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Big Cable

How the Internet Drives Cable Companies' Consolidation

John Malone, chairman of Liberty Media Corp. in 2012

Photograph by David Paul Morris/Bloomberg

John Malone, chairman of Liberty Media Corp. in 2012

Media mogul John Malone appears ready to get the U.S. cable industry into M&A mode. Three months after Malone’s Liberty Media (LMCA) acquired a 27 percent stake in Charter Communications (CHTR), the fourth-biggest U.S. cable operator, Malone is angling to merge the company with Time Warner Cable (TWC), a company that is much larger and more profitable. Time Warner Cable has about 15 million customers, nearly three times as many as Charter.

Time Warner wasn’t interested in pursuing a deal with Charter after initial talks were held last month, Bloomberg News reported last week. Cablevision Systems (CVC) shares jumped nearly 9 percent today as investors surmised that, should Time Warner rebuff Charter, Malone’s team is likely to turn to a smaller, more easily digestible target. Time Warner Cable shares fell about 1 percent. A Charter spokeswoman declined to comment on the reports; Cablevision did not return an e-mail seeking comment.

Cablevision has about 3 million customers, mainly in New York, New Jersey, and Connecticut, and is controlled by the Dolan family, which has tried unsuccessfully to take the company private. Cablevision closed the sale today of its Optimum West unit to Charter for $1.6 billion. The deal covers about 660,000 residential customers in Colorado, Montana, Utah, and Wyoming.

Adding to the corporate intrigue for Time Warner Cable: Chief Executive Glenn Britt is expected to retire at year’s end, potentially leaving the post available for Charter CEO Tom Rutledge, a former Cablevision executive who is well known in the industry for his operations experience.

The potential dealing comes as Charter and other cable operators are facing a future in which their subscribers—millions of Americans who loathe them with a passion—are increasingly turning to the Internet to watch video, and content providers are inexorably seeking higher payments for sports and popular shows. Already the cable companies have seen millions of people defect, or “cut the cord,” on video service, turning to Netflix (NFLX), Hulu, Amazon (AMZN), and other online venues. But it has been a radically different story for cable companies’ high-speed Internet revenues, which continue to grow. At Time Warner Cable, for example, Internet revenue per customer rose to $42.60 in the first quarter, up from $38.96 a year prior, Barrington Research analyst James Goss wrote in a client note last month.

Into that void comes Malone’s new acquisition vehicle, Connecticut-based Charter, which reportedly wants to cobble together some parts of a fragmented industry. “The most important product, the stickiest product, is the Internet,” Malone said at a Denver event in September. “High-speed Internet connection is very sticky. People love it. I think they would give up food before they would give up the Internet. So it’s a wonderful industry.”

If it’s true that we need to feed our video gadgets more than our stomachs, cable operators could test prices higher than they charge today, slicing up Internet consumption in ways they never have with video service. Comcast, the largest cable operator, is experimenting with eight usage tiers for Internet service in Tennessee and Arizona, ranging from 300 to 600 gigabytes per month. Comcast says the average current customer doesn’t exceed 14 GB per month.

Bachman is an associate editor for

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