TDG Senior Advisor Joel Espelien is a keen observers of the video marketplace, and he has some very interesting thoughts about the impact of a combined Charter and Time Warner Cable company. He has a different take on the likely winners and losers should the merger pass muster. Check it out.
ig is Beautiful, a Look at the Charter-TWC Merger
Joel Espelien, TDG Senior Advisor
Much ado about the recently-announced Charter-Time Warner Cable merger. Following closely on the heels of the failed Comcast acquisition of TWC, Charter’s proposed deal would result in a strong #2 US MVPD (behind Comcast) with 20 million broadband customers. Conventional wisdom says such operator megamergers are inherently bad for OTT providers. Netflix itself has taken this position on more than one occasion.
With all apologies to Reed Hastings and the gang, I totally disagree. A potential Charter-TWC combination poses no threat whatsoever to OTT providers. In fact, it would likely be a strong net positive for the entire OTT space.
Why? Two reasons.
1. Charter-TWC is Not a Consumer App (or Ecosystem) Company
Size alone is not a good metric for judging a company or the threat it may pose. Samsung is a bigger company than Apple in terms of revenue, assets, and employees (but not market cap, obviously). So does that mean Netflix and other mobile app developers should fear Samsung? You’ve got to be kidding me.
Let me explain it this way. Put yourself in the shoes of a music app provider like Pandora or Spotify. Which would you rather see? Ten million teenagers walking around with a Samsung Galaxy S6, or those same teenagers buying an Apple iPhone 6? It’s no contest. Pandora and Spotify love (non-Apple) companies like Samsung and want to see as many of their phones in use as possible. Why? Because Samsung is not an ecosystem threat in the same way that Apple is. For all its size, Samsung at its core is a hardware company that has proven itself unable to build end-to-end consumer experiences. As a result, people who buy Samsung devices are a ready-made market for third-party apps. Apple, by contrast, is a huge threat in the media space, as it has shown repeatedly with iTunes, Apple Radio, Apple TV, etc.
The analogy to the cable megamergers is clear. Charter-TWC is a Samsung, while Comcast-TWC is more like Apple. Charter-TWC could have twenty million, thirty million, forty million broadband customers – it doesn’t matter. This company at its core is an operator with little ability to design or develop compelling consumer experiences in a TV-as-an-app world (much less its own ecosystem). The sum total of what a combined Charter-TWC will offer broadband customers is a faster pipe. And for what are those customers going to use that faster pipe? To stream more video from Netflix and other TV apps. Everybody in the OTT industry should be high-fiving each other over deals like this. A big operator with the scale to invest in DOCSIS 3.1 and fiber infrastructure, but without the ability to migrate up the value chain in consumer services…. I’m all in.
2. Charter-TWC is Not a Content Company
When it comes to creating compelling, mass-market video content, size matters. There is a reason that there are a handful of ‘big media’ companies and Hollywood studios. There is also a reason that only a handful of networks can compete in the market for Tier-1 sports events like the NFL or the Olympics. It takes huge scale to build a business case around a $200 million summer blockbuster (Avengers anyone?), or $3 billion a year (combined) for football broadcast rights.
Unlike Comcast-TWC (aka, NBCUniversal-TWC), Charter-TWC is not a content company by any stretch of the imagination. There is virtually no chance of the combined company using its newfound heft to start producing original TV shows or buying up sports rights. Charter-TWC is a harmless giant, much more likely to focus on customer service (and churn) and the yield on quarterly dividends than on killing Netflix (or anyone else).
The result is purely positive for the OTT industry. Think of the (easily-imagined) alternatives. What if Time Warner (aka HBO) owned those same 20 million broadband households (17 million of which subscribe to pay-TV) and started plowing all that free cash flow back into new content development. Scary.
Conclusion
All megamergers are not alike. MVPD consolidation is only a threat to OTT providers if the resulting operators are ready, willing, and able to use their size to compete with or otherwise threaten the OTT industry. Charter-TWC is none of those things. On the contrary, a strengthened and re-energized Charter would likely focus on competing with Comcast in broadband by delivering better customer service, higher speeds, and competitive pricing: in other words, nothing but goodness for the OTT industry. Forget conventional wisdom. Sometimes big is beautiful.
Stick with TDG and stay ahead of the curve.
Joel is a Senior Advisor for TDG and serves as an advisor and Board Member to the video ecosystem and technology companies. He lives near Seattle, WA.
