More Consolidation, for Cable and Everybody Else

The "name of the game in the cable business is scale," Liberty Media Chairman John Malone says, referring to the need for yet another wave of consolidation in the U.S. cable business. 

Until August 2009, the Federal Communications Commission had enforced a rule that no single U.S. cable company could serve  more than 30 percent of U.S. households. 

That limit mostly was an issue for Comcast, but Comcast decided to expand by getting into the programming side of the  business, rather than getting bigger "horizontally," by acquiring more cable TV systems. 

But growing competition in the business now puts a new premium on additional scale, Liberty Media apparently believes. 

In part, the problem is that markets are more competitive, with other providers taking market share, and with more pressure on profit margins. 

As with any other market where margins are dropping, suppliers can compensate by increasing the volume of sales, which means more customer scale. 

In principle, the same dynamics are at work in other parts of the communications business as well, ranging from mobile services to rural telecommunications to competitive local exchange carrier and incumbent local exchange carrier markets. 

Apple and Samsung, for example, dominate profits in the smart phone industry, some would say because they also dominate market share. 

That relationship between market share and profits is one reason consolidation in the cable and other parts of the communications and video entertainment business will continue. 
strategy analytics q1 smartphone profits


Chart courtesy of Stifel.
Chart courtesy of Stifel.

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