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Telecom-Cable TV-Media Convergence Becomes Inevitable

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Adversity makes strange bedfellows or in this case competition. Rewinding 7-8 years, telecom and cable operators were jostling and vying for a share of each other’s territory with media industry acting as a content supply chain to both.

Cut to now, fierce competition from tech behemoths have completely altered the market landscape, compelling telecom, cable TV and media operators to band together in order to survive.

Competition Intensifies in Telecom Space

U.S. telecom market is witnessing cut-throat pricing competition. Two large incumbents — Verizon Communications Inc. (VZ - Free Report) and AT&T Inc. (T - Free Report) — are bearing the brunt of this competition.

Consolidation of wireless industry, entry of cable TV giants like Comcast Corp. (CMCSA - Free Report) and Charter Communications Inc. (CHTR - Free Report) and the decision of tech behemoths like Alphabet Inc. (GOOGL - Free Report) and Apple Inc. (AAPL - Free Report) to foray into the telecom space has intensified the competition

Pay-TV Industry Facing Survival Threat  

Exponential growth of mobile data usage supported by flourishing high-end smartphone and tablet devices, has altered the entire dynamics of the traditional pay-TV industry.

Consumer preference has shifted from costlier legacy cable TV connections to low-cost over-the-top (OTT) video streaming service, resulting in significant cord cutting. Tech giants Netflix Inc. (NFLX - Free Report) and Inc. (AMZN - Free Report) are the two leading Internet TV streaming service providers.

Digital Platform: The Next Battle Field

In order to derive maximum synergy from the combined video content and video distribution platform, telecom, cable TV and media operators are aggressively penetrating the digital advertising technology market. Inclusions of dynamic ad-insertion, targeted audience advertising and data-driven TV advertisements are steps toward the same objective.

This advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting. Currently, tech behemoths like Alphabet, Facebook and Twiter are major beneficiaries of digital advertisements.

Integration of Telecom-Cable TV-Media: A Survival Strategy

Rapid technological advancement is systematically redefining the parameters of the telecom, cable TV and media industries. Vertical integration of distribution and content creation will create a unique platform to serve any sort of communications, broadcasting along with a vast area of entertainment industry.

Consider the case of AT&T, which recently received court’s approval to acquire Time Warner Inc. in $85.4 billion deal. AT&T will now have nationwide high-speed mobile and broadband network, online TV streaming services, a large TV broadcasting network, HBO assets and film production network.

This is definitely a ploy to take on the challenges of Silicon Valley tech behemoths. AT&T currently a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

More Deals Are on the Way

The court’s approval of AT&T-Time Warner deal is likely to open the floodgate of mergers and acquisitions between telecom, cable TV and media companies. Cable giant Comcast has become a media mogul after acquiring NBC Universal in 2011. The company is likely give bid for major assets of Twenty-First Century Fox Inc. (FOXA - Free Report) . The Walt Disney Co. (DIS - Free Report) has made a bid for Fox.

Verizon, which already acquired digital assets of AOL and Yahoo, had earlier expressed its intention to takeover a major media house. Consequently, media giants like CBS, Viacom and Discovery have become lucrative takeover targets.

The chart below shows price performance of Verizon, AT&T, Comcast and Disney in the last three months.

Bottom Line

Business models and the economics of the telecom, cable TV and media industries are changing. Advertisement on the mobile video platform is gradually shifting from simple selling of banner ads to automated or programmatic ad selling. All these forces are moving toward telecom-cable TV-content convergence.  

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