A History of Consolidation

The US Cable Industry Continues to Combine

Twenty years ago, there were dozens of regional cable service providers across the US. However, like the wireless industry, a need for greater scale has resulted in a segment with four major brands: Comcast, Time Warner Cable, Charter Communications and Cox Communications.

Yesterday’s news that Charter Communications has made a deal to purchase Time Warner Cable for $55 billion isn’t a shock to the industry, marking Charter’s second attempt to acquire its larger rival in the past two years. It would also be Charter’s second significant acquisition within a few months after it announced its intentions to purchase Bright House Networks, a cable operator with 2.2 million subscribers in several states.

The deal would follow a failed attempt by Comcast to purchase Time Warner Cable earlier this year after the US Department of Justice voiced its concerns — Comcast and Time Warner Cable are the largest and second-largest cable operators in the US, and the combination would have given Comcast more than 33 million customers.

If Charter’s bid for Time Warner Cable succeeds, its new total of 24 million subscribers would make it the second-largest broadcaster in the US, although AT&T’s potential acquisition of satellite operator DirecTV could make that placement short-lived.

Charter is expected to pay $195 for each share of Time Warner Cable stock, a 14 percent premium above the last closing price and almost 50 percent above the offer it made last year. The bidding and politics have been a significant benefit for Time Warner Cable’s shareholders. However, the deal isn’t a sure thing — the industry has recently seen several failed acquisitions, including interest from AT&T and Sprint to buy T-Mobile USA.

In our Instant Insight published last year after confirmation of Comcast’s bid for Time Warner Cable, we stated that the potential deal made sense given the shifting broadcast landscape (see Instant Insight: Comcast to Acquire Time Warner Cable). Cable operators were under increasing pressure to innovate given competition from Internet-based services like Netflix and telecom operators such as AT&T, and this holds true today.

The urgent need for cable operators to gain scale for innovation and content negotiations could provide political support for the deal. Charter’s proposed acquisition of Time Warner Cable would leave only three major cable operators in the US, but cable is just one of several mediums through which services are now available to consumers. The competitive landscape has evolved in the past decade, with services like streaming and multiplay becoming necessities to remain competitive. The US remains a cable country, but current consumer trends require some big changes.

CCS Insight will cover this news in a detailed Instant Insight today. This research will be available to subscribers.

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