Communications giant AT&T, in a move likely to reshape the entire media industry, has made a deal to pay about $49 billion in cash and stock for the leading satellite TV provider, DirectTV. Coming on the heels of the proposed $45.2 billion acquisition of Time Warner Cable by rival Comcast, the AT&T buyout of DirectTV takes another step toward a media landscape in which consumers get all of their media delivered by a shrinking number of massive companies.
The AT&T deal with DirectTV creates the possibility of bringing phone and internet service to the satellite company's customers, expanding AT&T's reach well beyond those regions of the country where it currently maintains its terrestrial cellular network.
AT&T said with the DirectTV acquisition, it will be able to provide wireless phone and high-speed broadband service to 70 million customer locations.
But in buying DirectTV, AT&T acquires a sickly new stepchild. In the first quarter of 2014, DirectTV added only 12,000 new subscribers, while AT&T's U-Verse cable television service added 201,000. But DirecTV stil has the much larger subscriber base when it comes to TV customers, with 20.3 million. AT&T U-verse currently has 5.7 million cable subscribers.
DirectTV's sluggish growth could be a drag on AT&T, some industry analysts say.
"With pay-TV video subscriber growth in decline due to competition and technology substitution, the long-term potential contribution of either DirecTV or Dish Network is questionable," said Canaccord Genuity analyst Greg Miller.
But with DirecTV in the fold, AT&T now has greater leverage to cut the prices it pays for TV programming from content providers.
That does not mean, however, that the lower prices will be passed along to customers. With decreased competition in the TV and communications marketplace, mega-corporations such as the proposed combined AT&T and DirectTV, or Comcast/Time Warner, also have more power to charge consumers more or less whatever they want to.
In 2012 alone, cable TV rates ballooned by 5.1 percent — triple the rate of inflation.
"The industry needs more competition, not more mergers," said John Bergmayer, a lawyer with the nonprofit consumer advocacy group Public Knowledge. "We'll have to analyze this one carefully for potential harms both to the video programming and the wireless markets."
AT&T will pay $95 per share of DirecTV, about 10 percent more than DirectTV's stock price at the close of business Friday. AT&T will pay $28.50 of that price per share in cash, with the rest paid in stock.