Charter-Time Warner Cable Deal Conditions "Helpful" for Netflix, Content Companies, Analyst Says
They "thwart brute force measures a cable company like Charter could use to stifle growth of online video services and their ability to license content," writes FBR analyst Barton Crockett.
Analysts on Tuesday discussed the broader industry implications of the official approval of Charter Communications' planned acquisitions of Time Warner Cable and Bright House Networks, with conditions, which the U.S. Justice Department announced on Monday.
In related news, the FCC's chairman also recommended conditional approval, with a formal vote still to come.
"The merger conditions placed by the DOJ and FCC on the Charter merger with Time Warner Cable and Brighthouse appear helpful for content companies and online video services like Netflix," FBR analyst Barton Crockett wrote in a report. "The conditions thwart brute force measures a cable company like Charter could use to stifle growth of online video services and their ability to license content from suppliers that also provide content to Charter."
The Justice Department had Charter, led by CEO Tom Rutledge, agree to not set content licensing terms with programming suppliers that would limit the latter's ability to license content to online providers, Crockett also highlighted. "This administration appears to want to ensure SVOD services like Netflix have an unfettered ability to license popular content," he said. "The populist roots of this stance suggest it could be sustained into the next administration."
The analyst also said the expected FCC conditions would bar "measures that cable bulls at one time had seen as surefire ways for cable companies to limit the risk of competition from SVOD services like Netflix," such as caps on data usage or the launch of usage-based broadband pricing.
Discussing the broader industry effect of the conditions, Crockett wrote: "While these rules apply just to Charter, it is clear that the government would like to extend them to all players. We suspect that evidence of this desire could act as a soft constraint on actions by other cable companies that could thwart SVOD services like Netflix and licensing deals between Netflix and content companies that also have prominent positions supplying content to SVOD."
Wunderlich Securities analyst Matthew Harrigan also highlighted the bigger-picture impact of the deal's approval with conditions. "Ironically, in 2015 there was some angst over Comcast merger concessions establishing new industry norms, now it is Charter which is providing the template," he wrote in reference to Comcast's abandoned TWC deal amid regulatory opposition.
He also mentioned Netflix's support for the deal after Charter's promise last year that the combined company would not charge for direct connections to its network. Overall, the regulatory conditions "align with Charter CEO Tom Rutledge's earlier flexibility" on such issues as usage-based broadband pricing, Harrigan concluded, highlighting the company's "recognition that usage-based pricing is a marketing and competitive non-starter."