Commentary

AT&T & Comcast: Change Partners

2014 is shaping into another year of media distribution consolidation — a change of partners. By mid-2013, broadcasters dominated the airwaves with a bevy of mergers -- nearly $11 billion worth. Same time frame, 10 months later, Multichannel Video Programming Distributors (MVPDs), scale drivers to the tune of nearly $100 billion, have headlined the trades.

Federal regulators have never had their dockets as full with meaningfully real or imaginary issues -- ones that will shape distribution and consumption of media for eons to come.

Cable

Last year, there was lots of commotion about cable systems operators “in play” -- Cox, Charter, Cablevision, Time Warner and smaller cablers -- following cable hegemon John Malone’s arrival “back in town” in the wake of his digestion of a 27% stake in cable operator Charter Communications ($2.6 billion). Little was transacted. Last month, Comcast stepped up to the plate offering Time Warner $45 billion to create a 30 million subscriber behemoth and foiling (so far) John Malone’s ingesting of Time Warner. The deal is currently under regulatory scrutiny.

The implicit benefits for an MVPD of Comcast’s continuing expanding footprint and stature: redundancy savings of merged operations, negotiation of more favorable content licensing agreements, buildout of programmatic infrastructure, expansion of its home security and household monitoring technology, an enlarged footprint to launch competitive national streaming video services, leverage against TV network/station retransmission fee demands and implicit leverage for “faster lane” tolls from content companies for broadband pipe passage, à la Comcast/Netflix and Verizon/Netflix.

Satellite & Telcos

Last year, the satellite and telco sectors remained pretty quiet. For the first time since its inception (1996), satellite platform leader DirecTV (20 million customers) lost subscribers from one quarter to the next and failed at its bid for streaming video service Hulu, while rival Dish (14 million) made noise with the deployment and defense of new DVRs with capacities to strip out commercials from prime-time broadcast programs in playback mode (The Hopper) and record upwards of eight shows simultaneously (The Joey). Also, Dish failed in its endeavors to acquire Sprint Nextel and Clearwire to enable it to expand services with the inclusion of wireless broadband services.

As of the close of 2013, rumors had pretty much petered out that DirecTV would be acquired by AT&T. Or Dish by AT&T. I forget which was first. Or that DirecTV and Dish would merge -- to date, they have managed a cooperative ad-supported sales initiative more so focused on the “political” vertical.

In early May, the trade press was made aware of AT&T’s desire to acquire DirecTV’s satellite service for $50 billion. By May 18, the deal was sealed, awaiting government approval. AT&T’s platform U-verse claims 5.7 million video subscribers and 10+ million U-verse Internet customers across 22 states. Together, the two companies would command nearly 26 million video subscriptions, which would elevate the combined entity’s pay TV position to the second-highest in the land -- that is, if Comcast’s Time Warner merger is allowed to proceed.

The combination of offerings would enhance both companies’ bundled packages (video, broadband, mobile and landline telephony), whose options could be represented by AT&T’s 2,300 retail stores and thousands of dealers and agents. Also, by mixing and matching these services, AT&T/DirecTV would have more control over pricing, promotions and contract terms.

AT&T is also in the throes of deploying ultrafast Internet services that would be competitive to Google’s fiber optic expansion for ultra fast Internet service and video content across the country. The added heft of a DirecTV video subscription in bundling would possibly enhance its plumage to the consumer. In addition, a combined company will have more leverage in retransmission fee negotiations and licensing discussions for Sunday Sports packages -- i.e., the National Football League’s Sunday Ticket, as well as content licensing fees extracted from TV networks.

To seal the deal and allay concerns from regulators, AT&T stressed in its news release that it would invest in rural broadband, commit to abide by Net-neutrality rules and spend at least $9 billion in the upcoming government auction of wireless airwaves. Also, the company would sell its long held $6 billion stake in Latin American regional wireless phone service America Movil to avoid regulatory conflicts.

Note: The proposed deal has not garnered any consummation naysayers so far. Analysts are crediting AT&T with the wherewithal to have scrutinized all elements of the deal prior to publicizing to avoid a repeat of its abortive bid ($39 billion) for mobile operator T-Mobile that cost the telco $3-$6 billion in breakup fees.

Economies of Scope & Economies of Scale

In the analog world, scale seemed to be the driving force behind mergers by getting rid of redundancies with savings immediately reflected in the bottom line. Scale was the operational word. The consumer did not seem to be part of the equation. Services remained the same and monthly fees rose.

Hopefully, as media mergers and acquisitions continue to accrue in the remainder of 2014 and entities change partners, these consolidations will also serve to change partners in scope by providing more services, faster Internet pipes into homes, flexible access to professionally scripted TV and theatrical programming “Everywhere” and on all devices, and improvements in customer service. We know that over-the-top devices and streaming video services are already challenging the status quo and providing consumers with value: more choice, more availability and more affordable pricing.

Hopefully, as the FCC scrutinizes the omnipresent issues -- such as Net neutrality, wireless spectrum auctions, “public vs. private transmission,” “right to be forgotten” interpretations and implementations and proposed unions -- the consumer will be a motivating factor, not a causality of the well intentioned.

From a marketing perspective, one can only hope that these consolidations will change partners to provide more relevant, not “big” but performance-based, cross-screen data and attribution, deploy more responsive and addressable applications that engage consumers and offer more robust second-screen scenarios. It could also create and/or distribute original programming, which offers greater scope in the creation of content and advertising environs -- natives included -- that exploit the intrinsic nature of each screen: TV, broadband, mobile, digital place-based and companion devices.

 

Tags: m&a, satellite tv, tv
Recommend (1) Print RSS