DIRECTV (DTV), DISH Network Corp. (DISH), Time Warner Cable Inc (TWC): The Paid TV Industry Could See a Wave of Mergers

The total paid TV market in the US is roughly 100 million. Comcast Corporation (NASDAQ:CMCSA) accounts for about 22 million, while a combined DirecTV/DISH would have around 34 million. A merged Charter/Time Warner Cable Inc (NYSE:TWC) would be the third biggest player at 16 million.

Analysts at Janney Capital estimate that paid TV content costs are poised to increase by 12.6% this year. But, if there’s a wave of consolidation, that might not be the case. The theoretical big three (DirecTV/DISH, Comcast, Time Warner/Charter) would control over 70% of the market — giving them a great deal of leverage over content providers.

Investing in the paid-TV industry

There could be a wave of consolidation coming to the paid TV industry. If that’s the case, the providers should be poised to benefit — fewer players in the industry would mean a great degree more leverage over content costs — costs that have spiraled out of control in recent years.

In the near-term, DirecTV and Time Warner Cable would probably benefit the most. Although Charter is the smaller company, any merger between the two would likely come from Charter buying out Time Warner. The same can be said for DirecTV/DISH Network — DISH has more money on its balance sheet and much less debt.

But even post consolidation, the combined entities could be attractive investments. Although they may carry a great degree of debt, they’d have much more pricing power.

The article The Paid TV Industry Could See a Wave of Mergers originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.