The state antitrust watchdog Fair Trade Commission’s preliminary decision to oppose the proposed merger and acquisition plan between IPTV operator SK Broadband and cable TV operator CJ HelloVision has left the two companies as well as the cable TV and media content sectors in trouble.

The 50 billion-won ($43 million) investment plan of the merged business entity in nurturing media content businesses, promised by network operator SK Telecom, the parent firm of SKB, has now seemingly hit the buffers.

Having long suffered from a continued drop in profits and the number of subscribers and challenges posed by Internet TV and streaming services, the cable TV sector has now even lost a chance to turn things around with the state regulator’s rejection.

 

Baffled by the FTC’s preliminary decision, SK Telecom expressed concerns through a statement, saying, “It is regretful that SKT’s plan to make contributions in revitalizing the pay TV market by investing in content and network sectors after achieving the M&A is now called off.”

The telecom firm did not say it would drop the M&A plan, but vowed to come up with follow-up measures.

As the pendulum in the pay TV market is fast shifting from conventional cable TV businesses to the IPTV service providers, the cable TV companies’ profits have consistently fallen in recent years.

The cable TV industry saw its entire sales decrease 3.7 percent to 2.26 trillion won on-year in 2015 with its operating loss increasing 10.6 percent to 406 billion won.

Some of the cable TV companies, including D’Live, formerly known as C&M, are expected to be up for sale in line with a series of efforts by the cable TV firms, often called system operators, to restructure the industry.

If the FTC’s decision on the SKB-CJHV M&A deal can serve as an indicator, those potential M&A deals in the system operator sector are now facing stumbling blocks ahead.

The state regulator rejected the CJHV-SKB deal on grounds that the proposed deal could harm fair market competition, as it will allow the creation of a dominant player in the cable network industry.

The combined entity of SKB and CJHV would be the second-largest pay TV operator after KT, which owns IPTV service olleh TV and satellite TV firm KT Skylife.

“If the FTC applies the same logic behind its objection to the CJHV-SKB deal to other M&A bids, few takeovers will be able to be made down the road, which will consequently depress the cable TV industry,” said the Korean Cable Television Association, representing the SO sector.

The state regulator is set to make the final decision after reviewing follow-up reports from CJHV and SKB next week and holding a standing committee meeting on July 15.

The biggest victims of the FTC decision that let the M&A deal teeter on the brink of collapse would be CJHV, and CJ Group and its affiliate CJ O Shopping.

Since the announcement of the M&A in November, SKT has reportedly been deeply engaged in the management of CJHV.

In line with SKT’s plan to combine the cable TV operator’s services with SKB’s IPTV services, CJHV has stopped accepting new subscribers and making new investments in beefing up network infrastructure.

CJ Group, which aimed to secure money to nurture new businesses through the sale of the CJHV, will have to find different sources of investment.

“Due to the FTC’s prolonged reviewing session on the proposed M&A deal, which lasted for seven months, CJHV’s businesses have faltered and missed chances to invest and diversify its business portfolio,” said CJHV in a statement, adding that its employees’ concerns over job security due to the firm’s tumbling businesses have reached its peak as well.

By Kim Young-won (wone0102@heraldcorp.com)