Will Comcast respond to Malone's cable acquisition ambitions?
Tom Paine
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John Malone's quest to roll up some smaller cable operators, using the 27% stake owned by his Liberty Media in Charter Communications as a starting point, to create a company that might be almost comparable to Comcast in scale is creating a buzz in the industry. Comcast, which is in the unique and enviable position of being almost twice as large as any other cable operator, presumably has advantages from that in terms of economies of scale, buying power over programmers, and the ability to lead in technology investments that it would like to maintain. So whether it would welcome Malone, with whom it has long done business but has at times been the target of his criticism, in his efforts to create a Comcast lookalike is uncertain. Through Liberty Global, Malone has already built a cable operator in Europe that's larger than Comcast in terms of subscribers.
US Multi-channel Video Provider Subscribers at End of Q1 2013
Cable Companies
Comcast 21,935,000
Time Warner 12,100,000
Charter 4,124,000
Cablevision 3,191,000
Suddenlink 1,211,900
Mediacom 999,000
Cable ONE 588,180
Other Major Private Cable Companies* 6,895,000
Total Top Cable 51,044,080
Satellite TV Companies (DBS)
DirecTV 20,105,000
Dish Network 14,092,000
Total Top DBS 34,197,000
Telephone Companies
Verizon FiOS 4,895,000
AT&T U-verse 4,768,000
Total Top Phone 9,663,000
Total Multi-channel Video 94,904,080
(Top multi-channel video providers represent approximately 94% of all subscribers)
Source: Leichtman Research Group, Inc.
On the other hand, Comcast needs to be careful not to appear to be getting in Malone's way because it would be certain to raise red flags with industry watchdogs and agencies like the FCC and DOJ. The FCC tried a few years ago to impose a cap limiting any one company to 30% of the total US pay TV market (including satellite and phone company services) only to see that struck down in the courts. Comcast's overall share of total pay TV subscribers has actually declined in recent years, as satellite and telco providers have continued to grow while Comcast and other cable operators have been essentially flat in terms of video subscribers; it is now about 22%. While no absolute legal limit exist on Comcast, realistically it would face strict regulatory scrutiny, as well as its own financial constraints. It is still on a short rope with the Feds due to the conditions attached to the NBCU deal, although those conditions did not (to the best of my knowledge) include explicit limits on buying other cable properties. Also, it has been generally assumed that Comcast doesn't feel it needs to significantly expand its market share (through acquisition) to achieve its strategic aims, although it has always wanted to maintain the flexibility to do so. The NBCU acquisition was in part an effort on Comcast's part to diversify its assets away from a heavy dependence on distribution and its cable infrastructure.
So if Comcast were going to acquire, who would it target? There is no way it would be allowed to swallow #2 Time Warner Cable, even if it somehow could. All or part of Long Island-based Cablevision certainly could be a possibility, and there have been reports that the Dolan family that controls it might have some interest in a sale. It is presumed by industry insiders that Cablevision's more natural partner would be Time Warner Cable, since they both have New York City area bases. But geographically, Cablevision might be attractive to Comcast as well, with its service areas in New Jersey and Connecticut potentially being good fits. Cablevision, which has climbed in recent days because of the takeover speculation, has a market value of about $5 billion, although its also carrying about $10 billion in debt.
There are certainly other scenarios that could occur involving horse trading among the major cable operators, and all of this is simply hypothetical at this point. But with Malone sounding poised, according to recent reports, to move sooner rather than later, it will be interesting to see if Comcast gets into the fray or remains on the sidelines.
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