Don't bet against Comcast, television's 800-pound gorilla


Bobby Raines 07/07/2014

Conspiracy theorists have claimed for years that their ideas go unreported on the news because various groups or shadowy cabals have control of the media.

I've worked for various media companies for over a decade and have yet to see any real evidence of that. I've never received a memo instructing me to ignore Bigfoot, been invited to a meeting about discrediting the chemtrails people, or even been instructed to make certain political figures look good or bad.

The internet has made publishing and finding coverage of the topics you find interesting easier than ever. Which is generally a good thing, even if I'm not sure that the sites now getting millions of pageviews for slideshows of cats who look like Game of Thrones characters would be capable of breaking a story like Watergate.

All that said, it does seem like more and more of the media we consume, and the means by which we consume it, are owned by an ever-smaller number of companies. Sure your cable or satellite subscription gets you hundreds of channels, but all but a few of those channels are owned by about a half a dozen companies, and in most cases, your television service is provided by one of four or five companies. Internet access is slightly more fragmented, but most American get their high-speed internet from one of less than two-dozen companies.

The 800-pound gorilla in all three of these areas is Comcast ( CMCSA ). The company is the largest pay-television provider in the U.S. with almost 22 million subscribers. It also delivers broadband internet to many of those subscribers. The company also owns NBC Universal, which puts it in control of the NBC family of networks as well as E!, Telemundo, USA, Bravo, the Golf Channel and more. Comcast also owns 12 regional sports networks, several television stations and the Universal film studio.

Apparently hoping to get promoted to 900-pound gorilla, Comcast is currently trying to shepherd its acquisition of fellow cable giant Time Warner Cable ( TWC ) and its 11 million subscribers though a series of regulatory obstacles. The company knows that regulators don't want any one cable company to get too big (despite the fact that they don't actually compete with each other in the same markets), so Comcast has already agreed to sell about 3.9 million subscribers to Charter ( CHTR ) in a deal that has too many moving parts to be discussed in detail here.

There's been a lot of noise from a lot of people about how the Comcast/Time Warner deal is anti-competitive, bad for consumers, or should otherwise be scrapped. Since cable companies don't compete directly with each other, most of the usually arguments about one company getting too much power in a particular area don't work here.

There are legitimate concerns about how much bargaining power Comcast would have when it buys content, and how it could possibly distort that market, but the impacts of that on consumers are hard to determine at this stage. I expect there to be plenty of noise before the ultimate approval of the deal.

While that is going on, Comcast is going to continue to do very well. Cable isn't a necessity in the same class as water or electricity, but even in a bad economy, only a few people end up canceling their service. In a slowly improving economy, pay television is a solid bet.

Comcast's size and vertical integration give make it pretty efficient from a business standpoint, although customers may find that hard to believe if they've ever had to call the company to get an issue resolved.

Even if the Time Warner deal were to be rejected outright, Comcast would still be among the biggest companies in nearly every business in which it competes. Sure, cord cutting is slowly reducing the number of people with pay-television subscriptions, but most of those people still need internet access, which Comcast makes available. Also, Comcast owns a lot of content that people want, so whatever the delivery method ends up being, Comcast will find a way to make people pay for that programming.

Chart courtesy of

Traders looking to play the company's strength could consider an August 50/52.50 bull-put credit spread. This position nets a credit of about 30 cents, which is a 13.64% return, or 124.43% on an annualized basis (for comparison purposes only). This position will return a full profit so long as the stock is above $52.50 at August expiration, giving it nearly 4% downside protection.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Originally published on

This article appears in: Investing , Options

Referenced Stocks: CMCSA , TWC , CHTR



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