Wall Street would cheer Time Warner Cable sale but media watchdogs worry


Time Warner Cable might have its own cord cut.

Two big cable operators — Comcast Corp. and Charter Communications — are interested in acquiring Time Warner Cable, the nation’s second-largest cable operator, which boasts more than 1 million customers in Los Angeles and an additional 11 million around the country.

Any combination would reduce the menu of providers in California; Charter provides service to Long Beach, Burbank and Alhambra, and Comcast has customers in the northern and central regions of the state.

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Charter’s interest in acquiring Time Warner Cable has been no secret, but Comcast, the nation’s largest pay-TV distributor with more than 21 million customers, emerged as a potential bidder on Friday.

People familiar with the matter said that Time Warner Cable reached out to Comcast in the hopes of blocking Charter, which has been lining up financing to make an offer.

Though Time Warner Cable has never publicly commented on the much smaller Charter’s interest, executives there have said they would resist any deal that did not provide maximum value to their shareholders — such as a heavily leveraged bid.

A Comcast-Time Warner Cable combination would create a pay-TV juggernaut that could better compete against satellite broadcasters DirecTV and Dish Network and telephone companies Verizon and AT&T.
The deal also could help pay-TV providers keep a lid on rapidly rising programming costs, which have threatened the industry by prompting more consumers to cut the cable cord.

Wall Street reacted positively to reports of a merger, including the possibility that Comcast and Charter could team up to buy Time Warner Cable and then divide its holdings. That’s what happened seven years ago when Time Warner Cable and Comcast joined forces to buy Adelphia Communications.

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“A combination of Charter and Comcast would make all the sense in the world,” media analyst Craig Moffett of MoffettNathanson Research said in an interview. “Time Warner Cable’s two crown jewels are New York and Los Angeles,” Moffett said, adding that one scenario would be for Charter to pick up the Los Angeles market, becoming the region’s dominant pay-TV operator. Philadelphia-based Comcast would seem most interested in Time Warner Cable’s operations in New York City.

Time Warner Cable also has been bulking up in sports programming, an area of expertise for Comcast and NBCUniversal. Comcast owns several regional sports networks around the country. Time Warner Cable operates a Lakers channel in Los Angeles and next year plans to launch a new network that will carry the Dodgers.

Although there have been informal talks between Comcast and Time Warner Cable, people close to the companies on Friday emphasized that no active negotiations were underway, and that no deal was certain.

Wall Street has been preparing for another wave of consolidation in the cable industry as distributors want to become more muscular to better compete in a technologically complex and competitive landscape. Operators also want more leverage in negotiations with major programmers such as Viacom, Walt Disney Co. and 21st Century Fox.

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In the last couple of years, powerful programmers have wrangled big rate increases, despite the efforts of the cable operators who buy that programming.

Time Warner Cable fought a bruising battle with CBS over a new distribution contract last summer. Resulting blackouts in major cities contributed to the cable company’s loss of more than 300,000 subscribers.

In addition, pay-TV providers want to add to their subscriber base and provide broadband service as more people migrate to the Internet and mobile devices.

Analysts and activists on Friday expressed concern that any combination might invite antitrust concerns and government scrutiny, particularly if Comcast tried to swallow all of Time Warner Cable.

“We believe government approval would be possible, but it would be costly, with serious risk,” Christopher C. King and David Kaut, analysts with the investment firm Stifel, Nicolaus & Co., wrote in a report. “This would be a brawl.”

There are no Federal Communications Commission rules that would prohibit these deals, but regulators and lawmakers might look askance at any combination. That may be especially true in the case of Comcast because of its acquisition nearly three years ago of NBCUniversal, which makes it one of the biggest owners of entertainment content.

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Media watchdogs are wary of more media consolidation, which cable operators like John Malone, whose Liberty Media earlier this year bought 27% of Charter, have insisted is necessary for cable companies’ survival.
“Any deal would have very negative consequences for consumers,” warned S. Derek Turner, research director of Free Press, a Washington, D.C.-based consumer advocacy organization.

A Comcast-Time Warner Cable pairing would be an “unthinkable deal,” Turner said, because it would give Comcast control of about one-third of the nation’s video and broadband customers.

Charter would also be problematic for Turner.

“Charter and John Malone have stated quite clearly that they think the best way to grow value for their company is by imposing very draconian data caps on their broadband Internet customers,” Turner said.

Time Warner Cable, which has a market capitalization of $35 billion, has previously rebuffed approaches from the much smaller Charter, which has a market cap of $13 billion. Comcast’s market value is nearly $130 billion.

Stocks of all three companies got a lift Friday. Time Warner Cable jumped 10% to $132.92 a share; Charter climbed 6% to $134.66 a share and Comcast closed up 4% to $49.52 a share.