Dish Network ponders merger with DirecTV

by on August 7, 2008 · 11 comments

Just as the 505-day XM Sirius antitrust saga comes to a bittersweet end, reports have resurfaced that a new satellite merger may be in the works. Dish Network is floating the idea of merging with competitor DirecTV. Dish Network and DirecTV, the two largest satellite television providers in the U.S., tried to merge back in 2001. Antitrust officials ultimately blocked that merger, concluding that it would hurt competition in television programming. Naturally, a renewed merger attempt would likely encounter similar obstacles, according to industry observers.

This time around, though, the deal may have a better shot of surviving regulatory scrutiny, buoyed by the approval of the XM-Sirius merger. Compared to 2001, competition among video providers is thriving, and there are more alternatives to satellite television than ever before. Many consumers can now choose from a multitude of terrestrial television providers—phone companies are rapidly rolling out IPTV-based video services like FiOS TV and U-Verse, and cable overbuilders like RCN are gaining momentum in densely populated areas.

In addition, a growing number of viewers are shunning traditional television services entirely, turning to a la carte substitutes like the iTunes episode store, Netflix, and Xbox Live Marketplace. With an $8.99 per month subscription to Netflix, it’s possible to stream instantly a video library eclipsing that available on cable or satellite TV. Ad-supported video websites like Hulu and Comedy Central, which offer hundreds of archived TV shows on the Web for free, may soon render the television channel obsolete.

Dish Network’s talk of a potential merger comes on the heels of the company’s first ever quarterly loss of subscribers, and that may just be the tip of an iceberg. Until recently, television subscribers were largely content with watching programs on a predefined schedule, but on-demand services are changing that. As viewers come to expect the ability to watch any show anytime, without bothering to record it in advance, the lack of bidirectionality inherent in Direct-Broadcast Satellite is a glaring deficiency that cable and telecom firms will exploit at every juncture. Unless satellite providers can negotiate arrangements with broadband carriers, or succeed in building wireless networks with newly acquired spectrum, Dish and DirecTV face a bleak future, especially if they are unable to trim costs and enhance content choice.

A Dish-DirecTV deal would also likely generate a flurry of opposition from cable competitors, worried that a combined Dish-DirecTV would be better positioned to compete in years to come thanks to the cost savings stemming from consolidation. Launching a geostationary orbital satellite isn’t cheap or easy—DirecTV infamously touted plans to carry a hundred high-def channels for what seemed like eons before the satellite needed to provide proclaimed capacity actually went live. Combining Dish Network’s fleet and DirecTV’s would give bandwidth-rich television competitors like Verizon a serious run for their money, and the resulting cost savings would allow Dish-DirecTV to offer better bargains to subscribers.

Still, it would come as little surprise if none of these facts were enough to ward off antitrust officials, who are notorious for winnowing down the definition of a market to the point where practically every firm can be defined as a monopoly. Regulators are struggling for a reason to exist as technological progress continues to erode entry barriers. Intervening in the wealth-creating sector by imposing restrictive conditions on otherwise efficient mergers is a convenient excuse for antitrust watchdogs to stay in the spotlight long after the need for “competition police” has evaporated.

Of course, the mere mention of a potential merger rarely precipitates an actual offer, and the prospect of insurmountable regulatory roadblocks has got to discourage Dish and DirecTV from investing the resources in exploring a merger that would likely endure the same fate as it did in 2001. Whether discussion of a renewed merger attempt will proceed to the next level is anyone’s guess, but it’s a sure bet that no matter what happens, antitrust regulators will be looking out for everybody but consumers.

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