WHAT DO PAY TV MERGERS MEAN FOR SUBSCRIBERS?

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As you may have heard, Comcast announced in February that it agreed to buy Time Warner Cable. Largely in response to this move, AT&T announced two weeks ago that it would buy DirecTV, the largest satellite TV provider in America with 20 million subscribers. Dish Network is the second largest, with 14 million. The Comcast/TWC merger would create the largest pay TV company in the U.S., with 30 million subscriptions.

These mergers could be reversed because of antitrust concerns by the Federal Communications Commission or the Justice Department. Assuming that the Feds approve these deals, how will they affect their subscribers?

Comcast says that its merger with TWC will mean lower prices for its TV programming, since the combined company will have more leverage in negotiating retransmission agreements with content providers such as the major broadcast networks, and that the deal will bring wider availability of broadband internet service to its markets. Competitors have scoffed at these arguments. The critics say that the merger is likely to reduce service and increase prices, because it will reduce competition. Comcast and TWC replied to this objection by pointing out that the two companies don’t compete in the same markets now, so the combination couldn’t possibly reduce competition.

Similar arguments have surrounded AT&T’s proposed buyout of DirecTV. AT&T also sees the merger as an opportunity to expand its broadband service into rural areas, where DirecTV already has a strong presence. DirecTV doesn’t offer a competitive broadband service now, and hopes the merger will enable it to offer a full slate of bundled services, as most cable companies already do. ┬áIn addition, DirecTV has contracts with content providers that could help expand AT&T’s program packages. Of its exclusive programming contracts, the Sunday NFL Ticket is the crown jewel.

In my view, these mergers are unlikely to affect consumer prices or service availability much- for better or for worse. Other industry trends are likely to have much greater influence on the pay TV or broadband subscriber’s experience. Internet streaming services such as Netflix, Hulu, and Amazon are likely to attract huge numbers of younger viewers, who are more likely to watch on mobile devices than on home TV sets. Most major pay TV provider have already begun to adapt their technologies, third-party contracts, and program lineups to capture this market. For example, Dish Network’s Hopper-Joey system with Sling enables a viewer to transfer content to a smart phone, tablet, or other mobile device. Dish also announced two months ago that it has enough signed contracts with third party internet streaming services to launch its own over-the-top (OTT) TV service by the end of 2014. The service would not require the viewer to have the traditional satellite dish and receivers.

The consolidation of the broadband market, in my view, will affect price, availability or speed of service less than recent technological advances would. Several companies have tested forms of internet architecture that don’t require the expensive transmission towers and stringing of cable that are common to the industry now. Until now, high capital expense has restricted the broadband market, creating effective monopolies. The new internet architectures are likely to disrupt these monopolies and open metropolitan markets to multiple broadband providers, and consumers are likely to benefit from reduced prices, more secure networks, and far higher speed.

Consolidation in the pay TV industry seems to be more of a defensive measure than an aggressive marketing strategy- an attempt to stem erosion of existing customer bases. For long term success, pay TV providers would be wise to concentrate on improving service and technology. Buyouts and mergers are not effective substitutes.

 

 

 

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