Big media mergers always have cost synergies. Two movies studios could be combined for example. And when you put a bunch of cable and broadcast TV channels together, that's going to give you more negotiating leverage when booking ad deals across those properties. Finally, money is cheap right now and both companies are relatively underleveraged.
However, I think the most important driver of this deal is sports.
Sports may have been the biggest driver of the recent merger announcement between AT&T (T) and DirecTV (DTV). AT&T basically negotiated an out in the deal if DirecTV failed to keep the highly profitable NFL Sunday Ticket.
It seems crazy that keeping a package of NFL games was the critical component of whether two media titans should proceed with a multi-billion dollar merger. But the fact remains that sports are perhaps the dominant way TV broadcasters have today to drive live viewership and -- as a result -- charge advertisers through the nose. And, no matter how many ad dollars continue to migrate online or towards mobile ads on services like Facebook (FB), live TV (and specifically live sports TV) will continue to be a huge draw going forward for media owners.
It's because of that profitability that Murdoch green-lighted the creation of a Fox rival to ESPN earlier this year: Fox Sports One. He hired away a lot of high-priced talent from ESPN to do this. However, there's still little reason for most people to tune into that network -- if they even know where it is.
Fox has major league baseball and football on its main broadcast network. It has hockey, basketball, baseball and college sports on its network of regional sports networks. But there's little reason to go to Fox Sports One, except for highlights which arguably would be better from ESPN's SportsCenter.
Time Warner has the NBA and the NCAA's March Madness (which it shares with CBS (CBS)). NBA fans have been much more vocal of their support for watching NBA games on Time Warner's TNT vs. ESPN. TNT's NBA crew of Ernie Johnson, Shaq, Charles Barkley and Kenny Smith are much funnier and better informed than their rivals at ESPN for the NBA.
The NBA will require ESPN and TNT to pay up for TV rights between now and 2016. Major League Baseball recently went through the process and doubled the fees they gained for the broadcast rights. It's not unreasonable to expect the NBA will see a similar doubling or more.