Time Warner Cable Deal Could Alter TV Landscape

Sylvain Gaboury/PatrickMcMullan.com/Sipa Press/Newscom
Time Warner Cable CEO Glenn Britt

Shares of TWC soared 10 percent on merger chatter and others in the sector also benefited.

Shares of Time Warner Cable touched a 52-week high and closed up 10 percent on Friday as word spread that it is considering a deal to be acquired by Comcast or Charter Communications, or both. Any such deal would face regulatory hurdles and, if approved, could dramatically alter the ecosystem of the TV industry.

Cable and satellite providers, and many analysts, have long argued that consolidation is needed so that distributors won't be at a disadvantage during carriage negotiations. In the recent dispute between CBS and TWC, for example, it's widely presumed that CBS eventually got much closer to what it was seeking than did TWC.

Dish Network CEO Charlie Ergen, in fact, complained in August that media companies are acting like monopolies and are essentially forcing providers into a position where they feel they must merge in order to thrive.

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"You have a general momentum, a gravity toward consolidation because programming rates are going up at four times the rate of inflation," Ergen said.

Comcast is the nation's largest provider with 22 million subscribers while TWC is No. 2 with 11.4 million, and if they were to merge they'd boast a 34 percent market share, Vijay Jayant of International Strategy and Investment Group wrote on Friday.

Having such a large share of the market would certainly help a combined company gain leverage with programmers, but it wouldn't be so big a share as to not pass muster with federal regulators, Jayant theorized. He also said Dish could combine with DirecTV and create a company with 35 percent market share, and regulators might not balk at that, either.

Matthew Harrigan of Wunderlich Securities and other analysts also think that the law would favor a marriage between Comcast and TWC, though the thought of Comcast -- which already owns NBCUniversal -- becoming an even bigger company would assuredly face political opposition.

In fact, says an insider on the condition of anonymity, the prospect of politicians attempting to wring massive concessions from Comcast CEO Brian Roberts and other top executives in exchange for them blessing a merger might be enough to dissuade the executives from such a pursuit.

The Wall Street Journal said Friday that while TWC would prefer to hook up with Comcast, the much-smaller Charter, with about 4.2 million subscribers, is also a possibility in a deal that would involve John Malone's Liberty Media, given that it owns 27 percent of Charter.

Charter and Comcast are also contemplating some sort of joint bid for TWC, according to the Journal.

On Friday, all the chatter about consolidation had not  only shares of TWC jumping, but others in the sector as well. Comcast and Dish each rose 4 percent, DirecTV was up 3 percent and Charter was up 6 percent.