The Federal Communications Commission and the U.S. Department of Justice haven’t given any report regarding the acquisition of Time Warner Cable (NYSE:TWC) by Comcast (NASDAQ:CMCSA). However not many analysts think that there is a danger of the approval not being given.
However, Craig Moffett, the media analyst stated that the stock market thinks the acquisition is bearish compared to what individual analysts have to say. Both the company share prices have dropped to a mere 8% and the deal has been downgraded. This deal has a 75% chance of being approved by the DOJ and the FCC so far.
Comcast (NASDAQ:CMCSA) paid a premium rate of nearly 17% in order to purchase the Time Warner Cable (NYSE:TWC). Management will have to increase the prices in order to make due of the acquisition considering the chance that synergies don’t materialize.
However, the problem arises when considering the demographics which both companies cater to. Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) cater to totally different geographical areas. Other pay TV options like satellite based programming as well as wireless companies in turn make the dominance of the pay TV market less important. Consumers will have a choice but cable will become concentrated.
This deal will not result in increased cable prices and historically there has been nearly a 6% increase each year since 1998 in cable. This is because of the increased costs of programming. The reason for the merger isn’t because of revenue issues; it’s basically because of expense management. Merging can help increase shareholder value as their returns overall increase.
Time Warner Cable (NYSE:TWC) and Comcast (NASDAQ:CMCSA) will have a huge monopoly considering if this merger takes place. The two firms, when combined, will have negotiating power along with content fees. An example that can relate to this is the ESPN/TNT deal which is three times the contract price previously stated. This cost will reach consumers by higher bills.
If both these companies become a single entity then they will have the advantage of negotiating better programming fees and costs by Disney as well as TNT instead of having to compete with each other. Investors wouldn’t want to make a foolish decision regarding the Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) acquisition even though the market seems like it is hedging, there may be a chance that the DOJ and the FCC won’t approve this merger.
In this situation, the bigger entity will finally prevail with the ability to negotiate. For subscribers, this acquisition shouldn’t be much of a big deal. However, pay TV subscribers are taking note of this and in turn are giving more attention to the different demands.
Pay TV witnessed its first drop last year in subscribers because of cord cutting. Subscribers who are still with pay TV are looking for smaller and less expensive service packages by focusing on Internet services instead of TV. It is important that pay TV adjusts to the changing trend and adds value.