Comcast's $45-billion deal last week to acquire Time Warner Cable creates a giant that could rewrite the rules of the television business and raises questions about how other companies in the industry will be affected.
Programmers will have to face off against a larger distributor; how that clout will affect subscriber fees is already being debated. One benefit of being a larger distributor is the leverage to slow rising programming costs, but while Comcast expects to realize cost savings after the companies merge, CEO Brian Roberts said “the vast minority of the $1.5 billion would be programming synergies. So there are some, but it is not the prime motivator for sure.” As the owner of NBCUniversal, Comcast also benefits when fees for programming rise, and its aggressiveness has been constrained by consent agreements with the government.
Analyst Craig Moffett of MoffettNathanson Research says Comcast’s per-subscriber programming costs are $34.81, higher than TW Cable’s $33.62 because Comcast has secured more digital rights to more content. On a more apples-to-apples basis, Moffett’s colleague Michael Nathanson says Comcast pays 15% less than TW Cable. If Comcast gets its rate in TWC homes, the content industry would lose more than $500 million in affiliate fees annually.
At its new size, the negotiating leverage would shift to Comcast against most broadcasters, Moffett says. “Expect broadcasters to howl in protest, while simultaneously attempting to further consolidate on their own,” he said.
Indeed, on Univision’s earnings call last week, CEO Randy Falco, a former NBCUniversal executive, said: “When the No. 1 and the No. 2 cable operators merge it is a cause of concern that requires significant scrutiny.”
Comcast’s NBCU recently announced a package of advanced advertising products, and the combination with TW Cable would create more scale for those products.
Tim Hanlon, founder and CEO of the Vertere Group, believes the merger hastens tech innovation on the advertising front, as it “eventually harmonizes 30 million households on a common ad tech platform.” That could enable addressable advertising and dynamic ad insertion in VOD, something that industry consortium Canoe Venture could never do, Hanlon notes.
Michael Bologna, director of emerging communications at ad giant GroupM and head of its new Modi Media unit focusing on addressable advertising and advanced audience targeting, said the combination could accelerate the use of advanced advertising by marketers. “But it will require both systems to be consistent with the data and technology used to implement these advanced services,” he said.
“Consolidation on one side of the negotiating table has usually led to consolidation on all sides,” said Nathanson. “Will this encourage DirecTV and Dish Network to attempt a merger? Maybe. Will smaller U.S.-centric content companies like AMC Networks and Scripps Networks Interactive feel the urge to look for bigger partners? Should Viacom and CBS get back together? We think the answer is yes.”
John Malone’s Charter Communications, which preached scale while pursuing TWC, “is left with a much weaker ‘plan B,’” said BITG analyst Rich Greenfield. It can grab subscribers Comcast sells and smaller operators, “yet it’s hard to see how they will be north of 10 million subs in the next several years,” he said.
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