The Slow Death of Satellite TV?

There has been rumors for years about merging Dish Networks and Direct TV to try to gain as much market synergy as possible for the two sinking businesses. It’s hard to label these companies as failures just yet because between two companies collectively still had 21.8 million customers at the end of 2020 (DirectTV 13.0 million, Dish 8.8 million). This makes the two companies collectively the largest provider of cable TV, with Comcast at 19.8 million and Charter at 16.2 million.

But both companies have been bleeding customers in the last few years. In 2020, DirecTV lost over 3 million customers and Dish Networks lost nearly 600,000. Together, the two companies lost 14% of customers in 2020. This is not unusual in the industry when we saw Comcast lose 1.4 million cable customers during the same year.

Dish Networks CEO Charlie Ergen has been predicting for years that a merger of the two companies is inevitable. The two companies could save money on infrastructure and overheads to prop up the combined businesses.

There are a number of factors that make a merger complicated. AT&T divested 30% of DirecTV earlier this year to TPG Capital. That included TV offered by DirecTV, U-Verse, and AT&T TV.

Probably the biggest long-term trend that bodes poorly for satellite TV is the federal government’s push to bring better broadband to rural America. Selling TV to customers with poor broadband is still the sweet spot for the two companies. As the number of homes with good broadband rises, the prospects for satellite TV sinks.

My firm has been doing community surveys for twenty years and we’ve noticed a big change in satellite TV penetrations. A decade ago, I expected to find a 15% market share of satellite TV in almost any town that we surveyed. But in the last few years, people in towns appear to be the ones that have bailed on satellite TV. It’s rare for us to find more than a few percent of households in towns who now buying satellite TV. Households have moved to the web to find video content, with the big losers being satellite TV and landline cable companies.

I also notice the same thing in traveling around the country. It used to be that you’d see satellite dishes peppered in every neighborhood. But I’ve noticed that satellite dishes are becoming a rarity. I know from walking in my neighborhood that only one house still has satellite TV. Just a few years ago there were many more.

Finally, these two companies are both saddled with the ever-increasing programming costs that have plagued the whole industry. Cable customers everywhere have rate fatigue as prices are increased every year to account for higher programming costs. Satellite TV is like the rest if the industry and is pricing itself out of the budget range for the average household.

The two companies are also each saddled with a lot of current debt. Craig Moffett, of MoffettNathanson recently estimated that the combined companies might not have a valuation of more than $1 billion – a bad harbinger for a merger.

It’s hard to picture any investor group that would want to back this merger. The whole idea behind a merger is that the combined company is worth more than the individual pieces. But even if the combined satellite companies were able to cut costs with a merger, it seems likely that any savings would quickly get subsumed by continued customer losses.

It’s not unrealistic to think that a decade from now that this industry will disappear. Maybe the companies can hang on longer even as the number of customers continues to drop – but the math of doing so doesn’t bode well. The end of the satellite TV industry would feel odd to me. I witnessed the meteoric growth of the industry and watched satellite dishes popping up everywhere in the US. Satellite TV could fall into the category of huge tech industries that popped into existence, grew, and then died within our adult lifetime. I’m betting that we’re not far off from the day when kids will have no idea what a satellite dish is, just as they now stare perplexed at dial telephones.

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