Deal or No Deal?

The Comcast-NBCU deal will no doubt weave itself into the fabric of all cable-related news over the next year. And yes, resistance to this obsession is futile. However, the last couple of weeks have sparked an interesting debate over whether Comcast’s play for control of a major content firm will spark similar deals among other distributors and content owners. That’s a nice thought. And on the surface, it seems logical that Comcast might prompt a stampede of deals as companies scurry to compete with its newfound scale and reach. But dig a little deeper, and one big question emerges: Who? And with whom? And why? In the end, Comcast and NBCU are unique. Comcast has desired a big content play since Disney rebuffed it in 2004. And NBCU was ripe for the taking because of Vivendi’s desire to get out. Put it together, and it was the perfect deal storm. That’s rare and not easily replicated.

 

Go through the big players, and it’s hard to see how other combinations would make sense or, in many cases, even be possible. Take Time Warner Cable, which just got out of a content marriage when it split with Time Warner Inc, partly because it was unable to find synergies that made it worth diluting the cable arm’s inherent value. So it seems unlikely Time Warner Cable would make a play for Disney, Viacom or News Corp—all of which boast iron-clad boards and none of which are for sale anyway. Then there’s Cox Communications, which is too small to buy a big media company and actually just unloaded control of its only content property—Travel Channel—to Scripps. Charter? Are you kidding? It just came out of bankruptcy and still carries far too much debt to consider a deal with anyone.

 

Cablevision, meanwhile, is more likely an acquisition target than an acquirer. Many have speculated that its past attempts to go private signal a deep desire to sell the company at some point. But while Time Warner Cable has always been the supposed suitor, could a big content company like Disney or News Corp swoop down and grab Cablevision as a way to get a toehold in the all-important NYC media market—not to mention up-and-coming assets like Rainbow’s AMC and, of course, Madison Square Garden? Would it be worth the trouble? It’s fun to speculate.

 

Of course, much speculation also surrounds Verizon and AT&T. In recent days, Verizon has dismissed rumors it might make a play for DirecTV even though John Malone recently engineered a restructuring that makes DirecTV rather buy-able. AT&T could also easily acquire a DBS player. But why would telcos, which are both spending billions to lay down fiber, bother to buy a DBS operator, whose inability to offer competitive high-speed data or telephony puts it at a competitive disadvantage? The antitrust regulators would probably squash any such deal anyway. More likely but still improbable is that Verizon and/or AT&T makes a bid for a big content company. Like Comcast, both are large enough to make it happen financially. But again, it seems unlikely that antitrust authorities would allow Verizon to take over, say, Disney or News Corp without serious concessions. But then again, that’s exactly the situation that Comcast faces over the next year as well.

 

If nothing else, the Comcast-NBCU review will open a window into the soul of the Obama Administration it tries to dissect the deal and, of course, set conditions for approving it. The ultimate reasoning that comes out of Washington may go a long way toward influencing whether other media and telecom giants try to make similar deals in the future. But as stated above, few potential deals seem likely at this point—that is, unless the government chucks out all its rules and ownership caps, and allows media companies to control massive slices of content and distribution. That’s unlikely to happen, especially under this administration. But let’s face it: It’s never easy to predict these things. And just when it seems like no deal can emerge, some Wall Street wunderkind figures out a way to engineer one. But right now, it just doesn’t seem like Comcast-NBCU will lead to an explosion of M&A activity in the media space—although crazier things have happened.