"If you look at the scale over the long term, the most natural partners are probably the telcos because I believe their video offerings are unlikely to be competitive with what satellite or cable can offer on a ubiquitous basis across the nation to match their national footprints," said Maffei. "I can't tell you that they are going to buy [DirecTV (DTV:$22.78,00$-0.16,00-0.70%) ]. I can just tell you it seems very logical to me, and there certainly has been enough rumors that they've been interested in things like that."
A spokesman for DirecTV (DTV:$22.78,00$-0.16,00-0.70%) couldn't be reached for comment. Spokesmen from Verizon (VZ:$32.02,00$-0.78,00-2.38%) and AT&T (T:$26.77,00$-1.41,00-5.00%) declined to comment. Verizon (VZ:$32.02,00$-0.78,00-2.38%) already offers DirecTV (DTV:$22.78,00$-0.16,00-0.70%) in a service bundle to customers who don't have access to its television offering, Fios, through a partnership with the satellite company. AT&T (T:$26.77,00$-1.41,00-5.00%) has a similar partnership through its 2006 acquisition of Bellsouth with DirecTV's (DTV:$22.78,00$-0.16,00-0.70%) satellite rival, Dish Network Corp. (DISH:$10.66,00$-0.33,00-3.00%) , but that contract expires in late January, and AT&T (T:$26.77,00$-1.41,00-5.00%) has said it will partner with DirecTV (DTV:$22.78,00$-0.16,00-0.70%) thereafter.
Craig Moffett, analyst with Sanford C. Bernstein & Co., said telecom companies have little incentive to buy DirecTV (DTV:$22.78,00$-0.16,00-0.70%) because such a move would do little to improve their cost structure.
"The reason cable is gaining share on the telcos is because they have a cost advantage," says Moffett. "Unless you can match the cost structure of a cable operator by offering voice, data and phone service on one network, then an acquisition won't do you any good."
Other possibilities include a deal in which DirecTV (DTV:$22.78,00$-0.16,00-0.70%) swaps DirecTV Latin America with Liberty Media in return for its DirecTV (DTV:$22.78,00$-0.16,00-0.70%) stake, along with some cash. That would allow Liberty Media to liquidate some of its DirecTV (DTV:$22.78,00$-0.16,00-0.70%) holdings on a tax-friendly basis and gain a business in an overseas market with attractive growth prospects.
Liberty Entertainment could also continue to trade separately from DirecTV (DTV:$22.78,00$-0.16,00-0.70%) as an asset-backed stock, but that scenario is viewed as less desirable since it would complicate the satellite company's ability to maneuver.
Under Liberty Media's latest plan, the owners of its entertainment-tracking stock would receive shares in a subsidiary that will hold many of the assets and liabilities currently represented by the tracking stock. The new entity, which would be a public company called Liberty Entertainment, would hold the DirecTV (DTV:$22.78,00$-0.16,00-0.70%) stake, as well as other holdings, including three regional sports networks. It would also assume $2 billion in debt used to acquire part of the DirecTV (DTV:$22.78,00$-0.16,00-0.70%) stake.
Pay-television network Starz Entertainment would remain under the tracking stock, along with WildBlue Communications and some cash. It's unclear how long the Liberty Entertainment tracker would continue to exist once the split occurs.
Tom Eagan, analyst with Collins Stewart (COLLF:$0.5142,$0.0000,0.00%) , said the tracking stock could be combined with Liberty Interactive shares, which track QVC, the company's home shopping network.
"This combination would enable Liberty Interactive to raise $1 billion of cash off the $250 million of Starz's cash flow, which could be used to pay down the QVC debt," said Eagan. "This would alleviate much the liquidity concern surrounding the QVC debt covenants."