Media analyst makes case for 21st Century Fox-Time Warner deal

Could archenemies Fox News and CNN one day be brothers?

Sounds crazy but a new report by media analyst Tony Wible of Janney Capital Markets suggests that a merger between media giants 21st Century Fox and Time Warner makes a lot of sense.

“However improbable it may seem, one cannot overlook this mega deal given its immense financial benefits that dovetail with a number of strategic benefits like the added sports rights, studio market share, TV production synergies, large content library, news programing synergies, distribution savings, and brand compatibility,” Wible wrote.

Given all the consolidation on the distribution side — Comcast is acquiring Time Warner Cable (which is a separate company from Time Warner) and AT&T is buying DirecTV — the idea of two major programming suppliers looking to combine makes some sense. Many programmers have expressed concern that if the number of distributors continues to shrink, they will be at a disadvantage when it comes to negotiating deals.

Time Warner has been shedding non-TV and movie assets for some time and later this year its magazine unit, Time Inc., will be spun off. That will probably have some wondering what the slimmed-down company’s next play will be and a deal with Fox could a potential exit strategy.

On their own, Fox and Time Warner are already giants. Both have powerful movie studios and Warner Bros. TV and 20th Century Fox Television are top producers of sitcoms and dramas. Time Warner owns cable networks TNT, TBS, TruTV while Fox has FX and new channels FXX and Fox Sports 1. What Fox doesn’t have is a premium channel, which Time Warner has with HBO.

Time Warner has lots of sports on its Turner channnels, including professional baseball and basketball. Fox could use more sports for its Fox Sports 1 and Fox Sports 2 channels. Putting the Turner sports products on Fox Sports outlets could instantly make those networks a more viable competitor to ESPN.

Such a deal would certainly raise a lot of eyebrows but there are not a lot of regulatory hurdles currently on the books to be overcome. The Federal Communications Commission has no limits on how much content one company can make. Its rules focus more on distribution, and combining 21st Century Fox and Time Warner would not change the reach of Fox’s TV stations. The Justice Dept. though would also probably want a say in what such a combination would mean in terms of competition.

While the idea of Fox News and CNN being under the same roof may sound absurd, there is no FCC rule that specifically says one company can’t own two competing news channels with extremely different perspectives. Still, their combined market share would be a concern to regulators and could trigger alarm bells.

Of course, assets that stood in the way of the greater goal could also be sold or spun off.

Despite the lack of obvious regulatory roadblocks, media watchdogs would probably ferociously fight such a merger, contending that it would put too much power over content in one company’s hands. Consumer activists and media watchdogs have little love for big media in general and even less for 21st Century Fox Chairman Rupert Murdoch.

Besides a 21st Century Fox-Time Warner combination, Wible suggests that CBS and Viacom might benefit from remarrying. The two companies merged in 2000 and then split apart in 2005. Media mogul Sumner Redstone is chairman of both companies.

Other potential deals, according to Wible, is a Discovery Communications-Scripps Networks combination. Both are forces in cable programming, but merging would give them a much bigger hand to play with both distributors and suppliers of content.