The idea of Comcast (CMCSA -5.82%) buying Time Warner Cable (NYSE: TWC) is a scary thought. Will the merger create an even bigger, unregulated utility? It didn't help when the company's primary lobbyist, David Cohen, said "We're certainly not promising that customer bills are going to go down or even increase less rapidly." However, unless the FCC has a spinal implant between now and the time the deal is reviewed, it's likely going to go through. If it does, at least there may be a way to profit from it.
One of the infrastructure suppliers, Arris Group (ARRS), may end up being one of the winners in the acquisition. Suppliers often get squeezed in a big merger, but to soften the blow to subscribers, Comcast is likely going to improve its technology infrastructure. Increasing the video-on-demand content sells more premium packages, and it makes advertisers happy because subscribers aren't able to fast forward through commercials.
Strong back end, weak front end means upgrade
Cable was a one-way cloud before cloud computing was cool. The satellites that transmit content are beaming from 20,000 miles overhead, but the set-top box has about as much intellectual property as a hammer. In most cases, it does one thing well, but doesn't have enough power for a high-quality programming guide. Eventually, the industry will be all IP, and in order for that to happen, a massive infrastructure project must occur.
Comcast has skin in the equipment game
Arris bought Motorola's Home business from Google, and at the time of that acquisition, Comcast made a $150 million investment in Arris to help fund the acquisition. This means that Google and Comcast, together, own over 15% of Arris. This is an interesting fact, but what does it mean?
Comcast has a large stake in Arris' success and went out of its way to help Arris acquire Motorola's Home business. Before this acquisition, Arris had focused primarily on back-end infrastructure, but it only makes sense that a higher-quality solution could be created by the company developing both the sending and receiving equipment. This is what the product suite looks like today:
Source: Arris
33 million subscribers is a massive upgrade opportunity
The merger of Time Warner and Comcast will result in a combined company with over 30 million subscribers. While Comcast is known to have a good technology infrastructure, Time Warner does not and was in the process of working with Arris to launch a six-tuner whole-house DVR. This would allow six programs to be recorded at once and stored on one terrabyte of recording space. Once the content is in the house, consumers would be able to watch it on other TVs or wireless devices, including laptops and tablets.
The partial ownership of Arris by Comcast and Google virtually ensures its place as a content distribution architect. Whether the company supplies a greater amount of content-on-demand or focuses on a mega set-top box, Arris stands to win in the long run.
