The good people at the NYT have given me more reason to get excited about next month's NCTA Cable Show in New Orleans: Watching the speculation, rumour and intrigue behind who might try and take over Time Warner's cable systems, which are about to become sort of "up for grabs" as they get spun off.
This is going to be fun to watch for a number of reasons. Last time there was a major group of systems up for sale was when AT&T sold off their Cable systems, leading to a "friendly" competition between Cox Communications, and the eventual winner Comcast. That victory gave Comcast a huge market advantage in the number of subscribers, but Comcast, which has a reputation for fighting like Rocky, the unofficial mascot of its' home city of Philadelpha, may not be able to benefit from going after TIme Warner without helping Cox, their old Atlanta-based foes.Jeffrey L. Bewkes, the chief executive of Time Warner Inc., continued to trim what has for years been the world's largest media company by announcing Wednesday that it would completely spin off its cable company.
The news -- which was not unexpected and follows an earlier transaction in which a portion of the cable unit was spun off into a separate public company -- came as Time Warner reported quarterly earnings that were largely in line with Wall Street's expectations.
Why? When Reagan signed the 1984 Cable Act, it included the "70/70" rule, which said that if 70% of households that could subscribe to Cable Television (then a much more expensive "luxury" service) did so, the FCC could re-regulate the industry, including institute pricing and ownership regulations.
Last year, FCC Chairman Kevin Martin, tried to cross that Rubicon and assert that the 70% standard had been met and it was time to reign in some of the giants, only to be met with massive lobbying by the NCTA, which claimed a number around 58%.
Here's the real story: even if Comcast and Cox try and negotiate to "cut the baby in half," Solomon style and avoid an acrimonious public bidding war, the sales still need to gain approval from the FCC. In doing so, the industry is going to have to provide a new set of subscriber data, and you can bet that Chairman Martin will order a study of his own. See, "K-Mart" as we affectionately call him here, has for years wanted the "Big Three" (Comcast, Cox, and Time Warner) to institute so-called "A La Carte" pricing and allow subscribers to purchase only the channels they want instead of today's system of "tiers."
This has become the White Whale of Martin's chairmanship, and made Comcast a target of his since they successfully led the fight against A La Carte several years ago. In fact, some in the industry believe the recent Net Neutrality hearings brought on by Comcast's throttling of Vuze's Bittorrent traffic and subsequent agreement announced in March was like Afghanistan in the A La Carte Cold War, in which Comcast backed off a bit to put on a better face against an FCC that looked ready to tear them apart over the issue.
This time, Comcast may not be so lucky. As I said earlier, even a partial takeover of Time Warner's systems will lead to approval processes that will include studies, which may force them to acknowledge that the 70% threshold has been crossed. Comcast could avoid this by conceding early and only going after a few choice systems, leaving the vast majority of markets to Cox, or the #4 player Charter Communications (founded and largely controlled by Microsoft co-founder Paul Allen). Even then, the FCC has a habit of placing "voluntary" conditions on mergers and transfers to get what they want, and deals of this magnitude would be no exception.
Martin is a known baseball fan (and ironically, a critic of the Free Agent system, according to this piece at Free Press), and I suspect that whichever system operator is ready to "Play Ball" will score the biggest victory in what will be the biggest thing to happen to Cable Television in nearly a decade.
Leave a comment