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As Cable Mergers Loom, Time Warner Should Do This Deal

The rush among media companies to launch over-the-top video services suggests a recognition among old media that the gold mine of cable television is in decline. Less recognized is what that means for the future of the big public entertainment companies, each hugely dependent on cable channel profits.

One answer is consolidation, which typically happens in a declining business as companies endeavor to cut costs as revenues fall. The better answer might be for companies to carve off their cable channels and double down on the part of their businesses that make TV shows and movies, whose value will last.

In that respect, here’s one idea for achieving both: Time Warner could buy Sumner Redstone’s National Amusements, the theater-chain company that owns controlling stakes in both CBS and Viacom.

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Media companies such as Time Warner and Fox have gone down the spinoff road in recent years, carving off stagnant print media businesses, for instance. Over the next few years, cable channels are likely to prove the same economic drag that print media has been. Given the deteriorating economics, they aren’t likely to be any buyers of pure-play cable channels. The best any cable channel business can hope for will be to merge with another and pay some big dividends while the money lasts.

John Saroff and Martin Peers commented on this article.
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Fox CEO Rupert Murdoch is fortunate that the Time Warner deal didn’t come through. The resulting overexposure to cable channels could have been disastrous for the combined company long term.