New Charter’s Positioning in the Future Pay-TV Market
Highlights of the Charter, Time Warner Cable, and Bright House Deal
Pay-TV market after transactions
Earlier in this series, we learned about the proposed merger of Charter (CHTR), Time Warner Cable (TWC), and Bright House. This merger was announced on May 26, 2015. We also learned that the proposed merged company—New Charter—will become the second largest US Internet provider based on the industry’s subscriber base in 2014.
In this part of the series, we’ll look at the US pay-TV market after the completion of the proposed mergers for New Charter as well as the proposed AT&T (T) and DIRECTV (DTV) transaction.
AT&T and DIRECTV signed the merger agreement on May 18, 2014. The proposed ~$67 billion DIRECTV merger transaction will give the combined entity the top position in the US pay-TV market. As you can see in the above chart, together DIRECTV and AT&T had 26.3 million video subscribers in the US at the end of 2014.
After the AT&T and DIRECTV merger, the currently largest pay-TV provider—Comcast (CMCSA)—will become the second largest provider. The proposed New Charter had the third largest pay-TV subscriber base of 17.3 million in the US at the end of 2014.
Bargaining power with Media Networks
The proposed New Charter’s large video subscriber base should help the company while it negotiates with media companies for content costs. Content costs are a significant expense for cable companies.
Programming and content costs represented ~38% of Time Warner Cable’s operating costs and expenses in 1Q15. For Charter, programming costs contributed to ~43% of total operating costs during the quarter.
If you want to get diversified exposure to Time Warner Cable, you could invest in the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY held ~1.9% in Time Warner Cable on April 30, 2015.
Browse this series on Market Realist:
