BIZMOLOGY — A recent article in The Wall Street Journal (subscription required) outlines how the nearly $100 billion US cable industry is ripe for some major M&A activity. Consolidation is an interesting possibility that begs further investigation.
Right now the landscape is dominated by five major players. Comcast is the largest cable provider by far in terms of number of subscribers (nearly 22 million); the next largest company is Time Warner Cable (about 12 million subscribers), followed by Cox (4.5 million), Charter Communications (about 4 million), and Cablevision (about 3 million), according to estimates from SNL Kagan.
If any M&A activity were to occur, the most likely scenario to play out would be an industry made up of two major players: Comcast and one other giant, the result of consolidation among at least two of the companies listed above. Charter CEO Tom Rutledge and media mogul John Malone in particular are of the belief that bigger is better. Earlier this year Malone’s Liberty Media Corp. agreed to buy a big stake in Charter, and in recent weeks the two have taken their consolidation case to investors.
Just what are the benefits of consolidation? Here is Rutledge’s best sound bite:
Being bigger would help cable companies control costs, giving them more leverage over media companies that supply TV programming, and would put them on stronger footing to invest in new technologies.
There is no doubt that the cable industry is at a crossroads. Chief among the hurdles it faces is a loss of TV subscribers due to cord-cutting, as well as the threat of major competition from emerging technologies such as Google Fiber. In order to survive in a challenging market, cable companies will need to invest in upgrades such as increased broadband speeds and more TV channel capacity. And industry consolidation just may be the best way to gain the resources necessary to accomplish that.
Industry Impact: Expect increased M&A activity among companies such as Time Warner Cable, Cox, Charter Communications, and Cablevision as they try to remain competitive among telecommunication and satellite-TV giants over the long term.