Thursday, May 8, 2014

Cable Consolidation Affect On Programmers

The planned acquisition of Time Warner Cable by Comcast enables the combined entity to prosper more efficiently.  Overlapping jobs can be eliminated and programming savings can be achieved with networks who provide better licensing fees based on subscriber size based MSOs.  So if Time Warner is paying 10 cents per sub for network X, Comcast might be paying only 8 cents.  Comcast would see a 2 cent improvement on their rates on those acquired subs.  The discussions between AT&T and DirecTv would yield the same outcome.  Good news for the cable operators who likely will enjoy the better profit margins without reducing its own fees to subscribers.

Bad news however for the cable programmers.  Companies like AMC Networks, Discovery Networks, Disney, Scripps and others who count a portion of their revenues from cable subscription.  Not so bad for NBC's networks who as a company can leverage that loss against its parent's (Comcast) gain.  How significant is that loss depends on who you ask.  Most of these networks are fully penetrated so they will see little sub growth though consolidation; other networks might lose per sub revenue but gain more subscribers as systems merge.  And unfortunately, the possibility exists that some networks could simply be dropped off all the cable line-ups. 

So while it is not a zero sum game, it seems likely that the networks are watching these merger efforts very carefully and predicting financially how they will be affected by such outcomes.  Ad revenue growth may help some but that also depends on hit shows after hit shows, something that is never easy to predict.  For now, we can only watch the cable landscape consolidate and examine the fallout from these changes.