Chief Execs Discuss Benefits of Mergers in Cable Sector

Liberty Media CEO Greg Maffei met several weeks ago with Time Warner Cable CEO Glenn Britt to discuss the potential benefits of cable industry mergers, according to a person familiar with the matter. Liberty acquired a 27 percent stake in pay TV operator Charter Communications early last month. Ten days ago, Liberty Chairman John Malone told shareholders that Charter probably has “the best operating team in the business.”

Malone also suggested that Charter, which is currently the eighth-biggest U.S. pay TV operator by subscribers, has a strong balance sheet and stock valuation to become a “horizontal acquisition machine looking at other assets in the U.S. cable business.”

“The name of the game in the cable business is scale,” Malone said at the shareholders meeting.

“It isn’t clear that Liberty has any specific targets in mind for Charter to go after,” reports The Wall Street Journal. “One challenge in pursuing Time Warner Cable: Charter is half its size, so a combination of the two companies would require Liberty to inject significant cash to stop itself from being diluted.”

TWC is the fourth-biggest pay TV operator by subscribers, and has about 12 million video subscribers. Charter has nearly four million.

“The merger talk comes as growth in the pay TV industry has almost disappeared, with about 90 percent of U.S. homes now subscribing to some form of traditional video packages,” notes WSJ. “At the same time, steadily rising programming costs threaten to erode margins in the video business. Smaller operators get charged higher fees per video customer than bigger cable companies, which receive discounts for their scale.”

Cable companies face new competition from the likes of Verizon FiOS and Google Fiber. The article suggests that consolidation would help provide operators with the necessary scale to pay for network upgrades.

During last week’s NCTA Cable Show in Washington, Britt told analysts that consolidation is likely over time: “We are competing against bigger companies with bigger footprints, and there’s a need for the overhead you can spend on the technology, the guides and all that kind of stuff that we’re doing, that Comcast is doing. You can have great marketing if you have more overhead.”

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