Will DirecTV and Dish Catch Cable's Merger Fever?

The two largest satellite television companies in the country are talking about joining forces as a way to combat the pending merger of the country’s two biggest cable companies. Dish Network’s chairman, Charlie Ergen, has reached out to DirecTV’s chief executive, Mike White, and my colleagues at Bloomberg News report that White isn’t quite convinced about the idea.

One reason White might be gun-shy is that federal antitrust regulators vetoed this exact combination back in 2002. But Dish has been saying that times have changed, and the company has a point. The satellite-TV industry is only part of a broader world of pay television, which includes cable companies and telecom providers. This pay-TV universe has begun to lose ground to Internet-based television. Last year was the first full year in which the total number of people paying for some kind of television service declined, a phenomenon that can be explained primarily by the Internet, which offers close to the same thing at a fraction of the price.

Reasons are still plentiful to be wary of what would amount to a massive consolidation of the companies that offer pay television. Dish and DirecTV have already noted that, unlike their friends in the cable industry, they don’t have a potential chokehold on Internet TV. While you can bundle satellite TV with Internet service, it’s either through partners or, in Dish’s case, through satellite-based Internet, which it acknowledges is no substitute for real Internet service. “While dishNET Satellite will support video streaming, it is best to limit these activities to short video clips,” the company helpfully explains on its website.

DirecTV’s White was asked about the Comcast deal at a recent industry conference. “I could guess that the concerns the government will focus on are certainly the Internet and the broadband,” he said, “and how it gets played with a player that large in that space and all the aspects of Internet, from neutrality to you name it.”

But in other ways, the combination of the two satellite-TV companies looks like a bigger threat to competition than that of the two big cable companies. The company would have more subscribers: Dish and DirecTV have more than 34 million subscribers between them, compared with about 33 million between Comcast and Time Warner Cable. If both of these deals went through, it would give two large companies much more leverage in negotiations with programmers.

And unlike cable providers that operate as monopolies in local markets, satellite providers actually compete for accounts. Industry analyst Craig Moffett points out that this would mean that more than half the country would be able to choose between only two different cable-TV providers—and about 9 percent of the population living in rural areas, who rely solely on satellite service, would have just one choice.

Moffett says the chances that a merger would pass muster in Washington are very low. But the industry is certainly in a merging mood. If both these deals were to get done, the top four providers of pay television in the country would have consolidated into two megacompanies.

The fifth- and sixth-largest pay television companies are AT&T and Verizon Communications. Don’t even think about it, guys.