Wednesday, December 4, 2013

Charter Does Need A Cable Merger

In discussion about a possible merger, Charter CEO Tom Rutledge said that they don't need Time Warner Cable.  Yet as we are well aware, what we say and what we do are not always the same thing.  In a classic dating analogy, showing a bit of disinterest can sometimes work to make the other more attractive or to encourage more interaction.  So regardless of what is being said, it is painfully clear that Charter needs a consolidation partner and Time Warner Cable, given its size, becomes the best way to achieve scalability and cost efficiencies.  They also give them access to more of the LA DMA as well as to the entire NY state, including the number one DMA, NYC.  Other smaller operators would be able to achieve such immediate return, although Cablevision, is a cache unlike other markets. "Analyst Amy Yong of Macquarie Capital wrote 'It’s hard to ignore that Cablevision has some of the best zip codes in the country including New York, NY, Fairfield County, CT, and Bergen County, NJ. It just wouldn't return much cost efficiencies at the start.'"  

So I am reluctant to believe comments by the Charter CEO as anything more than posturing.  Major stockholder John Malone has other plans.  As an innovative financial whiz who has been quite successful in managing a portfolio of media companies, Malone clearly has a strategic plan in mind and knows that the pipeline to the home is crucial.  Charter lacks major markets and needs to merge to gain better coverage of the US market.  And if that means swapping and sharing with Comcast to get a deal done, Malone will move in that direction.  We have two major telcos, two major satellite companies, and perhaps we are getting closer to two major cable operators.