Media Industry Consolidation Coming on Huge Changes in How People Watch TV

Media Industry Consolidation Coming on Huge Changes in How People Watch TV

Media Industry Consolidation Coming on the Massive Changes in How People Watch TV

$DIA, $SPY, $QQQ, $VXX

The tie-up of AT&T Inc.(NYSE:T), and Time Warner Inc.(NYSE:TWX), bringing together 1 of the country’s largest wireless and pay TV providers and cable networks like HBO, CNN and TBS, could kick off a new round of industry consolidation amid massive changes in how people watch TV.

The industry needs to consolidate. You have a lot more competition from the likes of Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Hulu

Stocks of some programmers that could attract interest rose sharply Friday as the deal of the year came together.

Discovery Communications Inc. gained 3.6%, AMC Networks Inc. rose 3.9% and Scripps Networks Interactive Inc. jumped 5.6%.

Media content companies are having an increasingly difficult time as standalone entities, creating an opportunity for telecom, satellite and cable providers to make acquisitions, analysts say.

Media firms face pressure to access distribution as more younger viewers cut their cable cords and watch their favorite shows on mobile devices. Distribution companies, meanwhile, see acquiring content as a way to diversify revenue.

AT&T said late Saturday it will buy Time Warner for $85.4-B in a combination of cash and stock, forging the biggest deal in the world this year. It expects to close the acquisition by the end of Y 2017.

AT&T CEO said the deal “is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers.”

Owning content will help AT&T “innovate on new advertising options, which, combined with subscriptions, will help pay for the cost of content creation,” the company said Saturday.

But the deal and others will need to pass the scrutiny of regulators, who have raised increasing concerns about media mergers.

Shares of Walt Disney Co.(NYSE:DIS), often thought of as a leader in content, are down 16% for the past year the industry is under “significant stress.”

Earlier this month, Disney CEO Robert Iger highlighted the growing importance of distribution for content companies.

Former FCC Chairman Julius Genachowski, a partner at the Carlyle Group, said a AT&T-Time Warner deal “and other big potential deals reflect the landscape that’s changing dramatically from wired to wireless with big changes in consumption of video particularly among millennials,” he said.

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The deal will face serious regulatory opposition.

Republican presidential candidate Donald Trump Saturday vowed flatly to block a deal if elected.

“As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few,” Donald Trump said.

AT&T said the Justice Department will review the deal but said it is unclear if the FCC will also have to approve the deal since the companies haven’t decided “which FCC licenses, if any, will be transferred to AT&T in connection with the transaction.”

 

Companies that traditionally ran their businesses in ‘siloed’ environments are now expanding their reach into tangential markets in order to seek out new growth and bundling services in order to reduce churn.

Cable company Comcast Corp. (NASDAQ:CMCSA) kicked off the trend with its acquisitions of NBCUniversal in Y 2011 and more recently of DreamWorks Animation (NASDAQ:DWA) in a bid to become a massive force that controls how television shows and movies are made and delivered to viewers.

Comcast’s acquisition was in part aimed at diversifying its business out of cable.

AT&T has already made moves to turn itself into a media powerhouse, buying satellite TV provider DirecTV last year for $48.5-B. It also entered into a joint venture, Otter Media, with the Chernin Group in Y 2014. The venture invests in media businesses and has rolled out video streaming services targeted at millennials.

Verizon Communications Inc (NYSE:VZ) has made a number of content acquisitions, including AOL. It has announced plans to buy internet company Yahoo Inc (NASDAQ:YHOO), but has indicated it may renegotiate following a breach of Yahoo user email accounts.

As its bread-and-butter wireless operations struggle in a saturated phone market, Verizon had said in July it would buy Yahoo’s core business for $4.83-B to drive growth in advertising and media.

But some analysts said questions persist about the success of big vertical deals. U.S. regulators will insist on significant conditions as part of any approval that would limit the synergies from any deal, they said, noting that in Y 2011 Comcast was forced to give up day-to-day control of video website Hulu in order to buy NBC, and that it had to make NBC programs available to other streaming services.

“Vertical integration between programming and distribution in particular raises a number of issues: DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer,” said senior counsel at advocacy group Public Knowledge.

He told reporters Saturday that the deal “is a vertical merger in its pure sense. Time Warner is a supplier to AT&T and we are combining with a supplier.”

As a result, he added, “there’s no competitor being removed from the marketplace, there is no competitive harm that is being rendered by putting these 2 companies together. So any concerns by the regulators, we believe will be adequately addressed by conditions, that’s our anticipation.”

Tuesday, the US major stock market indexes finished at: DJIA -53.76 at 18169.20, NAS Comp -26.43 at 5283.40, S&P 500 -8.17 at 2143.16

Volume: Trade was below average with 819-M/shares exchanged on the NYSE.

  • Russell 2000 +7.0% YTD
  • NAS Comp +5.5% YTD
  • S&P 500: +4.9% YTD
  • DJIA +4.3% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Neutral (-0.06) Neutral (-0.07) Neutral (-0.23) Neutral (0.11)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (-0.14) Neutral (-0.10) Bearish (-0.44) Neutral (0.10)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.26) Neutral (0.21) Bullish (0.29) Bullish (0.29)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.39) Very Bearish (-0.58) Bearish (-0.38) Neutral (-0.21)

Stay tuned…

 

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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