HEARD ON THE STREET: Bid For DirecTV On The Verizon? 09/25 10:58 AM



Are the odds of a Verizon Communications Inc. (VZ:$30.02,00$-0.13,00-0.43%) bid for DirecTV Group Inc. (DTV:$26.67,00$0.07,000.26%) shortening?
Maybe. Last week Verizon Communications (VZ:$30.02,00$-0.13,00-0.43%) CEO Ivan Seidenberg talked extensively about his desire to make video the "core product" for its fixed line business - not telephony. The fastest way to do that is to buy an existing TV distributor - and DirecTV (DTV:$26.67,00$0.07,000.26%) is probably the best bet.
Verizon (VZ:$30.02,00$-0.13,00-0.43%) has spent heavily in recent years building out its FiOS video and Internet service. It has had a degree of success, signing up 2.5 million TV customers by June 30 from 200,000 at the end of 2006. Even so, it still ranks only eighth behind cable and satellite operators. Size matters, particularly when it comes to negotiating programming supply prices. Comcast Corp. (CMCSA:$16.70,00$-0.02,00-0.12%) has 23.9 million subscribers.
On Verizon's (VZ:$30.02,00$-0.13,00-0.43%) current trajectory - 600,000 net additions in the first half of 2009 - it would likely still only be the fifth biggest in three years. But maintaining that growth rate will get harder once the FIOS rollout starts to wind down next year.
Buying DirecTV (DTV:$26.67,00$0.07,000.26%) would instantly catapult Verizon (VZ:$30.02,00$-0.13,00-0.43%) to the No. 2 spot behind Comcast (CMCSA:$16.70,00$-0.02,00-0.12%) . It would help with Mr. Seidenberg's plan, mentioned last week, to bundle video with wireless phone service. Unlike regional FiOS, DirecTV (DTV:$26.67,00$0.07,000.26%) offers national marketing synergies with Verizon Wireless. And it would help cut costs.
Buying Dish network would offer many of these advantages, too. But DirecTV (DTV:$26.67,00$0.07,000.26%) is bigger and better performing. Negotiating a sale also likely would be easier, particularly once its ownership is streamlined by a pending restructuring with its biggest shareholder, Liberty Media. Perhaps the biggest question is whether Verizon (VZ:$30.02,00$-0.13,00-0.43%) can beat AT&T Inc. (T:$26.949,0$-0.081,0-0.30%) , previously seen as more likely to go after DirecTV (DTV:$26.67,00$0.07,000.26%) first, to the punch.
(Martin Peers is deputy editor of the Heard on The Street column. He has been a reporter and editor at The Wall Street Journal since 1999, most recently as deputy media and technology editor. He can be reached at 212-416-2305 or by email at martin.peers@wsj.com)
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09-25-091358ET
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