AT&T Spins Off DirecTV After Losing Billions On Its TV Dreams
from the money-can't-buy-you-love dept
We’ve noted a few times how giant telecom providers, as companies that have spent the better part of the last century as government-pampered monopolies, are adorable when they try (then inevitably fail) to innovate or seriously compete in more normal markets. Verizon’s attempt to pivot from curmudgeonly old phone company to sexy new ad media darling, for example, has been a cavalcade of clumsy errors, missteps, and wasted money.
AT&T has seen similar issues. Under former CEO Randall Stephenson, AT&T spent nearly $200 billion on mergers with DirecTV and Time Warner, hoping this would secure its ability to dominate the pay TV space through brute force. But the exact opposite happened. Saddled with so much debt from the deal, AT&T passed on annoying price hikes to its consumers. It also embraced a branding strategy so damn confusing — with so many different product names — it even confused its own employees.
As a result, AT&T intended to dominate the pay TV space, but instead lost 8 million pay TV subscribers since early 2017. Hoping to buy itself a little financial breathing room, AT&T has been shopping DirecTV around for months. But with few suitors interested in paying for a traditional satellite TV provider in the middle of a cord cutting revolution, AT&T instead last week settled on spinning off DirecTV and the rest of its pay TV operations into a new company. Under this new structure, AT&T will retain a 70% majority stake, with the other 30% being owned by private-equity giant TPG.
As part of the deal, AT&T valued the new DirecTV at around $16.2 billion, a massive loss from the $67 billion (including debt) AT&T paid for DirecTV back in 2015. AT&T begrudgingly admitted in a statement this wasn’t a particularly impressive feat:
“With our acquisition of DirecTV, we invested approximately $60 billion in the US video business,” AT&T said in materials distributed to reporters. “It’s fair to say that some aspects of the transaction have not played out as we had planned, such as pay TV households in the US declining at a faster pace across the industry than anticipated when we announced the deal back in 2014. In fact, we took a $15.5 billion impairment on the business in 4Q20.”
The deal buys AT&T a little financial leeway (immediately countered by its recent huge payout to grab additional wireless spectrum), but does little to change the underlying equation in AT&T’s attempt to dominate video. One of the bigger ironies is that AT&T spent countless man hours and millions in lobbying to grease the regulatory skids for its domination of television, be it the repeal of net neutrality, all the efforts to kiss up to the Trump administration, or the long legal battle over the anti-competitive impact of its Time Warner deal.
Yet all that money, energy, and political power couldn’t buy AT&T the kind of innovative chops needed to make inroads in the TV sector in the way they’d originally intended. It would be funny if not for the 54,000 AT&T employees laid off since 2017 in a bid to help manage megamerger debt. There was a real human cost to AT&T’s ambition that the press, more interested in hyping pre-merger “synergy” claims than tracking the deal’s actual impact, usually can’t be bothered to talk much about.