No discussions between the two companies are happening yet, Mr.
Ergen, 59, said during the company's Nov. 6 earnings conference
call. But reasons to try again are growing. Dish is facing
declining profit this year, and analysts estimate revenue will rise
only 7.8% through 2014, less than 95% of the other cable and
satellite-TV providers globally.
DirecTV and Dish are also struggling to sign up more U.S.
subscribers than they lose, in part because customers are switching
to competing services such as AT&T's U-verse, Verizon
Communications' Fios and cheaper online alternatives Netflix and
Hulu. Amazon is testing a new monthly price structure for its
streaming video service that could attract more customers.
DirecTV posted its first-ever quarterly net loss in customers
this year. Dish has reported a drop in four of the last six
quarters, including a net loss of 19,000 in the most recent
quarter. That's smaller than the 111,000 decline a year earlier,
but customer acquisition costs also rose 15% to $453 million as
Dish boosted ad spending around its big play to win new
subscribers: the Hopper set-top box, which can automatically skip
Programming costs are meanwhile increasing by a
high-single-digit percentage each year as companies such as Walt
Disney Co., owner of ESPN, and CBS Corp., home of the namesake
broadcast network, push for higher fees.
"It is no secret that the pay-TV industry continues to face a
difficult economic environment and a more price-sensitive
marketplace," Dish CEO Joseph Clayton said on this week's earnings
call. "The entire industry will have to rethink its current
business model and strategy."
A Dish-DirecTV deal may help limit increases in customers' TV
bills, which can top $100 a month, because the new company, with a
combined 34 million U.S. subscribers, may have more leverage in fee
negotiations with channel owners, said Chris Marangi, a money
manager at Gamco Investors. His firm oversees about $37 billion,
including more than 7 million DirecTV shares and more than 6
million Dish shares.
"You've got a challenging content cost environment where
consolidation could be pro-consumer," DirecTV Chairman and CEO Mike
White said at a Sept. 21 conference. While he wouldn't speculate
about a potential tie-up with Dish, he said the industry has
changed since the deal was rejected in 2002 as telecommunications
firms have expanded across the country.
The Federal Communications Commission also plans to decide
whether Dish can use its wireless spectrum to transmit mobile voice
and data by year-end, which Sanford C. Bernstein & Co. says
could become a catalyst for a takeover of the $16 billion company.
With use of the new airwaves, a combined DirecTV-Dish could offer
the fast wireless internet connections that regulators are
encouraging along with pay-TV, which may help persuade officials to
approve a deal they blocked as anticompetitive in 2002.
"Regulators will be more open to a deal given how the industry
has changed," said Todd Lowenstein, a money manager at HighMark
Capital Management, which owns shares of DirecTV. "It's a dream
deal. A deal would really bring a lot of cost savings to the
satellite industry, which is a low-growth to no-growth