Analysts: Charter will need more than mergers to fight OTT threat ... but it has time to adapt

Expressing a range of opinions about Charter Communications' (NASDAQ: CHTR) just-proposed $10.4 billion purchase of Bright House Networks, media investment analysts say big mergers will not address the cable industry's preeminent threat, over-the-top distribution.

But, they add, the pay-TV industry has plenty of time to adapt.

"The future of TV is going to be decided less by mergers between these players and more by evolution in the customer experience they provide," Jan Dawson, an analyst at Jackdaw Research, said.

"The mergers should help slow some of the rapid content cost increases these companies are suffering from and passing on to consumers," Dawson added. "But they won't fundamentally change the shape or nature of what consumers buy from them, and that's where things really need to change."

Charter's proposed purchase of Bright House would add nearly 2.1 million video customers to its base, expanding its reach beyond 10 million and giving the cable company leverage on par with what Time Warner Cable (NYSE: TWC) currently enjoys. But as Dawson notes, the deal won't address the issue of cord-cutting.

Still, in a Moody's report published Thursday, titled High Yield Cable's Broadband Still Effective Defense Against Over-the-Top Siege, Moody's VP Karen Berckmann says the pay-TV industry has time to make other adjustments.

"OTT options will take a small number of traditional pay TV subscribers, but the shift in the pay TV sector will be evolutionary, not revolutionary," she writes. "Content providers are treading cautiously so traditional cable operators have the chance to build financial flexibility and prepare in case industry fundamentals change more significantly."

The challenge, Berckmann notes, is a marketing one--getting customers over a natural bias towards OTT services, which in many cases provide less value to the consumer

"The average customer may not realize how much content traditional pay TV service provides, from video on demand and across multiple devices," she adds. "Customers are often more willing to give new entrants a break on any operational hiccups merely out of a predisposition to prefer anyone over a traditional cable company."

For more:
- see this Moody's report (sub. req.)
- see this Bloomberg article

Related links:
Bright House gains much-needed leverage with programmers through Charter buyout
Bright House purchase leaves Charter poised to jump on TWC if Comcast merger fails
Pay-TV's revolutionary OTT services are coming up short on revolution

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