By John Patrick Pullen
FORTUNE -- The knee-jerk reaction to the unexpected news that Comcast (CMCSA), one of the world's largest telecommunications companies, plans to purchase its nearest competitor, Time Warner Cable (TWC), in exchange for $45 billion in stock is largely that the deal is great for the two (or one) cable giants -- and bad for everyone else.
But a financial move this large and far-reaching is rarely that simple, and every entity in the content supply and consumption chain will be affected. Though the mega-cable merger is far from complete, or even approved by the U.S. Federal Communications Commission, there are hints at who will be the winners, the losers, and players straddling the fence.
Here's an early look at how the game may play out.
Time Warner Cable. [Which should not be confused with Time Warner Inc., the current owner of Fortune's publisher Time Inc. --Ed.] On the balance sheet alone, Time Warner Cable is the biggest winner in this deal. Last month, the country's second-largest cable company rebuffed a $37.3 billion takeover bid from Charter Communications (CHTR), the nation's fourth-largest cable television provider. At the time, newly minted Time Warner Cable CEO Rob Marcus called the offer too low. A month later, he has a new, $45.2 billion offer in hand from Comcast. And unless the FCC blocks the deal, the company has no downside, especially when it netted approximately $12 billion in 30 days by standing pat.
Comcast. Comcast is getting a lot for its money. First, it gets at least 8 million Time Warner Cable subscribers bringing its overall audience to 30 million households. Second, Comcast gains major markets in New York, Los Angeles, and Texas cities not named Houston (which was already a Comcast town). Third, it also adds a number of channels, like 24-hour news station NY1, many local stations, and Time Warner Cable SportsNet, which has a 20-year lock on the Los Angeles Dodgers and Lakers broadcast rights (in deals worth a combined $10 billion). And finally, it will also own all of Time Warner Cable's technologies, including DVR innovations and various streaming services. Of course, Comcast already has its own tech portfolio of similar products, so the most likely scenario is Time Warner Cable's innovations will be mothballed as the combined company brings the Xfinity X1 entertainment operating system to the newly expanded subscriber base.
Charter Communications. Surprisingly, Charter will likely come out ahead in the deal -- though not in the way it had hoped. That's because in order for the merger to get approved, Comcast's newly expanded reach must be less than the 30% of the pay television market. As a result, it can only add 8 million of Time Warner Cable's 11 million subscribers. Charter is rumored to be a fit for these divested cable systems -- a bitter consolation prize to be sure.
Satellite television providers. According to Eli Noam, director for the Columbia Institute for Tele-Information, vertically integrated companies like Comcast are required to make their channels available to competitors. This wasn't much of an issue when Comcast bought NBC Universal, because their channels were already widely available. But adding Time Warner Cable's sports networks to the mix could give satellite television providers access to the coveted Los Angeles sports channel, among other programming. "Basically, [Comcast] has to make it available, but there will be a dogfight over the rates," Noam says.
Advertisers. By expanding into Time Warner Cable territories, Comcast as an advertising entity will be able to offer advertisers much improved reach. "Cable companies have never been good at providing a decent platform for advertising because they were always fragmented," Noam says. By comparison, broadcast networks had blanket, over-the-air coverage, while cable companies only reached their municipalities. Now, though it's only 30% of households, Comcast has a national, coast-to-coast footprint in terms of major metropolitan markets.
Consumers. Comcast CEO Brian Roberts called the deal "pro-consumer," but then again, he would. "We're going to be able to bring better products, faster Internet, more channels, On Demand, TV Everywhere, in a national-local platform that's really special," he told CNBC in an interview Thursday.
And while that may be just sweet talk, Noam thinks the real benefit to consumers would be in how the company negotiates with channels. "To the extent that Comcast can squeeze the content channels like ESPN more, presumably some of this will also be passed down to cable subscribers in relatively lower rates, at the expense of the content providers," Noam says.
Comcast. In an ironic twist, Comcast will actually lose some revenue if the merger goes through, because Time Warner Cable will no longer be paying it retransmission fees for NBC programming. According to Pew Research, retransmission fees have become a steadily growing area of revenue for networks, expected to be a $2.8 billion industry in 2014. Of course Time Warner's check for NBC would be only a fraction of that figure, but these fees are becoming the lifeblood of pay television, as indicated by cutthroat negotiation tactics in recent years that have led to stations being blacked out by providers.
But in the court of public opinion (and rankings from the American Customer Satisfaction Index), adding Comcast, -- one of America's most disliked companies -- to Time Warner Cable, one of the poorest customer service experiences, has the world spitting mad. No matter, Noam says. "This is not a popularity contest among the industry for Comcast to get approval."
Charter Communications. There's little good to say about Charter's newfound position. Not only has it failed to acquire Time Warner Cable in its bid to challenge Comcast, but it was scooped by its own rival. But, on the bright side, if the merger goes through, it would become the third-largest cable provider in the U.S. That has to count for something.
Content providers. With one less cable system in the universe, content providers will find it more difficult to negotiate for access. "It will be difficult for a channel provider to have a real national distribution without having a deal with Comcast, so they cannot be happy about this," says Noam. This doesn't just apply to smaller, independent channels, like Al Jazeera, but also larger media conglomerates like Disney (DIS).
The Federal Communications Commission. All eyes are on the FCC now, as people wonder whether this merger will get approved. "I thought it was remarkably gutsy for Comcast [to acquire Time Warner Cable]," says Noam. "They're going to face problems in Washington because the system there has just digested their acquisition of NBC Universal, which was controversial, too." In addition to the Comcast/NBC approval, the FCC blocked the proposed purchase of T-Mobile by AT&T (T) in 2011, leaving experts to wonder which FCC will show up. It certainly won't include Meredith Attwell Baker, a former FCC commissioner who approved the NBC deal and then left the government agency to serve as Comcast's senior vice president of government affairs. You'd think something like this would put the current merger under increased scrutiny. But then again, you're most likely not an FCC commissioner.
Over-the-top video providers. Even though a U.S. Appeals court revoked the FCC's net neutrality rules, Comcast (and Time Warner Cable, if the deal goes through) will still have to abide by them until January 2018, according to the consent decree that accompanied the NBC merger. That means Comcast's ISPs cannot give any data streams preference -- at least until the subscriber hits their cap. But $45 billion dollar deals aren't about today or tomorrow, and when you're talking about sums that large, 2018 isn't far off. This is a long-term play for the future of content, not just cable and not just Internet. Over-the-top services like Netflix (NFLX) and Amazon (AMZN) may be fine today, but in the long run, this deal could sting.
But Dan Rayburn, executive vice president of StreamingMedia.com and principal analyst at Frost & Sullivan, isn't concerned. According to him, Internet-streamed video isn't currently serving enough viewers, simultaneously, to crack cable's dominance. And moving forward, the promise of 4K video isn't something that will lure enough viewers to make an effect on bandwidth demands -- even if the pipes could handle it.
Consumers. Even though consumers effectively never had a choice in their cable provider, this consolidation causes them to lose because municipalities have less to compare their local deals to. "The demonstration effect is being reduced," says Noam.
And this syncs with what consumers know by looking at their own bills, which never seem to get smaller. "The one thing we do know is cable companies, MSOs, ISPs -- they don't lower bills," says Rayburn. "Do you really think this is going to make Comcast come out and say, 'Hey everyone, because of the Time Warner Cable deal, you're going to get $10 off your bill!' That would be crazy."
Apple TV rumor mongers. Though it's inconsequential, it is worth noting that Apple TV theorists took a big hit with this proposed merger. Just one day before news of the Comcast purchase broke, there was a rumor of Cupertino's most popular resident cutting a deal with Time Warner Cable on the ever-impending next Apple TV. So, um, what else have you got now?
For more Fortune coverage of the Comcast-TWC deal, read:
This is Comcast's Xfinity TV on the X1 platform. Judge for yourself.
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