Wednesday, January 25, 2012

Media M&A Activity May Grow This Year

The economy may slowly be improving, Apple reported phenomenal earnings, and the financial community is eager to see some merger and acquisitions in 2012. Will Apple buy a media company with almost $100 billion dollars in cash on hand; is Yahoo considered an acquisition with the loss of Jerry Yang? According to this article, "merger and acquisitions activity in the entertainment and media sector is expected to rise this year, according to PwC, spurred by OTT and social-networking companies, as well as online gaming firms." While last year saw the merger of NBC and Comcast, AT&T was not allowed to buy T-Mobile. So who is a likely buyer and who may likely get bought or merged? It is the start of a new year and we just might see a rise in M&A activity.

How Does Cable Stop Basic Sub Drops?

When you finally recognize that the economic model for delivery of cable programming is broke, how do you fix it to stop drops and start to again realize basic sub growth? For Cox Communication, the solution is a lower priced entry point into a basic cable subscription, "a low-cost video tier, rolling out a 20-channel package dubbed 'TV Economy' in several markets for $34.99 per month." Most notably absent is ESPN. Time Warner Cable and Comcast have already built a more basic package as well.

Given that most license fee agreements with programmers are based on penetration levels of its network to the total available base, Cox, like TWC and Comcast, must not be worrying that this package might be so popular that it will result in some networks monthly fees going higher due to missing a threshold benchmark. That is to say, that ESPN as an example, as a result of the popularity of this TV Economy package, reaches as a result less than 90% of the Cox total universe.

What is clear is that more must be done to reverse cables' trend of losing basic subscribers. As a cable VP of Marketing once shared with me many years ago, you can't sell someone more services until they are actually a basic customer. Once they are a basic customer, it is possible to sell in additional tiers of channels, premium networks like HBO and Showtime, and of course additional services like telephone and broadband. These basic subscribers also mean more potential eyeballs and more potential advertising revenue as well. The work starts at the basic sub level and this new "basic package" may be the means to reverse the declining sub trend. And while Cox is duplicating the efforts being tried by TWC and Comcast, so far basic sub decline has continued, although some may argue at lesser levels then before. Still a loss is a loss.