John Malone, the billionaire aiming to consolidate the U.S. cable industry, said he doesn’t see Cablevision Systems Corp. (CVC) as an appealing target because it’s entrenched in the New York market, giving it less room to grow.
“Part of the problem is they’ve done such a good job,” Malone said in an interview today at an investor conference for his holding company, Liberty Media Corp. (LMCA)
Most pay-TV households in Cablevision’s market have already bought service from the company, making future growth more difficult. Malone, Liberty’s chairman, also pointed to competition from Verizon Communications Inc.’s FiOS. The fiber-optic service, a provider of TV, phone and broadband access, has been making inroads in the New York area.
“FiOS isn’t going away,” Malone said. “You just have a tough environment there to do a lot better. Consolidation of the entire New York market is a big advertising opportunity that doesn’t exist today, but I don’t think that’s a big enough number to get me really excited.”
In contrast, Malone said last month that a deal with Time Warner Cable Inc. (TWC), the second-largest cable company, makes sense. Cablevision, based in the New York suburb of Bethpage, is No. 5 in the industry with about 3 million TV customers. Charlie Schueler, a company spokesman, declined to comment.
Cablevision shares have climbed 10 percent this year, driven in part by takeover speculation. The stock rose 1.3 percent to $16.43 at the close today in New York.
Malone told attendees of the event that the U.S. cable industry needs more consolidation and joint ventures to reduce costs and gain scale. Liberty became the largest shareholder in Charter Communications Inc. (CHTR) when it acquired a 27 percent stake in May, and Malone sees that company as the linchpin of his consolidation efforts.
“We have the financial flexibility to chase a few more rabbits,” he said.
The joint ventures could include building a uniform user interface -- something like the Comcast Corp.’s Xfinity, Malone said. The industry also could start using the Hulu LLC service as its preferred platform for customers to watch TV online, he said. Hulu is jointly owned by Comcast Corp., Walt Disney Co. and 21st Century Fox Inc.
Moreover, there’s potential to create a national brand for cable companies’ business services, letting them gain pricing power and market share, Malone said.
“The history of the business is replete with the industry solving its balkanization and scale problem through joint effort,” said Malone, who turned Tele-Communications Inc. into one of the largest U.S. cable companies from 1973 to 1999 before merging with AT&T Corp. “I think that can be done again.”
The most pressing reason for cooperation is to control programming costs, which have increased about 10 percent this year for the largest U.S. pay-TV operators, Malone said.
The satellite-TV industry, meanwhile, is unlikely to undergo similar consolidation soon, he said. DirecTV (DTV) and Dish Network Corp. (DISH) probably won’t be able to merge in an Obama administration because of regulatory scrutiny, Malone said. The billionaire owns about 5 percent of DirecTV shares, making him the largest individual holder.
Liberty Media also said today that it was purchasing a 5.2 percent stake of its own stock from Comcast and plans to sell $500 million of Sirius XM Radio Inc. shares to the satellite-radio company. Liberty will still own more than 52 percent of Sirius after the transaction.
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