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Industry consolidation was on the minds of analysts as quarterly earnings reports progressed last week, and some of the top executives in the media industry gave thoughtful responses to how they would be affected if cable operators and satellite companies get bigger and more powerful by merging.
While distributors saw merit in possible combinations, the biggest content companies averred they will do just fine in a bulked-up environment.
Why This MattersIncreasing competition and programming costs could reshape the industry as companies try to add leverage by getting larger.
“This is probably the most robust year we’ve ever seen from a distribution perspective, meaning the number of outlets that are available to us and to other content owners to distribute their product has grown significantly, and pretty significantly in some cases,” said Disney CEO Bob Iger, pointing specifically to Netflix on his company’s earnings call. “We feel that some consolidation among cable owners, if that occurs, is going to have no impact whatsoever on our business because there are so many buyers in the marketplace. We also have an array of services that everyone wants, fortunately, and therefore we think that we basically have the kind of leverage not just to gain access but to achieve the kind of pricing we need to achieve to grow our business.”
The flames of consolidation were fanned by cable pioneer John Malone, who recently took control of Charter Communications and started talking about turning it into an acquisition machine. Diplomatically, Charter CEO Tom Rutledge told analysts: “I think Charter can be extremely successful without [acquisitions], and potentially, with the right deal, be even more successful.”
For Charlie Ergen of Dish Network, talk of a satellite merger has never really gone away. “There’s not any question that putting Dish and DirecTV together makes a lot of sense,” Ergen told analysts last week. “If you just wanted to create short-term value, that would probably be your No. 1 option.”
The industry is being pushed toward consolidation because the five big programming groups are “essentially monopolies,” earning rates four to five times that of inflation, and consumers are losing out, Ergen said. “Secondarily, there’s new competition coming, whether it be from the phone companies themselves or from the Internet that didn’t exist before. So I think the marketplace is probably fairly attractive for consolidation of the video business. It might happen in cable first, and that may force the satellite guys to look at different things.”
Other changes could be coming to the cable business. In an interview with The Wall Street Journal, Cablevision Systems CEO James Dolan talked about the possibility that the MSO would not bother being in the video business. And Time Warner Cable’s outgoing CEO, Glenn Britt, in the midst of a retransmission fee battle with CBS, put à la carte on the menu for CBS’ programming, if not Time Warner Cable’s own shiny new regional sports networks.
When an analyst asked about that possibility, Time Warner CEO Jeff Bewkes said he thought à la carte is a long shot. More likely, he said, are smaller bundles of programming being made available to consumers. “We do think we’d be really well-positioned in that scenario. What would happen is there would be more money for the biggest networks, like ours,” Bewkes said. That would help HBO by making it part of a more affordable monthly bill. “We doubt it will happen, but if it happens, it probably helps us.”