DirecTV-EchoStar Merger Seen Unlikely

[Poke]

http://www.forbes.com/2006/08/07/directv-echostar-0807markets03.html?partner=yahootix

A merger between competitors DirecTV and EchoStar Communications is unlikely, but the two satellite broadcasters will likely partner in the near future, according to a recent report from Cowen and Company.

DirecTV (nyse: DTV - news - people ) reports second-quarter earnings Tuesday, and EchoStar (nasdaq: DISH - news - people ), which runs the DISH Network, reports Thursday.

"While we do not believe a merger of the two is imminent, or even likely, we expect the companies to collaborate on several fronts as video competition increases," wrote Tom Watts, a Cowen analyst, in a recent report.

The analyst said the two companies are likely to work on a joint bid on advanced wireless services (AWS) spectrum, the potential standardization of set-top boxes and platform deals with companies like EarthLink (nasdaq: ELNK - news - people ) and privately held WildBlue Communications.

Watts lowered his second-quarter net subscriber additions estimate for DirecTV to 170,000 from 248,000.

His net subscriber addition forecast for EchoStar is 184,000 for the period, which reflects an 18% year-over-year decline.

The analyst thinks EchoStar may be better-positioned than DirecTV because of its relationship with AT&T (nyse: T - news - people ) Homezone, a home entertainment service integrating digital satellite entertainment, computer-based photos and music with broadband.

Near term, Watts expects both DirecTV and EchoStar to implement disciplined retention spending and credit screens to lessen churn and control cost per subscriber addition. For the longer-term, he said he expects the companies to implement a WiMax strategy to fend off competition.

Cowen maintained an "underperform" rating on DirecTV and EchoStar shares, citing current valuations, growing competition and the unlikelihood of a merger.

 

[Tom Bombadil]

If D*'s new sub rate drops from 248,000 to 170,000, then they are in some serious hurt. That's a >30% drop.

This article is not good news for the stock of either company.

 

[navychop]

"...18% year-over-year decline..."
Decline in the growth rate, I assume. Dish certainly hasn't lost 18% of their customers. A casual read might give someone the wrong impression.

But, GOOD! I don't want to see a merger unless Charlie Ergan is in charge of it all.

 

[abricko]

what a shock, I hate these lame rumors!

 

[Tom Bombadil]

Near term, Watts expects both DirecTV and EchoStar to implement disciplined retention spending

Sounds like better deals for existing customers!

 

[mdonnelly]

Sounds like better deals for existing customers!

Not to me. Sounds like they expect E* and D* to stop giving perks as a retention tool.

 

[navychop]

Yep, that's how I read it. But I can't complain.

 

[bhelms]

We might see some collaborative effort to prevent subs. easily hopping back and forth between providers, or more controls over "new" sub. deals, etc. It doesn't matter to me because I have no plans to change anytime soon as long as what I currently have programming-wise doesn't change much, merger or not. I don't care who I send my payment to, just minimize any other changes...!

 

[MikeD-C05]

Sounds to me that they are going to" potentialy standardize the set top boxes & platforms of both companies" so they can work with either Earthlink & Wildblue. I wonder if that is all they standardize is wireless broadband or if they make the receivers work with either service? They did this back in 2002 with the origional merger with Dish and Directv. The 721 and the 921 was supposed to have a chip that could be turned on via software ,so it could work with either sat provider. Maybe they can standardize their mpeg 4 /mpeg2 platform as well . Then they could offer either service on either companies receivers. IF you don't like Dish you switch to Directv or vice a versa.

They also talk about ATT 's Homezone and the fact that Dish is better positioned for this . I guess we will get homezone version with ATT in some kind of relationship with Dish. Kind of like ATT does with their own version of Homezone. THey say they have video services with a Partnership with DISH. Maybe DISH can offer Homezone video on demand with a Partnership with ATT on the Dish receivers like the 622/625/522. Directv has a partnership with ATT in some areas too, don't they? They might be able to work out a deal as well. Or maybe the video on demand would become standardized as well on both companies.

I have said all along that both sat providers could form limited partnerships to do different things like Internet, locals in sd and hd, video on demand. They didn't need the merger to do this, just a partnership or a third named company owned 50/50 by both providers. That is what they did with the wireless spectrum they both purchased recently. I think they called it DBS spectrum.

But when you think about it, why couldn't they just form a 50/50 third company and sell off all their assets of both companies to the third company and then you have a potentialy merged company without a merger. Owned 50 % by both sat companies. Then with standardized platforms for wireless internet, standardized set top boxes that work with either sat companies mpeg 2/mpeg4 signal, video on demand via the internet, it would be easy to take both companies Dish and Directv private and off of the stock exchange. Both existing companies could go out of business or divest themselves of any affiliation and the new third company owned by both companies would go on . All receivers from that point on would have the new name of the combined third company: StarDirect or what ever they come up for the name.

 

[navychop]

"...just minimize any other changes..."

If Darth Murdoch gets his hands on DISH, I'll bet one of the first things he does is turn off the 30 second skip ahead button.

 

[charper1]

I dont think the Wi-Fi or any othe non-DBS partnerships between the two will result any anything combined or changed for the DBS services or hardware.

 

[navychop]

Probably not. But I "think" I look forward to it (wi-fi broadband). I'm just picturing another antenna on the roof and me running yet more coax thru the walls.....

 

[Tom Bombadil]

Okay, "disciplined rentention" may mean fewer overall existing sub offers, but it could well mean some good deals for loyal customers. Perhaps someone just off of a 18 month AT60 lease may not get an overwhelming offer, but someone with 4 years of HD Platinum might be recognized as a customer worth keeping.

 

[rockymtnhigh]

Okay, "disciplined rentention" may mean fewer overall existing sub offers, but it could well mean some good deals for loyal customers. Perhaps someone just off of a 18 month AT60 lease may not get an overwhelming offer, but someone with 4 years of HD Platinum might be recognized as a customer worth keeping.

I wish I thought they cared at all about the longtime top-end customer. I think about it this way - I had the SD America's Everything package for several years; but it took the longest time before I could upgrade to the 100 hour SD DVR (can't remember the model now); my neighbor was able to get it as a new customer for free, but once I could finally get the same DVR, I had to pay what, a couple hundred dollars, just for the privilege to lease the same DVR they were providing to new subs.

And then $299 for the privilege of moving up to the 622. ...

BUT oh well, I gladly seem to put up with this stuff -- just because I want the HD channels so much. Its not like the local cable company provides more than five channels in HD.