
AT&T to Buy DirecTV for $48.5 Billion - k-mcgrady
http://dealbook.nytimes.com/2014/05/18/att-to-buy-directv-for-48-5-billion/?_php=true&_type=blogs&_r=0
======
suprgeek
The race is officially on! Can the Telecoms retain their terrible monopolies
by becoming streaming providers Faster than the Streaming providers (Netflix,
Youtube, Amazon Prime et al) trying to become Content creators?

AT&T is running out of customers to squeeze in the cell phone plans market.
This is the next frontier for terrible service, exorbitant prices and
regulated monopolies...

~~~
georgemcbay
This race is rigged. Even if the streaming providers win the telecoms will
just jack up the prices on their bandwidth when net neutrality is killed
completely, which I don't think is an avoidable situation at this point.

~~~
qq66
If net neutrality is gone for good, the telecoms don't even have to bother
entering the streaming business. They just have to look at Netflix's profits
each year and charge (profits-$1) the next year, letting Netflix stay barely
in business and capturing the surplus.

~~~
exelius
Netflix is not a replacement for a traditional pay-TV video service, nor will
it be. It's really more of a premium channel like HBO or Showtime -- both of
which already offer streaming for a similar price as Netflix. I see the
industry going one of two ways:

1) Cable TV over Internet -- in this scenario your cable subscription just
becomes an app that runs on a wide variety of devices. Watch live TV, DVR, on-
demand, etc. with a user interface that is somewhat reminiscent of what exists
today. Channels will continue to be bundled and distributed through cable
providers (though I expect non-infrastructure owning companies will also be
spun off or started up). This scenario is most likely as it is least
disruptive to the financial structure that's been set up on the content
creation side (also all the big cable/telco companies are building this
already).

2) Dissolution of the "big bundle" \-- in this scenario, the content owners
just decide to skip the middleman and become more like Netflix themselves. For
example, Disney decides to just offer their own subscription service for
$12/mo which gets you ABC, ESPN and the other Disney channels. Bundling would
still happen here, just on a smaller scale. This fundamentally changes the
business model though, and it will take a long time for content owners to
develop the appetite and model to assume the risk of running a consumer-facing
service.

Until the last 2 years or so, the content owners have also been licensing
content to Netflix at low prices -- nobody else was interested in their
library content so it was a way to monetize the long tail. But now that
Netflix has established that consumers are willing to pay for the content, the
content owners are raising prices significantly because the content they own
had more value than they initially thought. The existential threat to Netflix
is not rising distribution fees, it's rising content licensing fees.

~~~
mark_l_watson
I am not disagreeing with you in general, but for me Netflix really could be a
replacement for traditional channels. Not too OT: I am visiting my Dad and
yesterday morning we saw the new Godzilla movie in IMAX 3D and later last
night watched Hitchcock's "Dial M for Murder" which was such a better
experience than Godzilla. Old movie/TV technology done artfully beats less
artful tech. Netflix can deliver old and some new content cheaply and on my
time schedule.

~~~
exelius
Yeah; there is more than one use case for viewing video, one of which is on-
demand video. Netflix does really well there. But it doesn't handle "event" TV
(think sports events or American Idol) or the "I'm bored and don't want to
have to think about what to watch" use case. Those two are huge, and while I
think that eventually those use cases will change generationally, the 30+
demographic isn't likely to change their viewing habits any time soon.

------
npinguy
Use this as a perfect example to explain to people why Net Neutrality matters.

"What incentive does AT&T have to bring you good streaming experience for
Netflix, Hulu, or heck even Youtube when they'd much much MUCH rather you were
buying DirecTV from them?"

~~~
jusben1369
Because I'll switch to Comcast or Verizon if I'm an ATT customer and their
internet service is bad?

~~~
zanny
Comcast, Verizon, AT&T, and Time Warner all serve different cable networks.
They rarely overlap, so you don't have that choice 99% of the time.

And it isn't really implicitly evil, because they just own the coax in the
area and it obviously is not worth the investment to lay redundant wires.

~~~
toyg
_> they just own the coax in the area and it obviously is not worth the
investment to lay redundant wires_

Sooner or later, this sort of thing must be addressed with a "public utility"
perspective in mind -- not just in US but here in Europe as well. Why can I
use different gas providers, or different electricity providers, or even
different water providers in some countries, without pipe ownership being a
factor? Answer: better laws. A degree of resource-sharing is forced upon
providers by law, for the benefit of consumers.

------
raarts
Think. How would the content providers - any of them, from Disney to Facebook
- get their content at the consumer without the data-distributors, from
Comcast to AT&T ? The saying is internet kills the middleman, but this is the
real middleman that needs to be killed, and just as our roads are free and
open to everyone, so should the digital roads be.

~~~
sukuriant
Roads aren't free, we pay for them in taxes and tolls.

~~~
raarts
OF course they are not really 'free', but does Amazon pay toll to get things
delivered to you? Do government bodies who maintain the roads, tax large
suppliers to make use of them?

~~~
dublinben
Only in the sense that commercial trucks pay higher taxes. They pay that
whether they're driving empty or full though, so the analogy falls apart.

------
sillysaurus3
Do many young people watch TV anymore? It seems like netflix + youtube
scratches that itch.

~~~
krschultz
Sports. ESPN + NFL Redzone + TNT + Local channels in HD have no good
alternative on the internet. If they did I wouldn't pay for TV.

~~~
jusben1369
Yes! Cable = Sports. If they somehow decouple those two then I'm all Internet.

~~~
wkdown
MLB At Bat

NHL Gamecenter

NBA League Pass

NFL Sunday Ticket (currently DirecTV exclusive via contract)

* I am assuming you are American and/or care only about the four major sports in the US. Not sure about futball, rugby, cricket, tennis, cycling, etc

~~~
FireBeyond
NBA League Pass is a horrific abomination. I was debating it, and came across
articles that showed that depending on your location and nominated team(s) it
could be nearly impossible to get more than 25 games for your favorite team
(out of an 82 game season). 30% of the season showed on a "Season Pass"
costing approximately $200? No thanks.

~~~
feld
Spend $5/mo on unblock-us.com and you can see every "blackout" game...

------
tn13
This is getting dangerous. Imagine a world where a public transportation
company owns the network of roads too and denies any other transportation
company to come up besides their own.

~~~
snsr
Not a perfect analogy, but this may be of interest to you -

[http://en.wikipedia.org/wiki/General_Motors_streetcar_conspi...](http://en.wikipedia.org/wiki/General_Motors_streetcar_conspiracy)

------
k-mcgrady
There's no way this can pass, especially with the Comcast/Time Warner deal
still in process. Maybe this will scare regulators into denying both deals.

~~~
eastdakota
Doubt there will be any regulatory grumbling since it actually increases
competition in the "triple play" space (Internet+Television+Phone). My hunch
is that AT&T waited until they thought the Comcast + Time Warner deal was a
virtual certainty before pulling the trigger on this. Who this will put more
of a squeeze on is content providers (e.g., Disney/ESPN) as they now have to
deal with two juggernauts.

~~~
6cxs2hd6
Call me cynical but I can imagine a golf-course deal where Comcast and AT&T
agree to this. Theory being, AT&T+DirecTV will seem like a more-meaningful
competitor for Comcast+TimeWarner.

------
logicallee
wow, I thought you meant "million"? You don't just buy a company for $48.5
billion, and have a tiny matter-of-fact headline like this.

What's the last company that got bought for even $30 billion!

This is a mind-boggling sum of money.

Check out the largest mergers and acquisitions of all time:

[http://www.bloomberg.com/visual-data/best-and-
worst/largest-...](http://www.bloomberg.com/visual-data/best-and-
worst/largest-mergers-and-acquisitions-of-all-time-deals)

(Do bear in mind inflation - add 45% since 1998 according to
[http://www.usinflationcalculator.com/](http://www.usinflationcalculator.com/))

This deal must still be way up there. I wonder if someone can find the largest
acquisitions of the past 2-3 years.

~~~
trsohmers
There have been a lot more, even recent ones...
[http://www.businessinsider.com/16-biggest-acquisitions-of-
al...](http://www.businessinsider.com/16-biggest-acquisitions-of-all-
time-2014-2)

~~~
logicallee
Thanks.

As you can see #16 as listed is in the ballpark and actually it says in your
list's lead paragraph that #16, which is what prompted your list article, was
for $45.2 billion. (So, less than this deal.) They get their ultimate figure
by adding debt the acquirer takes on (as is typical). Including debt, our
article actually says "Including the assumption of DirecTV’s debt, the deal is
worth about $67.1 billion" so just a hair shy of #16 on your list if you
include the debt.

Either way, this is an absolutely mind-blowing deal in nominal terms. (As are
all sixteen on your list.) This is a huge amount of money by any standard on
Earth.

------
parasubvert
Net Neutrality is a ruse: providers "promise" to maintain an SLA against their
competitors when they still own the last mile, and the service, and the core
network. In practice, SLAs are weak sauce.

The more viable competitive model to me would be to a mandatory Open Access
Network.

[http://www.opennetworkforum.org/what-is-an-open-
network](http://www.opennetworkforum.org/what-is-an-open-network)

1\. Spinoff of existing Big telcos own the core physical fibre or RF
infrastructure

2\. Various network providers own and operate active equipment & billing on
the network - no one owns the last mile

3\. Various service providers provide content & applications on the network.

4\. No company performing one role can compete in another role, so as to avoid
monopoly

This of course will never happen in the USA because the inmates are running
the asylum.

So we'll have to rely on countries like Sweden to prove it out:

[https://www.acreo.se/sites/default/files/pub/acreo.se/EXPERT...](https://www.acreo.se/sites/default/files/pub/acreo.se/EXPERTISE/broadband/forzati-
mattsson_-_vitel_2013.pdf)

------
icpmacdo
Is this acquisition from cash that AT&T hand or would they go to a bank and
work with them for capital?

~~~
cshenoy
$28.50 of the $95/share is cash while the rest is AT&T stock. From the PR
release[0], "AT&T intends to finance the cash portion of the transaction
through a combination of cash on hand, sale of non-core assets, committed
financing facilities and opportunistic debt market transactions."

[0]:
[http://about.att.com/story/att_to_acquire_directv.html](http://about.att.com/story/att_to_acquire_directv.html)

------
josephlord
The graphs in the article are really good and clear, matched scale across the
different graphs, enough years for context. I hadn't realised that US cable
really was declining on such a scale rather than cable cutting being something
more talked about than really happening.

------
shiift
Next up AT&T + Comcast merger... 'Cause why not?

~~~
eastdakota
That won't happen. Comcast + Verizon, perhaps.

------
jmccree
This is interesting. My building has tv/phone/internet via DirecPath, a fiber
based isp now owned by DirecTV. The only alternative is via the local telco,
AT&T. Will be interesting to see how this plays out.

------
seoguru
S. Derek Turner's take: [http://www.savetheinternet.com/blog/2014/05/19/why-
the-att-d...](http://www.savetheinternet.com/blog/2014/05/19/why-the-att-
directv-deal-dumbest-most-wasteful-deal-ever)

"So for $67 billion, AT&T could pass 71 million new homes with gigabit fiber,
and connect 21 million new subscribers (assuming an industry-average 30
percent take-rate)."

------
capkutay
I'm surprised Apple didn't get into this recent movement of communications
company acquisitions. For 1/3 of their cash pile, they could have streamlined
control of not only the devices (tablets, phones, tv's) and the content market
place (itunes), but also the infrastructure to provide media and telecom
services through possible acquisitions of time warner, directv, and/or
tmobile.

~~~
mkal_tsr
There are rumors of partnership with Comcast (which is looking to merge w/
Time Warner)

------
sliverstorm
It's almost like the industry _wants_ the government to step in on anti-trust
grounds.

Wait a minute...

------
kmfrk
Put that WhatsApp acquisition in your pipe and smoke it, Zuckerberg.

~~~
batuhanicoz
This acquisition is actually pretty easy to make sense of, unlike WhatsApp
acquisition of Facebook. This is a company which made USD 31.7 Billion in
revenues last year[0].

[0]:
[http://www.sec.gov/Archives/edgar/data/1465112/0001047469140...](http://www.sec.gov/Archives/edgar/data/1465112/000104746914001182/a2218415z10-k.htm)

------
ulfw
Ridiculous that these things are allowed in the US. So for all your media
needs there'll basically be only two providers some day - at&t or Comcast.
Pathetic

------
blantonl
You have to wonder how much the NFL Sunday Ticket was worth as part of this
transaction.

~~~
jonknee
Not very much considering it's up for renewal at the end of this year. There
have been some fun rumors about who is in the bidding, including Google.

[http://www.bloomberg.com/news/2013-12-12/directv-said-
near-r...](http://www.bloomberg.com/news/2013-12-12/directv-said-near-renewal-
of-deal-to-carry-nfl-sunday-ticket-.html)

------
marincounty
If they can compete against the devil--Comcast; I'm all for this merger.

~~~
wpietri
Markets with a small number of large players tend to converge in terms of
pricing and strategy, so we may end up with a cozy oligopoly rather than any
serious competition.

------
edoceo
According to them lack of competition is good for the market. Maybe Zuckerburg
can start a bandwidth company and bring another (desperately needed) player to
the game.

~~~
bdcravens
How? Wireless?

That'd be at least 3 years away, if he could piggy-back on another network.

According to their Q4 report, AT&T spent about $50B EACH in expenses in 2013
on their wireless and wired operations. Zuck only has $25B (personally). How
much of a network could he (or Facebook, after he gets shareholder approval)
build? This isn't an app built in PHP or Objective C.

------
Istof
hopefully this will get blocked

------
icantthinkofone
Dinosaurs mating.

------
001sky
[https://en.wikipedia.org/wiki/AT&T_Broadband](https://en.wikipedia.org/wiki/AT&T_Broadband)

The cable/telco consolidation 1.0 play.

------
ILIKEPONIES
Is it bad that I read this as 'AT&T to Buy DirecTV for 2.7 WhatsApps?'

~~~
quotient
Yes. This is not only a trivial, inconsequential point to raise, but your
arithmetic is also off ($48.5/19 \approx 2.55$).

~~~
ILIKEPONIES
You sound like a fun person to hang out with.

My arithmetic wasn't off. I misremembered the price by $1b.

------
mwally
Both industries are doomed. I'll stay tuned to see how this turns out in like
5-10 years from now.

