverage ESPN holds over the NFL.

Point is, leverage, egos and lots of stock options are at play. And when all 3 of those things are up for grabs in the media industry, don’t ever bet on sanity.

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