Comcast and Charter’s Growth Is Positive for Cable and Programmers, Analysts Say at Cable Show
LOS ANGELES -- Comcast’s agreeing to buy Time Warner Cable and the divestiture of 3.9 million subscribers to Charter Communications (CD April 29 p4) will make the industry more competitive, said analysts at the Cable Show Tuesday. “It’s hard not to say that life is gonna be tougher for people competing with cable than in years past,” said J.P. Morgan’s Philip Cusick. Comcast/Time Warner Cable and the divestitures to Charter has been the dominant topic among show attendees, including speculation about how the deal came to be, several cable officials told us.
The leverage and “seminational presence” the deal will give Comcast and Charter is a “very big positive” for the industry, said Bank of America/Merrill Lynch’s Jessica Reif Cohen. Since the larger Comcast will be able to tap into the national advertising market, the deal is very bad for satellite companies, analysts said. “If I was a satellite operator, I'd be really nervous about this combination,” said Reif Cohen. Comcast/TWC will “make it tougher” for direct broadcast satellite, said Cusick. The deal will also increase Comcast’s ability to take advantage of targeted ads, Reif Cohen said.
Though Comcast/TWC has been perceived as negative for programmers because the new company will have increased leverage in programming negotiations, the deal will actually be “the best thing that could happen to programmers,” Reif Cohen said. Comcast’s Xfinity interface leads viewers to watch more TV, which is good for content producers, she said. “Comcast makes programmers nervous because it’s so big, but the fact is they're using programming in different ways.” At the first day of NCTA’s show Monday, there was much discussion about rising programming costs (CD April 30 p7).
Netflix isn’t a threat to a cable industry on the rise, analysts said. “Netflix isn’t a real alternative, just a nice adjunct,” said Cusick. “Netflix as a competitor to cable is a nice construction of the cable industry,” said MoffettNathanson’s Craig Moffett. Netflix competes with cable only in the small area of content aggregation, and that area “probably won’t turn out to be that valuable,” he said. However, Netflix “successfully seduced” programmers into becoming dependent on the incremental income stream that services like it provide, Moffett said,
Netflix has led to positive change in the cable industry, said Morgan Stanley’s Benjamin Swinburne. The competing service led to a rise in cable companies investing in video, and greater capital expenditures, he said. The streaming service also “eroded” the exclusivity of content, greatly increasing the value of content that does remain exclusive, such as sports, the panelists said.
Panelists were skeptical of competition from telecom companies such as Verizon. “Will the telcos be here 10 years from now?” Cusick asked. Cable operators have an infrastructure advantage over telecom companies that is hard to overcome, Moffett said. Without “really substantial investments,” Moffett said he is “skeptical” that telcos could catch up to cable.
Comcast’s deal with Charter is “a much better outcome” for the industry than Comcast/Time Warner Cable was before Charter’s involvement, said Charter CEO Tom Rutledge on a Wednesday panel of executives including Comcast CEO Brian Roberts and Arris CEO Bob Stanzione. The deal will lead to more efficiencies for cable companies, Rutledge said. Asked about the scale of the transaction, Roberts compared it to Facebook’s billions of customers. “We're getting 7 million more customers,” Roberts said. The Comcast/TWC/Charter deal will make cable better able to compete nationally, Roberts said.
The deal between Charter and Comcast is “good for both sides,” said Moffett. The original motivation behind Charter’s play for all of Time Warner Cable, which Comcast thwarted, was to reduce its programming costs, Moffett said. Though picking up Comcast’s divested subscribers will increase Charter’s size, it won’t solve its programming cost problem, he said.