• by Joe Mandese  @mp_joemandese, August 18, 2004

At a time when some observers think it might be prudent to begin cashing out of the cable TV business, a group controlling the third largest cable TV operator - Cox Communications - wants to ante up.

Cox Enterprises, a shareholder group representing the interests of Cox founder James Cox's family, has made an offer to acquire the 38 percent of Cox's publicly trades shares it does not already own, to take the company private. The $32 per share offer values the stake at $7.9 billion.

The news comes the same day a major Wall Street securities firm released a damaging analysis of the cable TV industry's core business segment: TV subscription services. The report, from Merrill Lynch equities researcher Jessica Reif Cohen, points out that the rate of cable subscriber churn appears to be increasing and the industry is losing customers to satellite TV providers at an accelerated rate.

"The top cable operators reported 321,000 net loss in aggregate, versus 126,000 net loss last year but better than would be suggested by the DBS results," finds the report. "With 86% multi-channel penetration of TV households, the mature pay subscription video industry is typically characterized by zero-sum competition, which on the surface is inconsistent with the first half 2004 subscriber net addition patterns."

During the same period, DirecTV and EchoStar reported a combined net subscriber gain of 795,000, indicating that nearly half their growth came at the expense of cable operators.

The offer to take Cox private also follows a period of increased corporate scrutiny over how publicly traded cable operators manage their businesses, especially in regards to marketing services to subscribers. The federal government conducted a brief probe of those practices among several top operators, but never released the findings. The management practices of another controlling cable TV family - Adelphia Communications' Rigas Family - ultimately led to the downfall of Adelphia, which is undergoing a restructuring.

Of course, Cox isn't just a cable TV company. It's a major owner of newspapers, television and radio stations.