“It certainly forces the rest of the cable industry to consolidate,” one analyst tells TheWrap
Comcast's swallowing of Time Warner Cable creates a staggeringly large media behemoth that controls 30 percent of the pay cable market, but analysts say it is part of the ongoing consolidation in media distribution driven by the rise of challengers to the cable industry.
“It certainly forces the rest of the cable industry to consolidate,” Matthew Harrigan, analyst at Wunderlich Securities, told TheWrap. “It was an amazing deal for Comcast. It puts them in the largest advertising market and in reach of a lot of opinion makers and media giants on the coasts.”
He added: “Nobody else is in a position to bid like they can; they annihilated the bidders.”
The horizontal merger is what media observers have been predicting for some time, as cable companies compete with satellite providers like DirecTV, streaming companies like Netflix and even upstart cord-cutting distributors like Aereo.
Several analysts said it will likely drive still more consolidation among cable and satellite companies including Cox, Charter and John Malone‘s Liberty Media.
“I'm sure Malone's not waking up happy this morning,” said Tony Wible, analyst with Janney Montgomery Scott.
“TV networks are ultimately threatened and it could lead to more consolidation among TV networks. They will push for virtual companies and internet companies like Netflix and Amazon, so they can offset this consolidation pressure.”
With the acquisition, which will need to be approved by federal regulators, Comcast easily becomes the loudest voice in the cable industry, where its $139 billion market cap combines with the $45 billion purchase of TWC.
By comparison Charter Communications, which was trying to mount a hostile takeover of TWC, has a $13.5 billion market cap.
Consumer groups will warn that the consolidation creates a near-monopoly in the pay cable space, and they are right about that. The more powerful Comcast becomes, the more likely cable prices may go up and customer service go down. (Ever try waiting for the TWC cable guy to show up? TheWrap's Tim Molloy did.) Cable companies are already wildly unpopular with consumers.
In the short term, the companies will argue that there will be benefit to consumers in increasing programming choices to video on demand and over mobile. But the deal will also raise concerns over Comcast's control of online video. When the company bought NBC in 2010, the Writers Guild of America argued before Congress that the company was trying to leverage its dominance of the cable market to stifle competition between online video providers and require consumers to pay more for video access.
Time Warner Cable has a near-monopolistic hold on much of New York City, which is now in Comcast's possession. Comcast will also take over other major Time Warner Cable markets including Southern California.
In a conference call with reporters Thursday, executives for the companies argued that the merger poses no threat to competition because Comcast and Time Warner Cable did not overlap in any markets. Comcast is also divesting 3 million customers in order to avoid competitive concerns. (Hence a net gain of 8 million when it takes on 11 million customers from Time Warner Cable.)
But over time, the consolidation is a sign of cable companies seeking to leverage their power because of the rise of cord-cutting competitors.
As one finance site noted on Thursday, the number of cable-video subscribers has dropped by around five million since 2010, with that slide steepening over the past several quarters. “A growing number of households simply use the cable company for a broadband connection rather than programming packages,” said the Daily Ticker.
Said Wible: “There are elements that are pro-consumer, but against that argument is the scary notion that one company would control one third of the country's broadband. It's not clear what the rules of the internet are going to be and how the government will balance the cable operators’ needs with the needs of companies that are publishing and relying on the internet.”
Tim Molloy contributed to this article