The concept of world domination used to be relegated to science fiction movies however Amazon may yet become one of the first to make it a reality.
Their recent addition of the Streaming Partners program could be the start of Amazon as the world’s first global OTT (over the top) programming provider.
With 83.5% of Facebook users and 79% of Twitter users coming from outside the US, companies today must be globally focused to truly compete and grow.
Comcast business is limited to the US. With cable systems passing about 44% of all US homes and 22 million subscribers it has a strong presence but only in the US.
Amazon is a global company; According to Mark Mahaney, analyst at RBC Capital Markets, 37% of its 80 million Prime subscribers are from outside the US and is growing quickly.
But Why Should Amazon buy Comcast?
Amazon’s foray into OTT is the precursor to the separation of the programming platform from the wired cable. I believe that sometime in the next 3 to 5 years most cable companies will sell broadband access only and the program offerings will be spun off into separate companies which will have lots of competition from OTT providers like Amazon. Much like what happened with the separation of local and long distance telephone service.
The acquisition of Comcast would thrust Amazon into becoming a leading OTT service with a major share of the new on demand marketplace as well as the existing cable net universe.
With Comcast Amazon would obtain major US direct to home distribution, a major movie studio, 16 major cable nets, including Bravo, USA Network, E Entertainment, CNBC, MSNBC, Golf Channel, Syfy and more as well as acquire the management and capabilities of a programming powerhouse with NBC.
The other businesses of Comcast such as the Universal Studios theme parks could be a great place to promote all of Amazon’s products and businesses. The Comcast Spectacor and Ventures segments could be kept or spun off.
Amazon is already becoming like a cable operator
With the recent announcement of the expansion of its Prime Video service with the addition of the Streaming Partners program Amazon is quickly becoming like a new type of cable operator as they will offer cable nets, on demand and a la carte pay tv.
This is one of the first non-related party deals where major cable nets will be sold by an OTT provider. Amazon will be selling its Prime customers Showtime, Starz, A+E Network, AMC, Ring TV Boxing and others. Showtime and Starz will each sell for only $8.99 per month (less than on most cable systems). The other services will be priced accordingly.
The need for Vertical Integration
Until streaming media cable operators totally controlled what you could watch in your home. They had such a strong hold on the distribution that, as far back as the 1980’s the program services began selling the operators equity stakes to assure distribution. Most recently the BBC sold 50% of their US TV network to AMC to substantially improve their ability to obtain cable access and receive favorable affiliate fees.
You may recall the dispute Comcast had with Netflix a few years ago which was resolved by Netflix paying Comcast a fee to assure that Netflix customers would have access to quality streaming pictures. While a major premise of Net Neutrality is to eliminate the chance that cable operators could pick and choose what subscribers can access from the internet, it is uncertain as to whether it will become law.
In order to guarantee distribution of a product many companies choose to control the entire distribution from factory to consumer. Retailers like Coach own stores to assure control over their distribution and sales.
The only way Amazon can guarantee the ability to distribute its video programming direct to consumers, without the possibility of cable operator control and compensation, is to own the cable operator.
Comcast also has more Hidden Value: Programming and Subscriber Data
In addition to obtaining direct broadband access to consumers, Amazon would obtain all the behavior information of its users and all the agreements with the program providers. The cable consumer behavior database for 18% of US households would be valuable to increasing the sales for the retailing side of Amazon.
As the largest cable operator Comcast most likely has the best rates and terms for the cable programming networks. In addition Comcast most likely has most favored nation’s clauses in their agreements. MFN’s guarantee that if a programmer gives a better deal to another cable company then Comcast has to get the same deal.
Owning the largest cable operator would also provide substantial leverage for Amazon to extract beneficial terms from the program networks to expand Amazon’s OTT platform globally as well as for their wired customer offerings.
Owning some of the top cable networks and a major movie studio would enable Amazon to become the dominant force in on demand subscription based programming as well as to become a formidable competitor to Netflix, the current dominant player.
Comcast also has more Hidden Value: Potential Global OTT Customers
As a global company Amazon has a worldwide customer base and relationships in many countries. 30 million of Amazon’s Prime customers are outside the US. Digital subscriptions can be sold worldwide provided the seller owns the rights. Owning a movie studio and many major cable networks could help with the rights issues and adding all of Comcast’s owned cable networks into the OTT offering could provide a formidable package to market worldwide.
The ability to grow Comcast’s TV business globally is substantial for Amazon. Bottom line is Amazon can afford to pay a lot more for Comcast than most others.
Comcast also has more Hidden Value: Potential Retail Bundling
Comcast has 23 million customers and passes 54 million homes (potential customers). 54 million homes represents 44% of all homes in the US. While we do not know how many of those homes already buy from Amazon surely there are lots that do not.
But even better is the “golden handcuffs” deals Amazon could offer existing Prime subscribers to add Comcast broadband. This could be a higher level of Prime. In any case the ability to bundle and package broadband access with the buying of products could create advantage for Amazon in competitive market. Watch out Walmart.
No Antitrust Issues
Now is the time for Amazon to buy Comcast as they are still effectively a minor player in video. An acquisition of Comcast would most likely not be challenged by the FTC or the Justice Department.
Why Comcast Shareholders would Jump at an Amazon deal
A simple stock merger could be a goldmine for Comcast shareholders. As for Amazon shareholders they would benefit from becoming the market leader in the future of television globally.
Amazon stock has grown over 355% in the last almost 4 years. Compare that to Comcast’s 252% growth. Trading Comcast for Amazon could put lots more value in Comcast shareholder’s pockets sooner.
Bottom Line is it makes Strategic Sense
Amazon has traditionally been a builder and not a buyer. However at some point they may realize that it’s more profitable to acquire success then to build it from the ground up. Further it would be almost impossible to build an entertainment asset base that Comcast has from scratch. Further the new OTT, on demand, market is changing and growing quickly and it would take far too long to even create a fraction of Comcast’s assets even if Amazon only focused on the video portion.
I’m not an investment banker so I won’t get into the financial deal strategies. However I will note that Amazon, in addition to all the strategic benefits cited in this article, could truly benefit from adding Comcast’s $17 Billion cash flow. As for the deal structure I’ll leave that to the experts.
The acquisition of Comcast by Amazon would bring Amazon a whole host of benefits from a very strong entertainment powerhouse, many cable nets thereby creating a very robust OTT offering, vertical integration for the OTT service, $17 billion in cash flow and much more. Also at this stage there should not be antitrust issues. Wait too long and the deal could be stopped.
@jeffbezos what are you waiting for?