Time Warner Cable solidifies hold on Midwest by buying Insight Communications
The nation’s second-largest cable operator just got a little bigger.
Time Warner Cable Inc., which has some 12 million cable subscribers, including 2 million in Southern California, has added about 700,000 customers with its $3-billion purchase of Insight Communications Co. Inc.
Insight was sought after because its holdings in Kentucky, Indiana and Ohio will fit in with Time Warner Cable’s substantial operations in those states. Insight is owned by private equity firms the Carlyle Group, Crestview Partners and MidOcean Partners.
“It is a very coveted piece of business for us,” said Time Warner Cable Chief Financial Officer Irene Esteves, who added that “it will be a very streamlined integration.”
Besides strengthening Time Warner Cable’s hold on the Midwest, the deal would also give it more leverage with programmers. By increasing its subscriber base, Time Warner Cable can try to cut more favorable deals with cable networks such as MTV and ESPN.
Esteves said the Insight deal is not the start of a spending spree by the company.
“We don’t see anything on the horizon,” she said, adding that there are not “a whole lot of opportunities to replicate what we’ve done out there.”
The deal comes at a time when so-called multichannel video programming distributors are dealing with a decline in their customer base. While cable and satellite operators typically cite the weak economy as the main reason that people drop their pay-TV service, the growth of the Internet as a platform for video content is seen by many as a dark cloud looming over the industry.
Cable companies are “putting a rosy marketing spin on the numbers,” said Matthew Cain, an assistant professor of finance at the University of Notre Dame’s Mendoza College of Business. “Behind closed doors, they are definitely scared and very concerned about new technologies.”
While the Time Warner Cable-Insight deal will face a regulatory review, given that it is a horizontal merger, it is not expected to draw the same level of scrutiny that cable giant Comcast Corp.’s purchase of a majority stake in General Electric Co.’s NBCUniversal did.
In that case, a distributor — Comcast — was merging with a content provider. In this case, one large distributor is buying a smaller distributor. Insight is the nation’s ninth-largest cable operator. Time Warner Cable currently reaches about 12% of U.S. homes with cable TV. Comcast, which has 22.5 million subscribers, reaches about 23%.
Currently, the FCC doesn’t limit the percentage of the country that a cable operator can reach. There used to be a cap of 30%, but in 2009 a federal appeals court tossed it out, saying it was “arbitrary and capricious” and did not take into account the growth in competition between cable and satellite TV providers.
