Three things to know about a possible DirecTV-Dish merger

DirecTV is still fresh off its breakup with AT&T—though the operator still holds a 70% interest in the new standalone company—and the Dish merger talks are already firing back up.

Dish Network ended the most recent quarter with 8.55 million satellite TV subscribers and DirecTV—which encompasses DirecTV, U-verse and DirecTV Stream—ended the same quarter with 15.4 million total video subscribers. Combining the two satellite operators could create the largest traditional pay TV operator in the U.S.

However, there’s some question about how long that would last. Media analyst firm MoffettNathanson said that both Dish Network and DirecTV have recently seen their subscriber losses moderate but that, taken as a whole, the satellite TV industry is still losing customers at an 11.8% annual rate. Plus, it’s not like satellites last forever.

With DirecTV focused on reintroducing itself as a pure-play video distributor and Dish Network forging ahead with its wireless ambitions, any potential merger may still be years away. But there are important things to know about a combined DirecTV-Dish Network if it does happen.

AT&T and Dish Network are getting chummier

AT&T and Dish Network haven’t always seemed like the best of pals, particularly given that they were both operating satellite TV businesses that stole customers from one another.

But recently, AT&T and Dish seem to be getting along much better. Last month, Dish signed a wireless network services agreement with AT&T that will allow Dish to operate as an MVNO and potentially disrupt the U.S. wireless industry. A few weeks after that, Dish Network announced a new agreement to bring HBO and HBO Max back to its satellite TV service, ending a years-long carriage standoff with AT&T that sparked some nasty back-and-forth.

Thinking these developments are precursors to a DirecTV-Dish merger may be reading too much into it, according to MoffettNathanson. But it’s important to realize that AT&T would substantially benefit from taking its blossoming friendship with Dish to the next level.

Earlier this year, UBS analyst John Hodulik highlighted the 70% stake AT&T retained in DirecTV for its potential to create future value opportunities for the company.

“This includes potential satellite video consolidation, which we have long believed is inevitable. While likely not an easy process, the video market has changed significantly since the FCC/DoJ blocked the [DirecTV]/ EchoStar merger in 2002, in our view suggesting a path to potential regulatory approval,” he wrote in a research note.

Odds of regulatory approval are improving

As Hodulik pointed out, the FCC and U.S. Justice Department blocked the first attempt at a DirecTV-Dish merger nearly 20 years ago. But a lot has changed since then.

High-speed internet has become more readily available and streaming services from both distributors and programmers have provided more optionality than ever when it comes to live and linear TV. With the recent passage of the Infrastructure Bill, access to broadband will expand even further into rural communities.

Analyst Craig Moffett said that broadband boost will almost certainly make it easier for regulators to sign off on a DirecTV-Dish Network tie-up but that the ensuing increased access to streaming TV would hurt the potential enterprise value of a combined satellite TV company. He said that gross customer additions are down sharply for both companies and that without the ability to churn customers back and forth between the companies, it would be harder to achieve any given growth rate and cut into the biggest source of value in a potential merger.

Still, maybe a merger’s inevitable

Dish Network Chairman Charlie Ergen has repeatedly stated that a DirecTV-Dish merger—whether it’s this year or in 10 years—is “inevitable.” He reiterated that stance earlier this month, saying a merger is more of a “timing issue” than anything else.

Now a new report from CTFN citing sources close to Dish suggests that getting AT&T out of the picture has cleared a “major hurdle” for the merger and that a “regulatory trial by fire” could be a step closer to happening.