Charter Communications’ three-way deal to acquire TW Cable and Bright House Networks promises to create a cable and broadband footprint that will rival Comcast’s size and scope and put Charter in the prime real-estate territory of New York and Los Angeles. Malone’s Liberty Broadband, through its investment in Charter, will be able to exert meaningful influence again in the MVPD marketplace thanks to this bigger footprint. Assuming the transactions are approved by regulators, Liberty Broadband will be Charter’s largest shareholder, owning about 20% of the equity and controlling 25% of the voting shares.
The complicated transaction, if completed, will amount to a comeback for Malone, who abdicated his throne as cable’s undisputed king in 1998 with the sale of his Tele-Communications Inc. to AT&T (which swiftly sold its cable holdings to Comcast in 2001). It’s also a big rebound for Charter, which slogged through bankruptcy in 2009 after piling up some $21 billion in debt under previous owner Paul Allen. The company has been in rehab ever since, improving it reputation with customers and the quality of its systems. The drive has been led by Tom Rutledge, who surprised the biz by moving from Cablevision to the St. Louis-based Charter as CEO in late 2011.
Malone was dubbed “Darth Vader” in the 1990s for the fearsome power he wielded over programmers as the gatekeeper of TCI, then the nation’s largest cable operator. He was able to exact small equity slices in numerous channels as a price of admission to TCI’s airwaves.
But this time around, Malone returns to the cable business at a time when operators are increasingly focused on the broadband side of their ledger rather than the video business. The enlarged Charter will emerge with more broadband subscribers (19.4 million) than video subscribers (17.3 million). In broadcast, Charter will be a close No. 2 to Comcast, which counts 22.4 million broadband subs at present.
As margins in the video business shrink, the future for cable operators is seen as cable harnessing the advantage of its fat pipe directly into the home to offer wireless and mobile services. Malone is said to be dismayed that the industry has failed to marshal its forces against the challenge posed by the rapid rise of Netflix and spread of other OTT offerings. Rutledge, in selling the deal to Wall Street analysts in a conference call Tuesday, went so far as to say the proposed Charter combo would lead to a “better industry” overall because fewer companies will make for easier coordination of industry-wide initiatives such as allowing subscribers easy access to cable-provided mobile Wi-Fi networks.
For the major cable programmers, the Charter deal creates another bulked up competitor with clout in carriage negotiations approaching that of Comcast and AT&T-DirecTV (assuming that transaction is approved). On the brighter side, it should lead to a stronger partner with incentive to experiment with skinny bundles and broadband-only offerings, given Rutledge’s emphasis on how Charter will innovate and invest in upgrading its data networks.
In an interview with CNBC on Tuesday, Rutledge talked up the potential for offering subscribes what he described as a “cloud-based user interface” that would allow for easy searching and access to content across multiple platforms and devices reaching beyond the cable box. He called it a potential “game-changer” for the cable biz.
Malone has yet to publicly comment on the Charter transactions, but industry observers note he was a facilitator of the talks that led to a rich deal, valuing TW Cable at nearly $57 billion, barely four weeks after Comcast pulled its $45.2 billion offer. Liberty Broadband is making another $5 billion investment in Charter as part of the transaction. And another Malone entity, Liberty Interactive, is making a $2.4 billion investment in Liberty Broadband “in support” of the Charter deal.
Charter was rebuffed in late 2013 and early 2014 after making what TW Cable called a “grossly inadequate” buyout offer. Charter’s aggressive pursuit, which kicked off the current moment of MVPD merger mania, sent TW Cable into the arms of Comcast — for a while. Opposition to that merger in Washington gave Liberty and Charter a second chance, and this time they ponied up a premium that seems unlikely to be matched by another suitor. It’s clear that Malone and his lieutenants, including Liberty CEO Greg Maffei, have a vision they are determined to execute, once the pieces are in place.
“Charter’s transactions with Time Warner Cable and Bright House are the fulfillment of the cable consolidation we have advocated. This combination joins three strong operators under Tom Rutledge and his team and adds meaningful scale to enable innovation for the benefit of customers and shareholders,” Maffei said in a statement. “We are excited to invest substantially behind this and continue as Charter’s largest shareholder.”