More Game of Thrones (GOT) this week, and this time no-one is taking any prisoners. By that we mean moves to own the US communication and pay TV market. Think of AT&T as sitting on the throne at King’s Landing, it has made its move on DirecTV, and has also planned another around Time Warner.
Is AT&T the only one of the throne candidates which truly understands that this is a war to improve the value of communications by adding content? It appears not.
While we took our holiday break, Altice tried to make an insane move on Charter, aiming to raise the cash to buy it out which might be as much as $185 billion. Very flattered as John Malone and Tom Rutledge must have been, it cannot be tempting. This is the equivalent of a 14 year old boy asking the Prom Queen to the dance, or in GOT terms, Arya Stark being drawn to fight Gregor Clegane, the Mountain, who can crush a man’s skull with his hands. OK, she might win, but it’s unlikely.
As such it is a pointless maneuver designed only to bring focused concentration to investors to work out what they really want to see happen. In GOT it increasingly looks like both the director and the audience wants to see all-out war between Cersei Lannister on the one hand, and Daenerys Targaryen, with John Snow and all the Starks by her side. It’s true for both parties, both the communications companies and the GOT audience – they cannot have what they want.
In GOT there is the worrying expedient that magical creatures from beyond the wall, who can conveniently raise the dead, want to spoil the party.
In our parallel universe, the dead are perhaps best characterized by Dish and Altice, because in revenues terms neither of them have the clout to change any equation, no matter how you cut it.
Let’s clarify this with a look at revenues for each of the companies. Here’s the list based on their latest quarterly revenues eliminating content operations and focusing purely on communications and pay TV; in descending order
Now let’s play “build your campaign.” Rules are easy, put these chunks of revenue together in any order you like, but extra marks go to anyone who can build a company with national cellular coverage; a strong almost nationwide fixed network and access to top quality content. Deduct marks for any combination that is greater than a third of the whole? The total quarterly revenue comes to around $117.6 billion. And deduct marks for any combination that leaves the US with only 3 cellular carriers.
AT&T is already around a third of total revenues, so leave it alone.
So either we perm three combinations from 7 players, or if you think US regulators will throw away the rulebook for this one, split the 7 into just 2 further groups.
If T-Mobile merges with Sprint and they buy Charter, you get $28.6 billion of Communications and TV revenues or 24.6% market share; if you merge Comcast with T-Mobile, and acquire Dish, you get $26.9 billion quarterly revenues or 22.9%.
It only becomes interesting if you break the last rule and assume the current US regime would allow cellular players to fall to 3.
That’s when you can try things out like Sprint merging with T-Mobile and acquiring Charter and Dish. That gets you to $32.2 billion or a 27% market share.
And we always come back to our favorite. Comcast does NOT merge with Charter, but they both become shareholders of Verizon, with each owning a third and the public owning the last third. That is effectively in quarterly revenue terms $59 billion of quarterly revenues, far larger than AT&T, at a 50% share of the combined cellular, broadband and pay TV markets. It would also own one of the major studios and broadcast networks, which is additional in the way that owning Time Warner will be for AT&T.
But don’t believe us, build your own campaign. What we hear in the press are moves from the minor players. The reason these are leaked is because the process of leaking them deliberately, makes those moves seem more real. But when they are being instigated by companies with 1.5% of the US market (Altice) it may give them credibility, as do statements in public which say Sprint, with 6.9% of the market, will join in despite having very few fixed lines or TV customers.
In marketing terms Comcast is the Dothraki hoard, Charter is perhaps the Unsullied, which makes Verizon the house of Targaryen, complete with Dragons – deadly apart, but unbeatable all together. If you throw in Apple, Google, Hulu, Facebook, Netflix and Microsoft as the forces from beyond the wall, it all makes a confused kind of sense.
These leaked statements don’t tell us what the larger players are thinking but clearly they are part and parcel of all these talks, and we suspect the real game of thrones will last quite a bit longer than the TV version, which will finish next year. The real battle may rely on changes to the Justice Department and Supreme Court, the latter of which has been made with the appointment of Neil Gorsuch, and the former is now under scrutiny after President Trump publicly rebuked recent appointee Jeff Sessions. But technically, these changes are more or less done. So these institutions are ready, in theory to allow such deals to happen.
Despite this, some of the players may be waiting for an even more favorable regulatory environment, while others still are just waiting for share prices to fall or rise. Email us with any other suggested combinations.