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The Real Costs in TV Dealmaking

Data via Information Research

Pay television and broadband companies are increasingly consolidating to insulate themselves from slowing growth. But in doing so, they are inheriting a financial straitjacket while their potential competitors in Silicon Valley are cash-rich.

AT&T is awaiting regulatory approval to buy DirecTV, while Charter Communications recently struck a deal to buy Time Warner Cable and Bright House Networks. More recently, Dish Network has begun merger talks with T-Mobile USA, according to The Wall Street Journal . If the deals are consummated, the resulting companies will have more scale and, in some cases, more lines of business. But as the accompanying chart shows, they’ll also be carrying a very heavy debt load compared to the cash they generate every year.

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High-priced mergers are very often based on optimistic assessments of synergies that can be gained from combinations. That could easily prove to be the case for some of the deals now underway, particularly as the pay TV market is eroding thanks to digital upstarts. If that happens, the heavy debt loads taken on in these mergers could prove a huge liability.

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