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Cable Mergers May Rekindle The Satellite TV Merger

Jon C. Ogg

If Comcast Corp. (CMCSA) and Charter Communications, Inc. (CHTR) are seriously going to do a joint offer (or individually) for Time Warner Cable Inc. (TWC), 24/7 Wall St. cannot help but reconsider some of the secondary and tertiary fallout that could be seen. One possibility that will come back up is the thought of a merger between Dish Network Corp. (DISH) with DirecTV (DTV) has to be reconsidered.

The first thing to consider here is that Time Warner Cable (TWC) is worth a whopping $37 billion after the recent run up in the stock. Friday's gain was on exponential trading volume gains. The second thing to consider is that having a single satellite provider for national (and international) television content provider might not be the monopoly that it used to be.

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Standard & Poor's recently discussed this notion of a merger between the two satellite providers. A true monopoly is when only one major player remains in an industry, but cable, internet, and now telecom content providers all compete for the same eyeballs and subscriber dollars. Rumors have been around of the possibility of a merger between DirecTV (DTV) and DISH Network Corp. (DISH). A recent report from Standard & Poor’s said:

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  • After more than a decade of speculation, rumors of a merger between major U.S. satellite TV providers DIRECTV and DISH Network Corp. have once again intensified with the companies’ recent open discussions of the possibility. The Federal Communications Commission (FCC) and Department of Justice (DOJ) blocked the companies’ attempt to merge in 2002 because of anti-trust concerns, many of which still exist.

A tertiary initiative is to think about what would become of a company like Cablevision Systems Corporation (CVC). This was a go-private candidate before. One bit of caution is that its subscribers are going down as cord-cutters rise and as other media compete for its dollars. The company's total video customer count was 2.831 million at the end of the September quarter. The count was 2.868 million at the end of June, and was 2.943 million a year ago. Cablevision's market cap was a mere $4.2 billion after a gain late on Friday to $15.60.

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Math may come into play in the raw numbers. Charter has a market value of $14 billion or so versus about $130 billion for Comcast. A joint deal seems likely to avoid regulatory hurdles first and then to also get the geographic footprint synergies. We would remind readers that when Time Warner and Comcast bought the Adelphia customers and assets, the markets were broken up so that the companies could clear regulatory hurdles and have the markets they each wanted more.

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DISH Network L.L.C., provides approximately 14.049 million satellite TV customers; its market cap is $23.9 billion. Thomson Reuters expects revenues of $14.3 billion in 2013. DIRECTV U.S. ended the September 2013 quarter with 20.16 million subscribers, and had over 37 million in total if you account for Central America and South America; its market cap is $34 billion. Thomson Reuters expects 2013 revenue of $31.6 billion.

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Would the combined company get major cost synergies? Not immediately, but it would have massive synergies through time. Would the revenue instantly march toward $50 billion? Maybe. We would also point out that the primary directv-dish URL is already owned by DirecTV.

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