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A 21st Century Fox acquisition of Time Warner would create a high concentration of the all-important 18-to-49 TV viewing demographic within one media conglomerate, giving the joined entity significant pricing power over advertisers.
The new company would command 27% of total-day TV viewership across the top 15 cable networks, and 24% of it among the 18-to-49 demo, said Kannan Venkateshwar, analyst at Barclays, in a research note.
Rupert Murdoch's 21st Century Fox confirmed on Wednesday that it made an offer to buy Time Warner for about $80 billion. Its offer was rebuffed, but observers are confident that Mr. Murdoch can have his prize if he really wants it, citing previous acquisitions such as Dow Jones that came only after a fight, and an enriched bid.
Unlike mergers that bring together companies with different and complementary strengths, 21st Century Fox and Time Warner would in many ways merely make one another bigger in the same core areas.
Combining 21st Century Fox -- which includes the flagship broadcast channel Fox as well as cable networks like FX, FXX and Fox Sports 1 -- with Time Warner cable networks such as TNT and TBS would give the group new strength in TV's annual upfront marketplace for ad time in the upcoming season.
"Given the importance placed by advertisers on the 18-to-49 demographic and the notable lack of too many large network groups with dominant share in this demographic … this could potentially improve the combination's negotiating leverage with advertisers," Mr. Venkateshwar wrote.
On average, the cost to reach 1,000 viewers, an industry standard known as CPMs, is about $1 more than the industry average of $6.19 for networks that can deliver with a higher concentration of 18-to-49 year-olds, according to Mr. Venkateshwar.
Putting a quarter of the demographic in one company's hands could create new pressure for ad buyers to themselves consolidate further, a media and advertising veteran said.
That dynamic would be exacerbated still more if 21st Century Fox succeeds and thereby sets off a barrage of TV consolidation downstream. Smaller network groups such as Discovery Communications, Scripps Networks and AMC Networks have already been cited as potential takeover targets for a long time.
Still, there are some benefits of a unified Fox and Time Warner for advertisers. The scale of the combination could also help drive tremendous reach for brand promotions if the networks go to market under one ad sales portfolio, a la NBC Universal.
"Advertisers today are looking more and more for strategic partners that can do enough for them and put together a meaningful marketing plan rather that doing bits and piece with a bunch of partners," said Bob Pittman, chairman and CEO, Clear Channel. "Scale means a lot in this new world. You want to have your best creative discussions with those who can deliver the biggest scale. The more assets a partner can bring to the table the more powerful it can be."