There were two stories that caught my eye today:
- Why every company in TV is trying to merge. [Buzzfeed’s Peter Lauria]
- Talk of mergers stirs cable players. [The New York Times’ Michael J. De La Merced and Brian Stelter]
And they both pointed to one thing — John Malone, the original cable cowboy, is back. For those who don’t know him, Malone took a hodgepodge of cable companies, rolled them up into TCI and flipped that to AT&T. Later, Comcast bought that business and became a national player. Malone laughed all the way to the bank. Later he started building a cable business in Europe (Liberty Global) and has done well with his European diversification.
But now he wants to go shopping in the U.S. again. According to these two stories, the following scenarios could play out:
- John Malone’s Liberty Media (s LCMA) is thinking about buying Time Warner Cable (s TWC) via Charter Communications. Charter is the fourth largest cable player in the U.S. and Malone already owns 27 percent of Charter. Liberty Media CEO Greg Maffei recently met with Time Warner CEO Glenn Britt. The talks aren’t going anywhere.
- Time Warner Cable, on its own, has talked to Cablevision (s CVC) and Cox Cable about merging with these entities.
You would think that Liberty and Time Warner Cable are trying to build a mega-cable provider so they can compete with Comcast (s CMCSA), currently the largest cable provider in the United States. And you would be totally wrong.
The reality is that cable companies don’t really compete with each other. They have their own territories — you know, like the Mafia families in The Godfather — and they don’t muck about each other. Their supposed competition are phone & satellite companies. Of course, when it comes to the old-fashioned (linear) video, these guys are competitors.
But the future isn’t about linear, old-styled video. Instead, it is about broadband and broadband-enabled video. The cable companies — at least in the U.S. — have the fastest pipes into majority of homes. They are faster than phone companies and have a deeper footprint. The new technologies are ensuring that they can keep increasing the speed of their broadband networks.
Netflix (s NFLX), Hulu and YouTube (s GOOG) are programming our video watching behavior — any amount of video, anytime, anywhere on any screen, as long as there is broadband. The more we watch internet video, more bandwidth we need. The fact, that cable companies (big and small) have already started to meter broadband and are putting limits on the networks; we are only on the cusp of seeing a big inflation in internet access costs.
Why? Because cable companies are virtual monopolies.
Two major phone companies — Verizon (s VZ) and AT&T (s T) — are more interested in fleecing their customers by making them pay through the nose for their pokey but expensive wireless broadband connections. Comcast sold Verizon some of its wireless spectrum and Verizon sells Comcast broadband to its customers outside of its home territories — now that is some competition. And the worst part — there is nothing little guys can do about it. The Beltway bandits are happy to turn a blind eye and the Federal Communications Commission (FCC) has no interest in doing its job.
Against such a backdrop, it makes sense that Malone & company are looking to mop up all the rivals and once again bulk up to become a mega player — one that can own a monopoly and charge you and I, whatever he wants.
So next time you read about a media merger, just remember: it’s all about broadband.
