AT&T’s sale of 30% stake in pay-TV unit portends more market shifts, says GlobalData

Following yesterday’s (25 February) news that AT&T has agreed to sell a 30% stake in its pay-TV unit to private-equity firm TPG Capital for US$1.8bn in cash, with the two companies establishing a new company named DIRECTV;

Tammy Parker, Senior Analyst at GlobalData, a leading data and analytics company, offers her view:

“AT&T’s tremendous debt obligations combined with the stark realities of cord-cutting, which has marked the pay-TV environment since AT&T acquired DIRECTV in 2015 for US$48bn, dashed the carrier’s long-term plans. Furthermore, the ongoing shift in viewing away from legacy linear TV platforms will continue. GlobalData forecasts the number of US pay-TV accounts – including cable, satellite, and IPTV – to slide by an additional 7.6% this year, dropping to 68.58 million pay-TV accounts from an estimated 74.22 million at the end of 2020.

“As a standalone entity, the new DIRECTV will be nimbler and better positioned to weather the ongoing pay-TV storms. More importantly, the deal enables AT&T to pay down some debt and focus on its core growth areas, including 5G wireless, fiber and its direct-to-consumer streaming business HBO Max.

“The agreement with TPG also portends more wheeling and dealing ahead, as it will likely put DIRECTV’s popular but costly NFL Sunday Ticket service into play. AT&T has long hinted at its desire to ditch NFL Sunday Ticket, which was used as a loss leader with AT&T paying US$1.5bn per year for exclusive rights. That deal made increasingly less sense as DIRECTV’s customer base continued to decline.

“With DIRECTV’s NFL Sunday Ticket contract ending after the 2022 season, the package’s next iteration will surely find a home in the streaming universe, though its ultimate owner or owners is anyone’s guess at this point. Amazon, which already streams NFL games, is one likely candidate, but so are Disney, with its ESPN+ service, Comcast/NBCUniversal’s Peacock and others hoping to capitalize on the popularity of professional football.

“AT&T has promised that current AT&T video subscribers will see few immediate changes once the deal closes, besides noticing a change in the name of their video provider from AT&T to DIRECTV. However, the plan to erase AT&T’s name punctuates the drastic changes in telco’s video ambitions. AT&T is belatedly backing away from the linear TV business that it once hoped to dominate by creating triple-play bundles combining nationwide pay-TV with broadband and mobile services, leveraging expected economies of scale, and wielding clout with content providers.”

More Media