DirecTV frees itself from AT&T

Six years after AT&T swallowed DirecTV with ambitious plans to modernize the satellite TV industry, the phone company pulled out, returning DirecTV to its roots as a stand-alone company.

On Monday, AT&T finalized the DirecTV spinoff, taking $ 7.1 billion in cash and a 70% stake in the new DirecTV. Private equity giant TPG, which contributed $ 1.8 billion, owns 30% of the new private company.

The new DirecTV is made up of AT & T’s three television distribution businesses: the satellite TV service of the same name, the old U-verse and the AT&T TV streaming offering. The AT&T mark will be removed as part of DirecTV’s efforts to simplify its messaging and repair its reputation with consumers.

“It’s a new day and a new DirecTV,” said Bill Morrow, CEO of DirecTV, in an interview.

AT&T ownership of DirecTV was disastrous. The Dallas-based company paid $ 49 billion to acquire El Segundo-based DirecTV (and absorbed an additional $ 18 billion in debt) in an effort to sell its customers a set of TV and phone services. When that deal was closed in July 2015, AT&T became the country’s largest pay-TV provider with 26 million customers.

Now, AT&T’s three old TV platforms – DirecTV, U-Verse and the AT&T TV streaming service – have around 15.4 million subscribers, according to the company. In six years, AT&T has lost nearly 40% of its television subscriber base, resulting in one of the highest levels of “attrition” in the industry.

“Part of our opt-out was self-inflicted,” Morrow said. “It wasn’t because consumers didn’t like the service, it was because we were doing different things internally.

Morrow, former CEO of Pacific Gas & Electric in San Francisco, has spent more than a decade in the industry. He worked for about five years leading New Zealand’s efforts to build a nationwide broadband network.

AT&T hired him in late 2019 when the company was under pressure from an activist investor who demanded that AT&T repay its debt and get rid of non-core assets.

“Although AT&T is starting out with a 70% stake in DirecTV, they will likely reduce their investment over time,” said Steve Nason, research director for Addison, the Texas-based consulting firm Parks Associates. “For all intents and purposes, AT&T is out of the pay TV space now.”

DirecTV will have a five-member board of directors: two representatives from AT&T and two representatives from TPG, as well as Morrow, which plans to bring a different focus to DirecTV.

Morrow believes the satellite TV business, while in decline, will outlast some analysts. The company’s research and customer surveys, he said, have shown that many consumers still want bundles of their favorite TV channels in addition to streaming services, like Netflix.

Rather than offering a jumble of brands, all products will be marketed under the DirecTV name.

Fundamentally, DirecTV’s strategy is to go back to managing “the aggregation, custody, and distribution … of the content that consumers want to bring to their doorstep,” Morrow said.

Most of the workers in the unit have switched to the new DirecTV. Morrow said he has no plans to restructure the workforce, which has already undergone several rounds of reorganizations – and several management teams – in recent years. DirecTV also said it would abide by the terms of existing collective agreements covering employees represented by unions.

The new company will be based in El Segundo and Denver.

But there will eventually be other changes, including one of DirecTV’s flagship offerings, the NFL Sunday Ticket package.

DirecTV retains the rights to the Sunday afternoon off-market football games until the 2022 season, but when the NFL deal expires, the company will likely end the package.

“The NFL Sunday ticket was a great idea in its early days,” Morrow said. “But then the NFL started broadcasting games on different days of the week and giving the rights to other distributors.”

In recent years, DirecTV has lost tens of millions of dollars a year on its partnership with the NFL, and it can no longer bear the losses. In addition, the NFL became increasingly interested in experimenting with streaming partners and granted a partnership with Amazon.

Morrow said DirecTV was “in no way interested in extending the current deal with the NFL beyond the 2022 season.”

AT&T has agreed to cover the NFL’s losses, according to a regulatory filing.

The spin-off comes as AT&T tries to rationalize its holdings. He was also under pressure to get rid of assets in order to generate cash to repay his debt from his buying spree, which included the $ 85 billion purchase of WarnerMedia, parent company of HBO, CNN, Turner. and the Warner Bros. studio, three years ago. This spring, AT&T announced that it would sell WarnerMedia to its smaller rival Discovery.

DirecTV’s foray into the company was plagued by problems from the start.

After the takeover in 2015, AT&T offered rich severance packages to much of DirecTV’s senior management, which then burst in.

DirecTV had long been known for its excellent customer service, but AT&T dismantled it, moving customer relations functions into its “shared services” unit which aimed to deal with telephone service issues. This meant that AT&T customer service reps suddenly had to troubleshoot satellite TV over the phone.

“After a year or two, AT&T probably realized that the acquisition was a colossal mistake,” said Nason, the analyst.

Customer defections began to accelerate a few years after the purchase of AT&T. The company has looked into creating a streaming service that it could combine with its broadband offering. It launched various versions of a streaming service – DirecTV Now, AT&T Now, and AT&T TV, all of which have cracked the market.

Morrow said there is untapped potential in the AT&T TV product, which will be relaunched as DirecTV Stream to capture the so-called cable cutters.

“Traditional television is still an important part of the ecosystem,” Nason said. “But in the long run, it’s not a sustainable business model as people keep migrating.”