The Time Warner and Comcast Merger Can't Happen. Here's Why.
You may have heard that cable giant Comcast is looking to buy its larget rival, Time Warner Cable I would advise you not to hold your breath awaiting this business combination. Here's why.
Having Time Warner join forces with Comcast would create a massive cable operator. I mean an industry giant of epic proportions. Comcast serves nearly 22 million video subscribers, and Time Warner is No. 2 in the cable TV industry, with more than $11 million customers. The third-largest cable service provider is Cox Communications, with just 5.4 million households to its name.
You see the problem, right? In a total TV service market of 116 million households, including satellite subscribers and rabbit-ear antennae, Comcast wants to grow its market share from 19% to 28% in one fell swoop.
I don't think our regulatory bodies are going to like that idea.
Now, game-changing acquisitions on this scale are not entirely unheard of. Comcast would follow in the footsteps of Sirius XM Radio , which was created in 2008 when niche giants Sirius Satellite Radio merged with its only rival, XM Satellite Radio, in a $13 billion blockbuster deal. Comcast might even invoke some of the same arguments that made the Sirius-XM merger happen, like the increasing number of not-quite-traditional online competitors.
But bundling Time Warner into Comcast would be a fundamentally different move, compared with the Sirius-XM merger. In the satellite-radio consolidation, both sides of the merger argued that the deal was necessary for the survival of both companies, and thus for the industry as a whole. The capital-intensive nature of running satellite-radio services simply made it impossible for the fledgling industry to pose a serious threat to online or terrestrial radio services while the only two providers also battled each other to win subscribers and stay viable.
The cable industry is nowhere near as cutthroat at the satellite-radio market. Even if Comcast manages to swallow its nearest competitor, the new mastodon still would control only 28% of the TV service market. There are enough smaller cable operators to keep the industry viable if this merger fails.
In short, this proposed deal is not about the survival of any particular company, nor about the existence of an entire industry of any kind. Hence, it's a fundamentally different proposal from the Sirius and XM combinations, and regulators are not likely to give it as much of a credibility bonus as the satellite-radio deal. Without that cherry on top, this blockbuster cable merger looks dead on arrival.
Do Time Warner and Comcast need to join forces against the digital onslaught?
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The article The Time Warner and Comcast Merger Can't Happen. Here's Why. originally appeared on Fool.com.Fool contributor Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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