Liberty Media Corp. Chairman John Malone urged fellow billionaire Charlie Ergen to combine Dish Network Corp. (DISH:US) with DirecTV to get the advantages of bigger bulk in the pay-TV business.
“It would be good if DirecTV could combine with Echo or Dish or whatever Charlie calls it now just because scale economics in the media business drives down costs and makes it possible for larger investment,” Malone said in an interview at the Allen & Co. conference in Sun Valley, Idaho. “You need larger -- I’m not saying monopoly players -- but you need larger players.”
Dish, based in Englewood, Colorado -- across the street from Liberty Media -- retracted its offers to buy Sprint Nextel Corp. and Clearwire Corp. in June, leaving Ergen to contemplate his next move after long saying a DirecTV (DTV:US) merger could interest him. Dish split from EchoStar Corp., a satellite-TV equipment manufacturer, in 2008. Ergen is chairman of both companies.
Malone is the largest individual shareholder in DirecTV -- as opposed to institutional funds -- with 27.7 million shares, or 5 percent, according to data (DTV:US) compiled by Bloomberg. He was DirecTV’s chairman from 2008 to 2010 after acquiring 38.5 percent of the El Segundo, California-based company in a 2007 asset trade for Liberty’s stake in News Corp.
Liberty later spun off DirecTV in 2009 with Malone retaining a stake in the largest U.S. satellite-TV provider.
DirecTV rose 3.5 percent to $64.40 at the close in New York, the most since May 7. The shares (DTV:US) have gained 28 percent this year. Dish advanced 0.9 percent to $42.05 and is up 16 percent for 2013.
A DirecTV-Dish combination would have 34 million U.S. video customers, making it the world’s largest pay-TV company, ahead of Comcast Corp. (CMCSA:US) and Malone’s European cable asset holding company Liberty Global Plc. Merging would give the new company leverage in negotiations with programmers, such as Walt Disney Co. and Time Warner Inc., to limit content price increases. DirecTV said earlier this year programming costs would rise more than 10 percent in 2013.
There would be “staggering” synergies if a merger occurred, Craig Moffett, an analyst at Moffett Research LLC in New York, said in a note to clients last month. Duplications in operational costs such as ground facilities and staffing and reduced churn, along with the lower programming expenses, would result in as much as $40 billion of cost savings on a net present value basis, he said.
Malone also said Time Warner Cable Inc. (TWC:US), the second-largest U.S. cable company, should be an acquirer of other cable companies. He declined to say whether Charter Communications Inc. (CHTR:US), the fourth-largest U.S. cable operator, should buy Time Warner Cable. Liberty owns a 27 percent stake in Charter and is considering ways of buying the larger company, according to people familiar with the matter said last month.
Comcast is the largest U.S. cable company, with 22 million video customers. Time Warner Cable has about 12 million TV subscribers and Charter has about 4 million.
“Comcast is large enough to do OK,” Malone said. “The rest of the industry needs more consolidation.”
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