Comcast Xfinity Announces Free Streaming Box

The cable television and media giant, Comcast Corp, announced on Thursday that they will be providing all their internet-only subscribers with a free streaming box. The box, known as Flex, will compete with streaming industry stalwarts Roku, Amazon Fire Stick, and Google’s Chromecast products.

The move is aimed at providing access to Comcast and their vast content library to a wider audience of viewers as the company has consistently lost cable TV subscribers. The Wall Street Journal reported that Comcast as well as Verizon Fios, and their other cable competitors have lost TV customers who are “cutting the cord” in favor of getting their content from streaming only services such as Netflix, Hulu, or YouTube.

The report continues that Comcast has lost subscribers for nine consecutive quarters. The move to provide the Flex streaming box comes one day after Comcast announced the launch of their own streaming platform called Peacock, after the iconic NBC logo. The application will be provided free of cost to all current Comcast Xfinity television subscribers to bolster their content offerings.

The Peacock streaming application will most likely be offered to non-Comcast TV subscribers for some sort of fee-based structure. The announcement was not clear on whether the Peacock application would be free of charge for Comcast internet subscribers. It will launch in April 2020.

The Flex streaming box is also looking to compete with DirecTV Now and that streaming service that leads the way in some consumer reports. The point of difference for the Flex box is that Comcast used the voice control technology that won Emmy awards in their X1 remote from the Xfinity platform.
The interface of the streaming box is also similar to the menus on the X1 platform. The move is set to have Comcast become a new player in a crowded landscape. The way of the future in home entertainment is the streaming services and clearly is also the development of a streaming application to control their exclusive content.

The other development in the space is the launch of the Disney+ in November and the loads of new content and older content that is sought after, that is added daily. The company announced some reboots of former series and the launch of a new Star Wars themed series, that is fueling anticipation for this upcoming launch.

Facebook will not be left out of the mix, the social media giant announced a new version of the Portal that has the ability to stream television and other digital media content. The product will build from the success of the first version.

The announcement by Comcast is just the latest in a series of trends that consumers can expect other media companies following suit as they try to stay in the game of providing video services (as it is now known). The anticipation is that Verizon Fios will announce a similar technology as well as Optimum and some other major regional cable companies as the pendulum swings sharply toward streaming content over the internet.

The Flex box couple with the Peacock application represent the latest methods used by Comcast to stay relevant in a rapidly changing media environment. The months ahead will prove whether it was a sound investment.

(Some background info courtesy of Wall Street Journal)

Content Wars: Disney Gains Full Control Of Hulu

The content wars in the media landscape, a frequent topic of past articles on this site, took a surprising turn on Tuesday with the news that Disney has obtained what the press release deemed as “full operational control” of streaming service giant, Hulu.

The analysts and other media experts had predicted that Comcast would try to oppose ceding full control of Hulu to Disney, especially given their contentious recent bidding wars for Sky TV and 21st Century Fox. Comcast owns 31% of Hulu through their subsidiary business unit, NBCUniversal.

The deal announced Tuesday between these two media goliaths is a “put/call”. The terms of the deal translate to provide mechanisms to both sides. Comcast could by January 2024 initiate the mechanism that would require Disney to purchase their 31% stake at a market valuation determined by independent analysts.

Furthermore, Disney could require Comcast to sell their stake if certain market factors are realized in the future. It depends upon the performance of the service and reports state that Disney has committed to a minimum value of $27 billion. Disney stock jumped Tuesday to over $130 per share and is nearing an all-time high based on the Hulu acquisition news.

The agreement also includes that Comcast will continue to stream Hulu over the X1 set top box and that Comcast has extended the rights to their NBCUniversal content to be streamed through Hulu for another three years. However, the fine print of the deal also allows for some of that content to be pulled in a year to be streamed through a Comcast streaming service at a later point.

The timing was very good for Disney as they needed to gain full control of Hulu at this point in time with the planned launch of the streaming service known as “Disney+” by the end of this year. Some analysts have predicted that the Hulu platform is where Disney will put some of their “non-family” content, which would make sense.

The deal makes sense for Comcast because the advertising revenue and the subscription bases for Hulu and Hulu Live TV services will both grow exponentially with the trend toward “cord-cutting” in the next four to five years. They will also have options on whether they want to pull their NBC and Universal based content in the future, once their streaming service is optimized. In the meantime, they will get a deal for sharing that content with Hulu from Disney. Comcast is going to get a big check from Disney in five years.

Disney has now stated that they plan to position a future offer to customers that “cord-cut” from cable and satellite a package to buy two or all three of their streaming services: Disney+, Hulu, and ESPN+ for a bundled rate. That is an interesting approach and signals the way of the future for television that is becoming increasingly customized and internet streaming reliant.

The agreement today puts pressure on the other players in the industry, especially CBS, which has to figure out how they will grow to compete in a world that is being dominated by Disney and Comcast. The DirecTV Now service is losing subscribers already to Hulu Live and You Tube Premium because DirecTV changed their packages for channel offerings and increased prices.

These changes alienated long-time customers and drove them to seek alternative service providers with better rates and packages. This deal today is only going to strengthen Hulu and their tiered offerings: $5.99 per month for commercials, $11.99 per month for commercial-free streaming, and $44.99 per month for Hulu Live television service which is a 60 channel package.

Disney took another step toward dominating the relatively new industry space of the subscription streaming services. It remains to be seen how the rest of the industry will respond, how it will impact the NBCUniversal streaming service set to launch in 2020, and what Comcast will do with the money it will receive for their stake in the “put/call” arrangement they made in five years.

One thing is clear: times are changing in the television programming industry.

(Some industry background information courtesy of: Fox Business, USA Today, and CBS Market Watch)

Follow Up: Disney & Comcast Bidding War Round 2

In a follow up to an earlier post on this topic, the bidding war between Disney and Comcast over the assets of 21st Century Fox entered round 2 on Wednesday.

Disney announced that they have increased their bid to Fox up to $71.3 billion with the ratios being half cash/half stock instead of an all cash bid. This represents an increase from the $31.00 per share offer Disney originally made for Fox to reflect a new valuation of about $38.00 per share.

The new Disney bid is also 10% higher than the bid that Comcast made recently. The financial news media has been buzzing about this activity all day in the most recent in a long series of events involving this potentially huge acquisition.

However, the perspective that is intriguing is the seemingly increasingly conflicted viewpoints from those in the industry about what Comcast should do and how they should respond. Some anticipate a new bid from Comcast, a counter punch to Disney which is rumored to be around $41.00 per share.

Then, there are others who maintain that Comcast should let it go, that they should walk away and let Disney acquire Fox. The rationale being that it is going to become an expensive and exhaustive process with Disney that will leave Comcast over-leveraged. The ultimate value of Fox will be offset by the damage it will do to Comcast in both the short-term and long-term through the process they would take to obtain the Fox content/assets.

In my perspective I can see both sides of the argument and can understand why Comcast could push even further into the bidding war, or why they could ultimately surrender their position. The question of value will certainly come up in the next week or so while this plays out: What is the value of Fox and what it can provide my business?

The answer to that question looms largely over Comcast HQ in Philadelphia today. The content that Fox holds is certainly intriguing, and content is the new currency in the media industry, as it has been explained on Frank’s Forum in the past.

Moreover, Disney has deep pockets and is a larger entity than Comcast. The impetus for Disney is all of the ways they can maximize new streams of revenue through the rights to the content that Fox currently holds. Disney is the best in the industry at taking characters and marketing/merchandising them to their maximum potential.

In addition, Disney can afford a bidding war here for Fox, where Comcast could be left with some damage from a war with Disney. Disney, as reported by CNBC, also needs the content for their new streaming app service. Comcast has content in the pipeline and has video on demand services for their customers.

The anti-trust regulations are another potential trouble spot for Comcast in this bid. My most recent work detailed the AT&T merger with Time Warner and the differences between horizontal and vertical mergers.

The U.S. federal regulators according to Bloomberg News are likely to approve the Disney bid for Fox. The rationale, as I have written previously, is because they view Disney as a content company that has no stake in telecommunications/cable TV services or broadcast television.

Conversely, the regulators view Comcast as a horizontal threat to create a monopoly because their core business is telecommunications and cable/broadcast television service. That perception is a big issue for Comcast in this bidding war.

In the end, some industry people have predicted that this bidding war will go another round with Disney winning the bid at $45.00 per share valuation of Fox. The other faction believes that this will not go another round, that either Comcast will announce that they have quit, or Fox will state that the Disney bid on the table is acceptable to their shareholders.

The fact will remain that it looks like Disney will get even larger as a result of this deal. They will have a treasure trove of new content and could have tremendous influence on how we, as consumers, gain access to content. The implications of this merger will have a profound impact on the media landscape in the future.

Comcast has the next move, and time will tell how “conflicted” they are over this potential acquisition.

Follow Up: Court Allows AT&T – Time Warner Merger

The merger proposal seeking to join AT&T and Time Warner has been surrounded by controversy almost from the time it was first announced. This proposed merger of a telecommunications and media distribution giant and one of the largest media content creation companies in the world has been the subject of several prior pieces on Frank’s Forum.

The blockbuster $85 billion merger was being held up by a lawsuit brought by the Department of Justice over anti-trust concerns. The government was very concerned about AT&T’s ownership of DirecTV and the impact that the merger with Time Warner would have on the costs for rival cable companies to carry channels such as HBO, CNN, TNT, and TBS.

The government was pushing for certain conditions such as having any disputes over high cable prices in light of the AT&T – DirecTV connection be directed to 3rd party arbitration to determine a fair judgement on price. The other condition centered upon blackout rights.

However, the judge in the case, Judge Leon, approved the merger without any conditions attached. The judge viewed the case strictly in terms of a vertical merger between two companies with different core strengths.

The precedent in anti-trust suits very often favors vertical mergers versus horizontal mergers. Some recent examples of horizontal mergers of two entities in the same type of industry are Office Depot and Staples and Walgreens and Rite Aid, both of those mergers failed due to anti-trust concerns over pricing of office supplies or pharmaceuticals, respectively.

The next steps for the government are unclear. The judge, Judge Leon, asked the Department of Justice to not appeal or seek a stay on the decision. His basis for this request is that both sides have spent an exorbitant amount in the case in legal fees and court fees in the “tens of millions”. The view of the court is that AT&T and Time Warner do not compete with one another currently and that the same opinion will be found by another court proceeding.

Some feel that the judge is right on point with this decision on this case. The other sentiment is that the conditions should have been attached to the decision to protect the consumer from hiked cable prices.

In my view, I maintain that the judge neglected to recognize the connection with DirecTV and the potential for the Time Warner properties in the cable television realm could be manipulated to make an unfair advantage for DirecTV. This becomes a bigger issue when certain customers cannot have a satellite dish where they reside. It could result in them paying more for cable or premium channels such as HBO.

The domino effect from this merger will impact potential merger opportunities in the works right now which have been featured on this blog in the past. The big story of the day on Wednesday is the impact this merger decision will have on the Comcast proposal for the assets of 21st Century Fox.

Comcast had stated publicly that they would not get involved in the bid for Fox unless the court gave the green light to AT&T in this case. Comcast was seeking to avoid a protracted lawsuit. The wild card here is that should Comcast make a bid for Fox, the government could get involved because they are both in the same business. The court could see a case for the government because it will be viewed as a horizontal merger, which could become a long slog in the courts for Comcast.

Disney and their bid for Fox has a slightly different perception because they view Disney as a content creator and entertainment company which does not have any expertise in delivering telecommunications services or with cable equipment. They are seen as having a potentially easier path to potentially obtaining Fox.

The stock price outlook for Comcast has been slashed by major investment banks and fell to about $30 per share this morning. This signals that if they do make a play for Fox and get in a bidding war with Disney, they will eventually have to buy back shares. The maneuvers have a direct impact on the valuation of the company.

This merger also brings new traction for CBS and Verizon as a potential opportunity to join forces in the future. CVS also gained from this decision because they are seeking to buy Aetna and this court decision on Time Warner proves that CVS has some viable evidence that this play for Aetna can be seen as a vertical merger opportunity.

This mega merger will make AT&T a much larger player in the media landscape which also brings to the forefront the battle between “old media” versus “new media”. The reality is that if old media outlets do not join together they will be destroyed by the new media giants such as Amazon, Google, Netflix, and Facebook.

The other reality is that the court looked at this merger with the perspective that cable television services will have to drop prices in order to compete with new media so they are going to allow it to move forward.

The next big prospective M&A prospects are Fox and CBS. The Viacom scenario was a disaster and CBS is looking to move forward to partner with someone else to gain competitive traction as other entities are getting larger.
The effects of this merger will be felt for a long time to come. The way that AT&T handles the marketing and promotion of the former Time Warner channels when they are provided to other cable TV providers such as Fios, Comcast, and Dish.

The domino effect on the other mergers in play right now will also create conditions where the precedent could be difficult for the government to try to protect against the anti-trust implications involved.

In the end, this merger sets the stage between old media versus new media and how that will play out will have a definite impact on the American consumer.

Follow Up: All Cash Or All Stock – The Battle Between Disney & Comcast For 21st Century Fox Assets

In a follow up to an earlier full-length piece on this same subject, the bidding war between two media titans: Comcast and Disney have intensified with the assets of 21st Century FOX clearly in the crosshairs.

The business news media outlets were all buzzing on Tuesday morning with the news that Comcast is looking to attempt a move in mergers & acquisitions known as “crashing the gate”. This maneuver involves putting together, through a variety of ways, a huge amount of cash to put a premium level bid on the table which will change the valuation of the assets involved (in this case FOX assets) to sway those involved to go with that bid over a competitive bid.

The Disney bid which has been known to the public for a while now involves an all stock proposal for the FOX assets. The shareholders of FOX would get Disney stock shares at a level commensurate with their level of involvement in FOX stock ownership. There is a formula for all stock bids of this type which I will not go into further detail, plenty of other writers have covered that component of this deal and have done amazing work in that area.

My focus is two-fold: the bids for this deal as it relates to other media acquisitions and the impact on the media industry which also relates back to the consumers. This method of “crashing the gate” that Comcast is now seeking to employ in this merger is somewhat risky. In past M&A activity it has either worked very well, or failed in spectacular fashion.

The contrasting strategy by Disney, the all stock bid, is a more traditional approach; it is an “old school” method which has a more reliable historical track record. The bid by Disney is seen as a very important acquisition in terms of content ownership in an increasingly competitive landscape.

It should be noted that Fox prefers the Disney bid because the all stock approach would be more favorable for their shareholders. The Comcast bid being all cash would create a scenario where Fox shareholders would have to pay taxes on that in the short term, which is not a desirable position for a corporation to have to pass along a tax increase to shareholders.

The backdrop to this is the impending launch of the Disney streaming app service where the company spent an immense amount of money developing the app which will be a subscription based streaming service. Disney needs the consumers to enroll in their subscription- based app in massive numbers to “break even” on the outlay of dollars they sunk into the project.

The best way to ensure the enrollment of that scale and magnitude is to have a very broad based and extensive content collection. Disney plans to pull their content off of Netflix, with whom they had a partnership to exclusively stream Disney content prior to their own app being developed. The potential acquisition of the 21st Century Fox assets would provide a huge assortment of content for Disney to feature on their new streaming service.

Comcast is trying to also stay in prime position in the race for control of content in the new landscape of the television medium today. The efforts by Comcast to pull together a reported bid of $60 billion for the FOX assets is proof of their strategic importance to the media and cable TV giant.

However, according to Reuters and other outlets, the Comcast “crash the gate” strategy has one caveat that many find curious. Comcast will only pursue the full process of acquiring the FOX assets with an all cash bid if the banking and government entities involved in the AT&T bid for Time Warner allow that merger to take place.

Some found it strange that Comcast would make this request and would be that interested in the outcome of another merger within the industry. I thought about it and realized that Comcast is adding this caveat to the proposal because they want some legal precedent for a large scale merger of this type before they go “all in” on investing time and resources into taking it through the process.

The legal team for Comcast can use the decision in the AT&T / Time Warner merger to alleviate hurdles and a protracted legal suit with government ant-trust regulators if they have a precedent to utilize in their defense. The AT&T proposed merger with Time Warner has been tied up in courts for several months with significant costs to AT&T. Comcast does not want to fall victim to the same fate.

The case for Disney could be made because of the benefits of the all stock transaction but anti-trust oversight will be certainly a factor in either transaction whether it is Comcast or Disney with the winning bid.

However, in order to relieve some of that anti-trust scrutiny, Fox announced that they will take Fox News, Fox Business, and their cable sports division comprised of channels known as FS1 and FS2 ; and they will form a separate company that will be not part of this deal with either Disney or Comcast. The new company will be a spin-off of Fox and will have shares divided up among current Fox stockholders.

In my view, I was concerned about the cable news and cable sports divisions of the company being owned by either Disney (which owns ABC and ESPN) or Comcast (which owns NBC and NBC Sports). The major sports and news divisions would be run by one single entity if that spin-off company was not created. The impact on the viewer would have been significant and created concerns about the control of news and the cost of those cable subscriptions for both news and sports programming.

It remains to be seen what Comcast would plan to do with the content it could potentially wrestle control of from Disney that would represent the assets of the former 21st Century Fox properties. Comcast does not have a streaming app, but it could bolster the VOD (video on demand) offerings for their customers with such an acquisition.

The other industry rumor is that Comcast would seek to create a platform of channels that it could package out at lower rates to their subscribers as well as put together some sort of streaming package of channels like Hulu and YouTube have released recently.

Conversely, this brings about another potential issue with the Comcast bid, that it would benefit only the subscribers to Comcast cable services and not to the rest of the public. The same could be stated for Disney with their streaming app, but the argument could be made that everyone has the opportunity to join the app, but not everyone has the ability to become Comcast customers.

The precursor to the Disney app is the ESPN+ streaming app which just launched about a month ago. I was “grandfathered” into the ESPN+ membership because I held a subscription to MLS Live to watch all the soccer games from my days of covering the New York Red Bulls and the league.

The ESPN+ app is $4.99 per month and it is a tremendous value for a sports fan in my opinion. The amount of content on the app is robust and truly impressive. The ability to live stream games, watch archived games from earlier in a season, and the access to exclusive new programming is worth the cost. The average and the die hard sports fan would have several options and the addition of NHL hockey (which ESPN does not broadcast) streaming on the service is outstanding, especially with the Stanley Cup Playoff games currently ongoing.

A report from CNN later on Tuesday refuted some earlier reports saying that the Fox news and financial news assets would be spun off separately, but the sports division (FS1 and FS2) would go to the winning bid along with the other 21st Century Fox assets. That would be of interest to Disney to gain Fox Sports portfolio to bolster the ESPN+ app service even further.

The launch of the ESPN+ app was a smart business decision by Disney because if their streaming service is going to be on par or better than the ESPN+ service, then that could be a game changer for the industry, no pun intended.

The groundwork has been laid for a bidding war and it will be interesting to see what Disney will do and how they could counter this maneuver from Comcast. The viewers have a lot at stake as the cost that you pay for content could be impacted significantly but what transpires in the next several months.

Mergers & Acquisitions Roundup

In recent months on this blog I have updated and followed up on a variety of mergers and acquisitions in a variety of different industries. The past week has seen some movement on some of those proposed mergers or attempted hostile bids or whatever the case may be; the best way to update them is to provide a summary of each situation.

The M&A market is expected to gain traction in the coming months after a slower than normal start to the year, especially in certain industry types.

CVS – Aetna
This proposed mega-deal made the news on Wednesday because the $40 billion debt deal that CVS is undertaking as part of the nearly $70 billion dollar merger is going to lower their credit rating.

It is no secret that certain lending institutions would consider CVS a credit risk with taking on such a significant amount of debt at one time. It was a component of the deal that nobody discussed when it was initially announced.

Then, on top of that debt load issue, are the rather legitimate conflict of interest and consumer protections aspects of this deal which are still being reviewed. The general consensus is that a foundational problem with this merger is the combination of a major health insurer with a major retail pharmacy chain which has a parent company involved in healthcare services.

It will be interesting to watch this merger, if approved, it could be a situation where CVS Caremark wins the battle but loses the war.
Broadcom vs. Qualcomm
This attempted hostile takeover by Broadcom of their U.S. based competitor, Qualcomm has been a very strange scenario from the beginning.

The whole backstory is very complicated, and some great reporters and financial news services have provided insightful reporting on this convoluted mess. Broadcom is a tech company based in Singapore and they have attempted to buy Qualcomm multiple times at different valuations.

The problem for Qualcomm is that they do not have another willing investor or potential suitor that they could join forces with in a more amicable way to stave off Broadcom.

Then, to top it all off, the U.S. government got involved in the past week to temporarily halt the potential merger over concerns that a foreign held company was acquiring a U.S. based company with certain proprietary technologies in telecommunications. They have certain regulatory concerns over the deal.

Broadcom has now pledged to the U.S. government on Wednesday that they will invest in the training of American engineers and others in the workforce to keep high-paying, “good” jobs in the United States.

The whole situation is a disaster and it has been from the beginning. I am not sure if the federal government is going to sign off on this proposal. That creates uncertainty for the future of Qualcomm as well.

Smuckers & ConAgra

What struck me about this proposed deal (which is now dead) is that in my time in the food industry ConAgra was always usually in the role of the buyer. In this case, they were looking to sell their Wesson brand cooking oil business to JM Smucker Company.

The federal government shutdown the deal over anti-trust concerns citing that Smucker would then control about 70% of the entire cooking oil market. The government felt that this would be unfair to the consumers and could create price hikes that would limit consumer choice.

The Smucker side of the story is, in short, that the government used inflated numbers and did not take into account the impact of private label brands and smaller regional brands in the cooking oil market. I must add in the defense of the government, that not too many smaller brand labels of cooking oil jump to my mind.

I could understand the rationale behind Smucker (who generally make smart decisions in M&A activity) would want the Wesson brand. I can only predict that ConAgra wanted to sell the brand because they are moving away from holdings in that segment of the industry and they would have used the cash from the deal to invest into more core strategic areas of new business development.

Comcast versus Disney/FOX Over Sky TV

The latest bidding war is just heating up between Comcast and Disney/FOX over the rights to SKY. A major investment bank downgraded Comcast stock after they put that offer on the table for SKY.

I understand Comcast trying to bolster their core business in this play for SKY, but it does make you wonder if the deal is done whether or not they will have overextended.

Bayer & Monsanto
A major mega-merger which I have covered since it was announced. The European Union issued a statement saying they will have a vote on the proposal soon after multiple postponements in recent months.

This merger proposal will have an impact on the farmers, the consumers, and the price of food supplies. The introduction of more potential GMO containing seeds is another concerning aspect of this deal that merits the attention of the public.

Rite Aid and Albertson’s

The debacle that was the failed attempt of Walgreens and Rite Aid to merge, left Rite Aid in a precarious situation when stacked against larger competitors.

The list of suitors for Rite Aid within the retail pharmacy landscape was slim to none, so they went outside the box a bit and found a partner in Albertson’s to bail them out.

Albertson’s is a large retail grocery chain for those who do not know, and they used to own pharmacies that were operated within their grocery stores primarily. So they understand the aspects of the retail business and some of the dynamics of the retail pharmacy channel.

This merger actually makes some sense and will allow Rite Aid to stay alive in an increasingly competitive market.

That is the roundup on mergers for now. I am sure that one or all of these proposals will have some developments as we move forward in the coming weeks. Stay tuned.

The Battle Over Sky News: Front Lines In The Media Battle Between Comcast and Disney

The financial news had some buzz around the potential for a bidding war between Disney/FOX and Comcast for Sky News/Networks on Tuesday. This activity signals what could be the opening salvo in a protracted battle between the major players in the television/visual media to play out across the next several months.

In this case, the asset is Sky News/Networks which has a viewership reach in Europe that is valuable for media companies seeking to expand their capacity and content distribution. In the current situation, FOX owns part of Sky and presented a bid recently to purchase the remaining stake it did not own.

Comcast jumped into the mix on Tuesday with an offer to purchase a controlling interest in Sky which represents a 16% higher valuation than the offer made by FOX. This situation is further complicated by the pending merger of Disney and FOX which essentially puts Disney into the driver’s seat on this deal because Disney would ultimately own Sky upon completion of the merger.

This means that Disney would have to evaluate the offer made by Comcast and decide whether they will propose a counter proposal for Sky. Many financial and merger experts with knowledge of the situation believe that a counter offer will take place and that Sky Networks will end up selling at a premium after a bidding war between Disney and Comcast.

Furthermore, the sentiment in the industry on Tuesday was that Disney might, in essence, lose the battle for Sky Networks, but “win the war” by securing some type of legal assurances from Comcast regarding the bidding for other FOX assets. Disney wants to avoid having bidding wars with Comcast over several different pieces of the now almost former 21st Century Fox properties.

It remains to be seen whether Disney can wrangle that type of agreement out of Comcast which would be unusual but not unprecedented. The general sentiment about the future of Sky is that they would be best suited with Comcast because it meshes better with their core business.

Many consumers visualize Sky as a news company, especially in America where we may have the channel as part of a cable or satellite TV package. The parent company, Sky PLC, which is what is at stake here in this potential bidding war between Comcast and Disney/FOX is much larger than just a news service.

Sky has a satellite television service, broadband service, on-demand internet streaming services, and telecommunications service offerings in the United Kingdom, Ireland, Austria, Germany, and Italy. This asset would increase the service offering capabilities for Disney with their new streaming application or for Comcast who is in the business of optimizing home entertainment, broadband, and telecommunications services.

Moreover, the much larger battle will revolve around the future of Hulu. The Hulu streaming service is owned partially by ABC/Disney, FOX, and Comcast (NBC). The proposed merger of the Disney and FOX assets would include their respective stakes in Hulu.

In fact, the potential to control streaming content through Hulu was one of the significant factors in the Disney bid for FOX according to a report from CNBC and Comcast could create some trouble in giving up their piece in Hulu in the future.

The total sum of this consolidation activity, amid the backdrop of Disney preparing for launch of their own streaming application service, will affect the consumer. The rights to content and the distribution of content will be the main driver in the way the consumer accesses all types of media. The control of that content into the hands of the few, is going to set the table for conditions where pricing can become prohibitive.

Disney, should the pending merger meet approval, would retain their 30% share in Hulu plus gain the 30% share held by FOX and would be the majority stakeholder in the streaming service which reaches over 30 million subscribers and has revenues from ad sales and subscription fees. It is also a significant asset that Comcast has invested money into as well and they may not be willing to just part ways with their stake. They could put Disney “over the barrel” for that last big piece of the Hulu business unit.

The overall health of Sky as a provider is solid, it is my understanding that the business growth in Italy was stagnant for a long period of time but that it has since rebounded. It remains to be seen if the change in ownership causes any noticeable alterations to the way that the customers in Europe will be serviced. Most merger and acquisition type of scenarios feature the potential suitors touting the benefits they would bring to the table.

This case is no different with Comcast essentially stating that they would improve the services offered currently by Sky and use their technology and service delivery expertise to help provide a better customer experience.

Disney has also made similar overtures in their bid stating how desirable Sky would be for them to reach European audiences in a new way, and that they would fully complete the consolidation of an asset that was held in part by FOX for a long period of time. They would look to build upon that tradition and reputation that FOX has built into the programming and content there, but the management of the other portions of that business are outside the scope of the core business for Disney.

The proposals for Sky News and the parent company, Sky PLC, are almost certainly going to create a bidding war between two media heavyweights: Disney and Comcast. This bid could very well represent the opening round of a war between the two entities for other assets contained both within the FOX/21st Century Fox business and outside of those businesses.

The stakes for the consumer are high because the control of content and distribution will both be up for grabs, and the costs for access to that content will have a definitive impact on the consumer in the future. It remains to be seen which side will ultimately emerge, but what is clear is that either Disney or Comcast will be growing even larger and more influential than they are today.

(Background information courtesy of Fortune, BBC.com, CNBC, Recode)

Call Waiting: Verizon Back Peddles On Merger Rumors

The news out of Verizon on Thursday is that the comments made by their CEO, Lowell McAdam, were taken out of context regarding a potential merger involving the telecommunications giant.

The CFO of Verizon, Matthew Ellis, attempted on Thursday to clarify earlier remarks made by Mr. McAdam to the media. Those comments alluded to a potential merger of Verizon with Disney, Comcast, or CBS.

However, Mr. Ellis today offered a different explanation in stating that Mr. McAdam was answering a question about whether or not he would “take a call” from Disney, Comcast, or CBS. The comments are now being walked back by Verizon, today they clarified that they would be open to strategic partnerships with those entities and not an actual merger.

This clarifying statement from Verizon comes after several financial news sources ran with a story that Verizon was exploring a merger, and the stock prices of those three entities involved: Disney, Comcast, and CBS all saw increased trading activity.

It is no secret that Verizon is looking to grow certain aspects of their business, the acquisition recently of Yahoo is proof of that strategy. The senior management at Verizon have steered away from obtaining other large media companies, which is unlike their other competitors in this space. The deal between AT&T and DirecTV jumps to mind as the type of avenue to growth that Verizon has repeatedly avoided.

The earnings call with Mr. Ellis today described what Verizon calls “organic growth” of the company. The exact definition of that strategy is not completely defined, but like any other communications provider and internet service provider, Verizon is consistently looking for content. The old “content is king” mantra is still paramount in this industry space.

In an increasingly visual world, the demand for video content is at the core of what Verizon needs to fill within their own content pipeline. It is in this vein that a strategic partnership or some sort of partnership agreement with Disney, Comcast, or CBS would make sense for Verizon. Those entities have their own exclusive content or partnerships to provide content for other entities such as Major League Baseball, the National Football League, and the National Hockey League.

The demand for sports content is always robust and the demand for other types of entertainment in digital platforms is a demand curve that Verizon is going to be relentless in trying to meet over the next several months. The earnings call also came on Thursday amidst reports that the Verizon FIOS television service has lost over thirteen thousand subscribers in a short amount of time.

The streaming media services and the growth of other platforms to watch content is causing many Americans to “cut the cord” on cable, telco, and satellite TV services. The “on demand” culture and the binge watching patterns of the new ways that consumers expect has caused the drop off in the FIOS subscriptions.

This could create conditions where FIOS, AT&T/DirecTV, and Comcast are forced to reinvent themselves and provide more value to the consumer for the service. The advent of the DirecTV service that allows the viewer to watch at home or on a tablet or smart phone is a step into the future of the television trends to follow.

The question of whether or not Verizon is exploring a merger is a complicated one. It would make some degree of sense on one hand given the complexities facing the industry and the changing dynamics of digital content consumption.

Verizon is also prepared to face rather significant anti-trust regulatory reviews especially if they were to merge with Comcast, which would absolutely create a monopoly in the industry. That merger would have far-reaching implications for both private homes and small businesses as the internet is needed for doing really everything today from shopping, to watching movies, and to work related functions.

It remains to be seen whether Mr. McAdam was taken out of context, or whether there is more than meets the eye with this story. The ambitions of Verizon will come into focus in the near future. The company should, at the very least, consider some kind of partnership with another media company to fill the video content gaps that exist currently.

Verizon also knows that mergers or acquisitions are a complicated process and that ties up time and resources from being able to grow the company in other ways. In the end, only time will tell which direction they choose to grow their business in an increasingly competitive, evolving, and cost driven environment.

Busy Signal: AT&T and Time Warner Proposed Merger

The news today of a potential merger between two giants in the media industry: AT&T and Time Warner brought with it both a wave of enthusiasm and skepticism in the financial markets and the multimedia/telecommunications industry. The enthusiasm was demonstrated on Wall Street, where Time Warner stock trading surged, with their stock price up around 13% at one point in today’s activity.

The skepticism comes on the part of some consumer groups who are concerned about what this merger might mean for costs of internet access, cellular phone and data plans, and satellite television services (AT&T merged with Direct TV previously). There is also some legitimate cause for regulators to reject this deal, so there is some caution in the industry that this merger may eventually come apart.

The proposed deal includes Time Warner’s film division and cable television division which includes channels such as TBS, TNT, CNN, as well as the crown jewel of premium cable networks, HBO. The deal is valued, according to sources, at $300 billion. It would be the largest merger in the media industry since Comcast completed the acquisition of NBC/Universal in 2011.

This trend would continue what I have deemed in other mergers as the “big getting bigger” scenario. Time Warner is a huge company with many different divisions and huge market presence in media of all forms. AT&T has a market cap of $233 billion and provides cellular phone, internet, telecommunications, and satellite television services to millions of consumers. The combined entity would be a goliath capable of competing with Comcast/Universal, which I maintain is one of the goals of this move today.

The trend of the average consumer looking to cut out their cable television service, or “cord cutting” as it is known, is something I have written about in the past, and it is an increasing trend. This trend is damaging the cable television providers and the cable networks from making revenue gains. This has particularly impacted Time Warner’s cable services division, and made this potential merger a way to partner with a larger company to expand their reach.

The trend toward streaming content is also a driving factor in this proposed merger, as AT&T has been actively pursuing the development of their own streaming content service which would be offered via the Direct TV platform. The combination with Time Warner would provide AT&T with more advantageous content streaming negotiations because they would be better positioned to control the content from TBS, TNT, CNN, and most importantly, HBO.

HBO has top rated content that is sought after by competing streaming services and cable and telco providers. This would put AT&T in the proverbial driver’s seat of those negotiations, but is the same reason why regulatory boards will have issues with this deal.

The Wall Street Journal reported that regulators have some regrets over the Comcast merger with NBC/Universal which they do not want to have repeated by this potential media industry transaction. The Time Warner properties in the cable network division also have exclusive rights (or partial exclusive rights) to sports content such as the NCAA Tournament in college basketball, NBA basketball games both regular season and playoffs, and Major League baseball both regular season and playoff games. This made the deal more attractive for AT&T because of the demand for live sports programming, but it will also make the regulatory scrutiny that much more heightened because that content is meant to be seen by everyone and not meant to be restricted to only certain providers.

This proposed merger, should it gain approval, would give AT&T a huge advantage in providing streaming content for their cellular phones and their new service with Direct TV customers. It would provide Time Warner with more outlets for their content and more consumers in parts of the country which they could not reach with their traditional cable television services. It would offset the loss of cable television consumers through the streaming rights agreements for their content that they will gain through millions of AT&T customers.

However, in the end, this media giant would have more control over more content and that should give both the industry and the consumer cause for concern. This merger should be stopped because it will provide too much control to one corporation, we saw what happened with Comcast and NBC, we cannot afford to let that happen again.

(background information and stats courtesy of CNBC, The Wall Street Journal, and CBS News)