Although the marriage is less than six years old, AT&T (CNN’s parent company) has been trying to unload DirecTV, or at least a portion of it, for quite some time.
The “nonsensical” merger will go down in history “as one of the worst deals ever made,” according to Craig Moffett, a telecom analyst at MoffettNathanson.
“And the crazy thing about it is that people knew it was a bad deal when it was happening,” Moffett told CNN Business. “It’s not like people at the time didn’t see cord-cutting coming.”
AT&T and TPG will create a new company called “New DirecTV.” Following the close of the transaction, AT&T will own 70% of the new venture, which the company believes can create “future value creation opportunities.”
“With our acquisition of DirecTV, we invested approximately $60 billion in the US video business,” an AT&T spokesperson told CNN Business. “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. However, since AT&T closed the DirecTV acquisition in 2015, the business has generated cash flows of more than $4 billion per year, and we expect this to continue in 2021.”
The AT&T spokesperson added that the company invested that cash into its fiber broadband and expansion of its 5G network.
This shift has only accelerated. For example, AT&T reported that it lost about 3 million video customers in 2020, more than 600,000 of them in the fourth quarter alone.
Moffett explained that AT&T’s strategy at the time was to buy a TV distributor to diversify its business in hopes of supporting a “very large, costly dividend.”
“In retrospect, the wireless business has turned out to be the best business that AT&T has,” Moffett said. “And it’s the diversification strategy that is now dragging the company down.”
“Virtually since the transaction closed, cord-cutting picked up… AT&T was not able to deliver on its original rationale for the DirecTV deal,” said Bernie McTernan, a senior analyst at Rosenblatt Securities.
“AT&T’s new strategy appears to be embracing growth within the media ecosystem, which means content with HBOMax and investing in fiber broadband,” McTernan said. “I think these are the right areas to be investing in, but they are expensive and face high levels of competition, so success is not guaranteed.”
So, now with a sizable portion of DirecTV off its books, what can AT&T learn from its bungled deal?
“I think that they’re trying now to dramatically retrench and focus around their wireless business, HBO Max, and their wired broadband business,” Moffett noted. “Unfortunately, you can’t pretend that you didn’t buy those assets because the debt that you took on to buy them is still on the balance sheet… They bought a house they couldn’t afford, and it turned out to be not a very nice house.”