Make no mistake: AT&T's purchase of Leap Wireless, SoftBank's purchase of Sprint, Sprint's purchase of Clearwire and the T-Mobile (News - Alert) US purchase of MetroPCS are not the only signs of consolidation in the communications business.

We are about to see a major wave of mergers in Europe, and a quieter wave of mergers in other industry segments over the next several years. 

Even in the video distributor and TV broadcast station businesses, consolidation is coming, driven in part by the implications of greater scale. 

In 2008, "retransmission consent" fees paid by video distributors (cable TV, telco TV, satellite TV) to broadcast networks and their local broadcast affiliates represented 4.5 percent of Nexstar revenue. In 2011 retransmission consent payments had grown to 14.5 percent of revenue for the local TV station owner.


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That is not to say affiliate fees will be the most important part of the broadcaster revenue stream (either for local TV stations or networks), but probably represents one of the fastest-growing new revenue streams for some distributors, and all of the “broadcast” networks, in the linear TV business.

According to SNL Kagan, Fox, CBS, NBC, ABC, CW and Univision networks will make almost $3 billion in 2015 in retransmission consent fees. The networks will get about $1.7 billion in direct payments from their local broadcast affiliates.

The broadcast networks also will get $1.3 billion in 2015 as their cut of fees that the video distributors (cable, satellite, telco) will pay the broadcast network affiliates, Kagan says.

The retransmission consent fees are a significant factor in pushing up video subscription bills.

Total industry payments for retransmission consent are expected to more than double from $2.36 billion in 2012 to $6.05 billion by 2018, at which point such fees would amount to — about 23 percent of total TV station revenue, SNL Kagan says.

So there are clear ecosystem tensions. As always, one company’s revenue is another company’s cost. And video distributors increasingly are worried that their product (video entertainment) is in danger of becoming too expensive, or providing too little value for the price.

So sooner or later, something will break. Video distributors might start breaking up their own retail packaging plans, or programmers will start going end user direct, or both. Many observers think there will be less overall revenue for both programming networks and distributors if that happens.

CBS, for example, expects retransmission revenue to roughly quadruple to $1 billion a year by 2017. While good for CBS, each increase means a direct hike in a video distributor’s cost structure.

And bargaining power, one might argue, is a key driver behind industry consolidation, both on the part of TV station ownership groups and video distributors. Each side sees advantage in getting bigger. Distributors want the clout of greater subscriber volume, which makes the distributor a bigger buyer, while TV broadcasters want greater viewing shares, which makes the station group a bigger and more important seller.

Consolidation in the video distribution business, no less than in the mobile and fixed networks business, seems assured.