A short while ago, the boards of Comcast and Time Warner Cable announced an all-stock deal in which Comcast will acquire all the outstanding shares of TWC. The deal will cost Comcast $45 billion, and this values TWC at about $160 a share. Regulators will certainly review the anti-competitive facets of the arrangement, but the firms are confident that everything will be completed by year-end. Whether this is good for cable TV customers has yet to be seen, but it is not inherently a bad deal for them.
For TWC, spun-off from Time Warner in 2009, the deal could hardly be better without entering the realm of science fiction. When Charter Communications offered $130 a share recently for TWC, the latter claimed that price was “grossly inadequate” and argued instead for $160. That is what Comcast is paying. Any turnaround plans and “growing the business” B-school nonsense goes right out the window, too. TWC will be part of the dominant player in the business.
For Comcast, the deal is pricey but the firm is getting what it paid for. After swallowing TWC’s subscriber base of 11 million, and after divesting itself of 3 million to address anti-competitive concerns, Comcast will wind up with about 30 million subscribers sending in checks every month for TV, Internet and/or phone services. It will be, by a significant amount, the largest cable provider in the nation.
Prima facie, the merger looks anti-competitive. There will be one less provider of services in the US. However, that is too simplistic an analysis. In truth, Philadelphia-based Comcast has little penetration into markets that are also served by TWC, such as New York and Los Angeles. Industry analysts believe that only a small percentage of customers will see their choices in cable providers reduced.
Moreover, one must remember that cable is only one way in which consumers can receive communications services. Satellite TV providers like DirectTV and Dish have made significant strides into Internet services. While their “triple-play” of TV, Internet and phone services are not yet available in all areas, they are a viable alternative.
At the same time, one must recall that as service providers, cable companies must purchase content from content producers and providers. That is, HBO and Showtime sell their products to Comcast and TWC. Now that the two cable firms are to be one, they will have greater leverage with the networks. Theoretically, that should result in better prices for the content, and the issue then becomes how much of the savings will the subscribers see. While not every cent will be passed along, there is a case to be made that they will see some of the money, either in lower bills or more content for the same money