How the Comcast and Time Warner Merger Will Change the Cable Industry

Learn who are the real winners and losers from the cable industry's biggest deal ever.

Feb 18, 2014 at 12:05PM

One of the biggest news stories last week was the decision by Comcast (NASDAQ:CMCSA), the largest cable operator in the U.S., to acquire competitor Time Warner Cable (NYSE:TWC) for more than $45 billion in a stock-for-stock transaction.

The transaction is set to create a mammoth cable company, as the combined networks of Comcast and Time Warner would surpass 84 million households, or roughly 70% of the U.S. population. The boards of directors of both companies have already approved the transaction, but the deal still needs to win approval from antitrust regulators. If things go north for Comcast, the merger would give birth to a cable giant with massive pricing and power in negotiations with networks over licensing fees. How will this deal change the cable industry? More importantly, who are the potential winners and losers?

Source: Los Angeles Times

The merger
After the deal, Comcast would end up with roughly 30 million video subscribers, a net gain of 8 million. The cable company will also gain major markets in Los Angeles, New York, and Texas. It will add several new channels to its network, including Time Warner Cable's SportsNet. Note that Comcast will also own all of Time Warner Cable's technology. As a result, Comcast estimates that the transaction will generate $1.5 billion in operating efficiencies and economies of scale. 

The winners
Time Warner shareholders have plenty of reasons to be glad. First, the merger will be tax-free for them, according to Comcast. Second, Time Warner shares are up roughly 8% since the deal was announced. This is because Comcast is willing to pay a premium higher than the offer Time Warner initially refused from Charter Communications (NASDAQ:CHTR) last month, in which Charter sought to acquire the company for $37.3 billion. Capital gains will likely help John Paulson, a hedge fund manager specializing in merger arbitrage, who is long six million shares of Time Warner.

According to John Patrick Pullen from Fortune, advertisers could also see some benefits from this deal because the new Comcast will be able to provide them with a much farther reach. 

The losers
Attracted by the benefits of economies of scale, John Malone -- Chairman of Liberty Media, Liberty Global, and Liberty Interactive -- wanted to consolidate the cable industry by acquiring Time Warner. Malone, who bought a 27% in Charter Communications in early 2013, was pushing for a deal between Charter and Time Warner. However, by bidding too low, Malone lost a big deal, and got scooped by its main rival.

The good news for Malone is that Comcast has announced it will unload three million subscribers before the deal closes. This could be a great opportunity for Malone to acquire new customers, almost for free. 

Note that the new mammoth cable company will have more negotiation power against content providers and over-the-top video providers. From independent channels to large media conglomerates, content providers will not be able to have a real national reach without a deal with the new Comcast.

On the Internet service providing front, the new Comcast may try to get more money from companies that specialize in providing video streaming via the Internet (such as Netflix, Hulu, and Amazon Prime) as these companies consume more bandwidth than other services. However, net neutrality rules would still protect on-demand streaming companies, at least until Jan. 2018.

Final Foolish takeaway
The acquisition of Time Warner by Comcast is set to change the cable industry dramatically. Covering 84 million homes, or roughly 70% of the U.S. population, the new company will have more negotiation power against content providers and online video streaming services. Overall, the deal seems to come at a good time for Comcast, which recently ended a six-year streak of TV subscriber losses. However, it's too early to determine if lower content acquisition costs will translate into lower subscription fees for consumers.

Profit from the war for your living room
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

Adrian Campos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers