Time Warner Inc. (TWX) is facing competition from smaller, independent digital entertainment content producers and distributors that are building up their revenues at a much faster pace. At the same time the company is joining forces with AT&T and until the deal is closed, the potential investors may have an attractive arbitrage opportunity which we describe below.
As we see over the last years, the quality of the content is prevailing in the entertainment industry and as the convenience of switching from one content provider to the other increase so does the competition. Independent content-producing distributors (TWX calls them “bundle” companies) can attract customers with their exclusive contents without the need of having an established contract with a customer.
