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NTL Fancies TV Merger

ntl group ltd. (Nasdaq: NTLI) doesn't look likely to give up its M&A ways.

With fellow U.K. cable operator Telewest only just fully digested following a $6 billion merger, and U.K. wireless carrier Virgin Mobile Holdings (UK) hardly swallowed in a $1.6 billion deal, NTL has its bulging eyes on British TV broadcaster and content producer, ITV plc (London: ITV). (See NTL & Telewest: Together at Last! and NTL Takes Virgin.)

Both parties have admitted the idea is being considered. "NTL confirms that it has advised ITV of its interest in exploring a possible combination transaction and has scheduled an initial conversation with ITV to that end," notes the cable operator in a statement issued to the London Stock Exchange . "This process is at a very preliminary stage and there is no assurance that these discussions will lead to any offer being made for ITV."

ITV confirmed it has received "a highly tentative expression of interest in holding discussions about a possible combination of NTL with ITV. In the interests of its shareholders, the Board of ITV has indicated its willingness to listen to any bona fide proposal, but to date no meeting has been held nor has any proposal been received. Accordingly, there can be no certainty that any compelling construct will be forthcoming, still less that any merger or takeover will result."

ITV is one of the U.K.'s main producers of TV content and owns all the regional licenses for broadcasting advertising-supported content on Britain's Channel 3, known simply as ITV, which is broadcast in digital and analog formats. It also owns three digital-only TV channels, ITV2, ITV3 and the recently launched ITV4.

ITV's current share price of £1.11 gives it a market capitalization of £3.9 billion (US$7.5 billion).

Such a deal would give NTL a large content business to go with its existing menu of services -- fixed voice, mobile voice, broadband, and video/TV -- which it is already pushing as a converged bundle of services ahead of its re-branding as Virgin Media. (See NTL Unveils Virgin Media and NTL Launches Wired-Wireless Cable Bundle.)

The move may also be a further sign of the cable operator's desperation to find a killer differentiator in the increasingly competitive U.K. market. National incumbent BT Group plc (NYSE: BT; London: BTA) is about to launch its IPTV service, BT Vision, while NTL's main subscription TV rival, Rupert Murdoch's Sky , is forging ahead with its broadband and multi-network content distribution plans. (See BT: 21CN Slips, IPTV Nears, BT Closing Broadband Gap, Murdoch's Sky Takes on BT, and BSkyB Unveils Strategy.)

And just today, mobile giant Vodafone Group plc (NYSE: VOD) unveiled its U.K. broadband service, adding to the competitive pressures that saw NTL report a net reduction of 37,300 in its number of customers during its third quarter, while its net loss widened to £96.1 million ($184 million) compared with £52.1 million ($100 million) a year earlier. (See Vodafone Unveils DSL Offer.)

Ovum Ltd. analyst Aleksandra Bosnjak reckons that "from a business strategy perspective, any idea of a full-scale merger between these two types of giants provokes an instant anxiety, given the amount of due diligence and audit required for a job of such unprecedented size."

But, in a research note issued today, the analyst thinks such a union, which may look like the result of "telco-media convergence fever," could work, if handled properly at a structural level.

Bosnjak believes the trend for telecom service providers and media companies to gain scale through consolidation "will intensify in the coming months, with the possibility of some form of joint-ventures, or less risky joint entities. These joint ventures would operate as independent production companies, with the financial and brand name backing of the telco-content players involved." The trick, reckons the Ovum analyst, is to form standalone joint ventures that would benefit from the financial and brand support of large parents but avoid the pitfalls of "a full scale risky" merger.

"The bottom line is that a full scale merger is just a good Hollywood story, but a joint partnership or a venture focused on extracting cash from joint synergies is a possibility," concludes Bosnjak.

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 3:35:11 AM
re: NTL Fancies TV Merger What has anyone learned about trying to combine telcos/MSOs/ISPs and content/entertainment companies? That convergence in that sense is almost impossible, and often very costly.

Maybe the Ovum analyst is right and a separate JV vehicle has some sort of legs, but this smells of a blind leap of faith by a company that needs to focus on other issues, such as its shocking back office support system.
InetUID 12/5/2012 | 3:35:08 AM
re: NTL Fancies TV Merger It's not just the backend systems that are bad. They are struggling to integrate Telewest and it will be the same with Virgin Mobile. Expect NTL to implode in about 12 months time.
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