Cable companies in the United States are facing consolidation after the announcement of planned purchases by Charter Communications and Altice. In May 2015, Time Warner Cable was purchased for $79 billion after almost a year of rejected offers by Charter Communications. The deal is expected to be completed in late 2015. A majority share stake of Bright House Networks was proposed for $10.4 billion by Charter Communications, but the deal is pending approval from U.S. regulators. Bright House Networks is headquartered in Syracuse, New York, and has a customer base of 2.2 million. The company is owned by Advance Publications.
Liberty Broadband Corporation is led by John Malone, and the company owns a 27% stake in Charter Communications. The plan for Charter Communications to buy Time Warner Cable emerged in reaction to the failure of Comcast Corporation to acquire Time Warner Cable; Charter Communications was in line to purchase the company if the deal fell through, which it did due to a regulatory impasse. Time Warner Cable is a sought-after purchase, as Altice was previously interested in the company. Time Warner Cable is the second-largest cable company in the U.S. Bright House Networks is the sixth-largest cable company, and the purchase makes Charter the second largest cable operator in the U.S.
The combination of Time Warner Cable, Charter Communications and Bright House Networks accounts for 23 million U.S. cable customers. Previous moves by Charter to purchase Bright House Networks fell through due to the blocked purchase of Time Warner Cable by Comcast. Comcast has since released a statement about the company's inability to acquire Time Warner Cable, saying it is moving on without further attempts at a purchase.
In September 2015, Altice proposed am acquisition of Cablevision for $17.7 billion; Cablevision is a major provider in New York. A 70% stake in Suddenlink Communications was purchased for $9.1 billion by Altice in May 2015. Suddenlink Communications is the seventh-largest cable company in the United States. Altice is a Dutch telecommunications company led by French billionaire Patrick Drahi. The largest cable companies in the U.S. include Comcast, Time Warner Cable, Cox and Cablevision.
American regulators see the consolidations as moving toward monopolization of the cable industry. The purchase of Time Warner Cable by Comcast in 2013 for $45.2 billion was blocked by regulators that feared the combination of the giants would not be in the best interest of customers. The merger of these companies would have made for 35 million cable customers, or 55% of all broadband subscribers, under the same provider. Moves toward consolidation of the cable industry do not go unnoticed by the Department of Justice (DOJ). Given the long history of U.S. monopoly prevention and trust busting, monopoly building is considered to be a major disservice to the American public, not only from a quality standpoint but also from an economic perspective. Reducing competition among similar businesses goes against American capitalism.
Telecommunications Competitors Also Make Moves to Consolidate
Also pending approval from regulators is AT&T's purchase of DirecTV. The combined companies would be a competitor to the cable companies as AT&T offers telecommunications and WiFi services, while DirecTV offers channel lineups. These large purchases follow a sweeping concern that entertainment from Internet sources may replace traditional cable television. Mergers such as these gained speed in 2008 after the financial crisis. DukeNet Communications was purchased by Time Warner Cable in 2013 for $600 million and Optimum West, originally Bresnan Communications, was sold to Cablevision in 2010 for $1.37 billion, only to later be sold to Charter Communications in 2013 for $1.63 billion. These high-profile mergers contrast with the simultaneous closings of smaller media outlets. An estimated 1,078 small cable systems have shut down since 2008 after facing rising costs and a weak economy. In 2014, 91 cable systems were closed. The largest cable providers only benefit from the closings, with new customers siphoned into the pool of the already giant customer base.
A Changing Industry
The cable industry has tried to make packages more attractive to consumers. Allowing customers to decide on the specific channel content of their packages has been one strategy, but it is a costly avenue for cable providers. With legal concerns on the mergers abounding, some figures in the industry see the moves toward consolidation as a necessary strategy to earn new business.
After smaller companies merge into massive cable conglomerates, the services provided are likely to change in some way. Cable companies could focus on higher quality entertainment and channel lineups, or continue to offer Internet services in the form of high-speed WiFi connections, which has been the trend since the 2000s. Since Internet service is particularly popular with consumers, and the convenience of bundling one's Internet and cable together has been an attractive feature for plan purchasers, consolidated companies may make further moves to offer WiFi as part of their main plans.
A Long History With Cable
John Malone is a key player in these efforts toward consolidation. He made part of his billions from the 1970s to the 1990s by working in the cable industry as the president and CEO of Tele-Communications, Inc. Consolidation appears to be a reoccurring theme for John Malone since mergers served as a driving force of his success at Tele-Communications. In 1999, he sold his stake in Tele-Communications to AT&T. By using Liberty Media spinoff Liberty Broadband as a means to gain control over the other major media companies, Malone may be looking to drive profits through the infrastructure of the central company to pay for otherwise costly endeavors of the smaller companies. It is a strategy called economies of scale, and in the cable environment, it may be a necessary force to compete with the likes of Netflix and the endless options for entertainment available to consumers who have Internet connection hooked up to their home TVs. Liberty Broadband owns WiFi company TruePosition, Inc., which suggests Malone may looking to further integrate WiFi services into cable packages.
Charter Communications is the fourth-largest cable company in the U.S. after a 2009 filing for bankruptcy. Malone spent $2.6 billion to get a stake in the company, which has since rebounded.