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Summary

  • It was reported this morning that AT&T is considering a $40 billion bid for DirecTV.
  • Scrutiny on this case is similar to the scrutiny on the Comcast/TWC proposed deal.
  • As far as the cable TV landscape goes, this is the time and the place for these mergers to happen.
  • CMCSA/TWC/DTV and T all need to strike while the iron is hot.

There is no doubt that we are seeing major changes in the way that the TV industry is heading. Aside from our traditional cable providers like Time Warner Cable (NYSE:TWC) and Comcast (NASDAQ:CMCSA), we have the streaming set top box niche that has grown hyper exponentially over the past couple of years. Netflix (NASDAQ:NFLX), of course, would be your quintessential example of how quickly this niche has grown over the last 5 years.

Make no doubt about it, streaming video on demand is going to be the new format for most televisions worldwide, eventually.

Sure, there's going to be live events like sports and news that we need to see as they happen - and those will be streamed as well. But, a majority of normal syndicated programming is likely to become a "watch it anytime, anywhere" style industry.

Companies like Netflix and Hulu (NYSE:DIS) are spearheading the changes to the industry while everyone from Google (NASDAQ:GOOG) (NASDAQ:GOOGL) to Apple (NASDAQ:AAPL) - even to Microsoft's (NASDAQ:MSFT) new idea with Xbox - is trying to fight to be the company that has their hardware plugged into your HDMI port at home. From there, you can draw a straight line to monetizing not only streaming content for TV, but for all different types of media - movies, music, internet, and video games.

For long, the headline has been that Comcast was going be putting in a bid for Time Warner. There was uncertainty around the deal due to anti-trust issues, but I'd argue that the time is likely right for this merger to take place. And it's tough for me to say that, because I've had both of their services, and neither one of which I was extraordinarily happy with.

And then, this morning, news of AT&T (NYSE:T) considering a bid for DirecTV (NASDAQ:DTV). Time reported early this morning:

Telecom titan AT&T has reportedly reached out to satellite giant DirecTV about a possible merger that would reshape the TV business at a time of rapid change in the industry.

Such a deal would likely be valued at more than $40 billion - DirecTV's current market value - and would be another example of the decades-long consolidation of the telecom and cable industries. U.S. broadband leader Comcast is currently trying to persuade regulators to let it buy Time Warner Cable in a $45 billion deal.

DirecTV would be open to a merger with AT&T, the Wall Street Journal reported late Wednesday, citing a "person familiar with the situation." Talks between the two companies have intensified since Comcast announced its intention to buy Time Warner Cable, the paper reported, though it cautioned that the talks may not yet be in an advanced stage.

Given the increasing consolidation in the broadband industry, an AT&T merger with DirecTV would make sense for both companies.

DirecTV has the second largest pay-TV subscriber base in the country but lacks a competitive broadband Internet offering of its own. AT&T is forging ahead with its own broadband plans but would love to get its hands on DirecTV's satellite-TV business. And AT&T, which is currently worth $185 billion, could certainly afford the deal.

The anti-trust issues that are lodged against making either of these mergers happen remind me of years ago, when the Sirius (NASDAQ:SIRI) and XM radio merger was being sought after by Mel Karmazin. Ultimately, he would get his merger to go through, but not before having to weather a significant storm of pushback from politicians and competitors who argued everything they could about why the merger would create anti-trust issues.

At the time, music was going through a pivotal transition phase. We had terrestrial radio, which is just now starting to phase out, competing with streaming radio, competing with iTunes and portable music players. Karmazin made the argument several times that because the music listening industry was undergoing a paradigm shift, that the merger of the two satellite companies wouldn't be a monopoly - they're competing against all of these other ways to listen to your music. Karmazin, whether he was just trying to get the thing done or not, happened to be absolutely right.

As such, we find ourselves in the same exact situation now with the TV landscape. The industry of getting content onto your television has never been more dynamic than it is right now. The lines between PC and TV are starting to blur - content is coming from everywhere.

Where, years ago, this Comcast/TWC deal and this AT&T/DirecTV deal may have been laughed off, they both hold serious water now. The cable industry is being completely rewritten at this point. Everyone is fighting for a chance to get direct access to your TV screen and conventional cable companies like Comcast and TWC are fighting with the new streaming services that are much cheaper. It's likely there's many reading this article now that have already made the switch from conventional HD cable to streaming services like Netflix.

Thus, it is my opinion that the mergers would be healthy, and good for competition.

The old companies like DirecTV and TWC are going to need to adapt in order to keep up with innovation that companies like Hulu are making. This is one way to insure that they get their chance to do so. Again, 20 years ago, this would have never held water - but the time is just perfect for these companies to get these deals pushed through now.

I'm in favor of healthy mergers in the television industry. Allowing them to merge catalyzes competition across the streaming niche landscape, and ultimately will provide more content for cheaper for customers.

Disclosure: I am long AAPL, NFLX, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: An Evolution In Television Supports Healthy Mergers