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26 January 2021

AT&T may have to go below its reserve price to sell off DirecTV

AT&T has made a predictable yet contentious start to 2021, announcing milestone moves from opposing ends of its video strategy spectrum, possibly as a precursor to offloading DirecTV.

This first was to fold AT&T TV Now belatedly into the simpler moniker of AT&T TV; the second, from the WarnerMedia division, was to respond to the backlash over scheduling 17 movies for launch directly on HBO Max this year, by offering more favorable contracts to filmmaking and acting communities.

Both are examples of the kind of necessary business decisions AT&T must make if it wants to sell off its burdensome DirecTV satellite business. But will it ever happen?

Without Covid-19, AT&T might have already secured a buyer for DirecTV for a suitable sum. Unfortunately for AT&T, DirecTV’s market value continues to crash ahead of the operator’s impending end of January deadline for offers. Something that no-one would have predicted pre-pandemic, is that AT&T might actually prefer to persevere with DirecTV rather than settle for the latest in a paltry round of bids for the assets, which are reportedly coming in below its $15bn reserve price.

While AT&T has desperately sought to prop up the price, bringing in private equity firms to scrutinize DirecTV’s financials for crumbs of value, a damning report from New Street Research has projected DirecTV’s EBITDA will plummet from $4.5bn in 2020 to $3bn in 2022. No business can sustain that rate of earnings decline.

While many sources suggest AT&T won’t budge from its $15bn baseline, the operator will surely be forced to take a lower offer – but not necessarily for the whole pie. Sources speaking to The New York Post suggested that bidders would pay approximately $3.75bn for a 49% stake in DirecTV, leaving AT&T to finance and maintain its controlling stake, and some $7.5bn financed with new debt.

As for how AT&T’s technology stack is shaping up in 2021, dispatching of Quickplay Media technology last year was one of several clues to what was in store for AT&T TV Now. Quickplay Media played a pivotal role in AT&T’s over-the-top video transformation over the past few years, working on app development, encoding, packaging and security. AT&T has since shifted many of these services to AWS’s cloud, with sizeable cost savings over running various inhouse software divisions.

That said, AT&T did acquire Canadian user interface developer You.i TV just before the new year, which may appear a little contradictory, but You.i TV has impressed with its cross-platform credentials. Its Engine One technology has been fine-tuned for the best part of a decade to be expert at equipping developers with a single code base for creating multiscreen app ecosystems.