Why would AT&T acquire a player in the declining pay-TV space?
Merger must-know: Why did AT&T bid to acquire DirecTV? (Part 2 of 5)
Analyzing a few key risks of AT&T’s DirecTV acquisition
In the previous part of this series, we discussed how AT&T (T) will benefit from its deal with DirecTV (DTV). We saw how AT&T can offer the 38 million DirecTV subscribers bundled services and how it would help AT&T have better negotiating power with content providers for licensing deals. Assuming regulatory authorities pass this deal, we should analyze whether AT&T’s acquisition of DirecTV was a good choice or not—especially when the Pay TV market is undergoing a structural decline.
The pay-TV industry is going through a tough time
According to research firm SNL Kagan, cable, satellite TV, and telecom providers have collectively lost 251,000 pay-TV subscribers in 2013. Although satellite TV companies like DirecTV and Dish Network (DISH), as well as Verizon’s (VZ) FiOS and AT&T’s U-Verse, offer pay-TV services that have gained a few subscribers, cable companies such as Comcast (CMCSA) and Time Warner Cable (TWC) have lost too many subscribers.
Not surprisingly, customer satisfaction levels with pay-TV companies are also falling. According to a study by the American Customer Satisfaction Index and as the chart above shows, overall satisfaction levels with pay-TV service in the U.S. declined by 4.4% in the last year. Interestingly, not a single player showed any improvement in service satisfaction levels over the last year.
The main question to ask here is why did AT&T choose to acquire a player in this market, which is undergoing a structural decline both in terms of subscriber numbers and customer satisfaction levels? The pay-TV market has an uncertain future and it’s undergoing a process known as “cord-cutting.” “Cord-cutting” means viewers have stopped subscribing to traditional TV packages and are shifting to online video streaming providers such as Netflix (NFLX).
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