Char­ter nabs Bright House in lat­est pay-TV deal

The China Post - - WORLD BUSINESS - BY TALI AR­BEL AND MICHELLE CHAP­MAN

Char­ter buy­ing Bright House for US$10.4 bil­lion is the lat­est big deal in the pay-TV in­dus­try.

Com­pa­nies want to merge as costs for chan­nels like ESPN have shot up, while their video sub­scribers have dipped and on­line video providers like Net­flix be­come more popular. Com­bin­ing gives them more ne­go­ti­at­ing power against pro­gram­mers such as The Walt Dis­ney Co.

Last year, Com­cast said it was buy­ing Time Warner Ca­ble for US$45 bil­lion, and AT&T is pur- chas­ing DirecTV for US$48.5 bil­lion. Both are un­der long-run­ning reg­u­la­tory re­views.

But the Com­cast-Time Warner deal has raised con­cerns from com­peti­tors and con­sumer and In­ter­net ad­vo­cates, who say too much of the coun­try’s In­ter­net ac­cess would be un­der one com­pany’s con­trol. They also say it could hurt grow­ing on­line video providers like Net­flix, who need its pipes to get to con­sumers, and lead to higher prices.

Com­cast says it works co­op­er­a­tively with on­line video com­pa­nies like Net­flix and that con­tent providers, not dis­trib­u­tors like it­self, cur­rently have bar­gain­ing ad­van­tages.

Char­ter buy­ing Bright House, which hinges on reg­u­la­tors ap­prov­ing Com­cast pur­chas­ing Time Warner Ca­ble, is “kind of small in the scheme of things,” says John Bergmayer, a se­nior staff at­tor­ney at Public Knowl­edge, a non­profit group that ad­vo­cates for In­ter­net ac­cess. “Trends in con­sol­i­da­tion are al­ways wor­ry­ing but this deal by it­self is not as bad as some other deals out there.”

Public Knowl­edge is against Com­cast buy­ing Time Warner Ca­ble. Most an­a­lysts ex­pect the deal will go through, but some have be­come less op­ti­mistic.

Char­ter and Bright House said Tues­day that the deal would cre­ate the sec­ond-largest U.S. ca­ble op­er­a­tor. But they are not in any of the same mar­kets, so their sub­scribers wouldn’t lose the abil­ity to switch to a com­peti­tor ca­ble com­pany.

The pay-TV in­dus­try over­all has been slowly shed­ding video sub­scribers in re­cent years, ac­cord­ing to an anal­y­sis by Mof­fet­tNathanson an­a­lyst Craig Mof­fett, who ex­pects that to con­tinue. New op­tions for video that ap­peal to “cord-cut­ters” have sprung up in re­cent months, such as a Web ver­sion of HBO, an on­line set of about 20 chan­nels from Dish called Sling and a US$50-a-month ser­vice from Sony.

Char­ter Com­mu­ni­ca­tions Inc. has been try­ing to get big­ger. It wanted to buy Time Warner Ca­ble Inc. but got out­bid by Com­cast Corp. With the Com­cast-Time Warner deal, how­ever it is al­ready grow­ing sub­stan­tially, pay­ing US$7.3 bil­lion for 1.4 mil­lion Com­cast sub­scribers and get­ting a one-third stake in a new ca­ble com­pany com­prised of 2.5 mil­lion ex­ist­ing Com­cast cus­tomers. It’s also swap­ping 1.6 mil­lion cus­tomers with Time Warner Ca­ble.

Char­ter, based in Stam­ford, Con­necti­cut, is cur­rently the fourth­largest ca­ble op­er­a­tor in the U.S., with 4.3 mil­lion video cus­tomers, mostly in the Mid­west, West and South.

Bright House Net­works LLC is the sixth-big­gest with 2 mil­lion cus­tomers, mostly in Tampa and Or­lando, Florida, but also in Alabama, In­di­ana, Michi­gan and Cal­i­for­nia. Ac­cord­ing to a client note by Mof­fett, Bright House also has “a strong rep­u­ta­tion for ser­vice and cus­tomer sat­is­fac­tion,” a rar­ity among ca­ble com­pa­nies.

Ad­vance/Ne­w­house — the par­ent com­pany of Bright House — will own 26.3 per­cent of the com­bined com­pany. Char­ter is pay­ing it US$2 bil­lion in cash and the rest in stock and pre­ferred units that con­vert into com­mon stock of the new com­pany.

Once the Bright House deal closes, John Malone’s Lib­erty Broad­band Corp., Char­ter’s big­gest share­holder, will buy US$700 mil­lion shares of the new com­pany, giv­ing it a 19.4 per­cent stake.

The board of the new com­pany will in­clude 13 mem­bers, with three di­rec­tors ap­pointed by Ad­vance/ Ne­w­house and three di­rec­tors ap­pointed by Lib­erty Broad­band.

Shares of Char­ter Com­mu­ni­ca­tions added US$9.72, or 5.3 per­cent, to US$193.11. Lib­erty Broad­band’s stock gained US$2.78, or 5.2 per­cent, to US$56.48.

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