When Comcast and Time Warner Cable recently announced their big merger, one of the first questions on my mind (and I’m sure on yours, as well) was “How does this impact John Malone,
and what does he do now?”
Malone, after all, was the main catalyst for this merger. Remember, Charter Communications was the first to try and buy TWC (Malone’s Liberty Media acquired a
27% interest in Charter in May 2013), which no doubt ultimately spurred Comcast to make its move.
It seems to me that any answer to this question must be informed by Malone’s past
history, plus the current strategies employed by (his) Liberty Global rollup of international MVPDs. Plus, since I’m feeling conspiratorial today, my look at Malone’s past and present
leads me to think that maybe he really didn’t want Charter to merge with Time Warner Cable to begin with.
For one, the Charter/TWC merger would have been out of character for a John
Malone deal. When Liberty Media bought its 27% stake in Charter last May, Malone said
in a statement that "Charter is a very sheltered asset. There's not a lot of Verizon, Google, or other competing [operators] in their areas."
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On the other hand, Time Warner Cable seems to
be a very “non-sheltered” asset, heavily deployed in large DMAs (especially the New York City and Los Angeles metros) and has been getting hit hard by subscriber defections, many of whom
are likely going to AT&T and Verizon.
Ironically (or not), according
to Bloomberg, Charter is the one that brought Comcast into the deal. It had been negotiating terms of a post-Charter/TWC merger asset sale when talks broke down. Bloomberg says Comcast’s CFO
“stormed out,” threatening to buy TWC without Charter, which is what it did (pending the details of federal approval).
Continuing my conspiratorial bent, a Comcast/TWC merger could
work out well for Charter and Liberty Media. First, Comcast and TWC are going to be tied up for a long while in intense regulatory scrutiny from the Department of Justice, the Federal Communications
Commission, and Congress (among others). As well, Comcast is likely to emerge with a variety of agreed-to operational restrictions, just as it did with the Comcast/NBC Universal merger. Finally,
Charter is likely to be the go-to candidate for buying up the systems with three million subscribers that Comcast says it intends to shed once the deal is completed.
Returning to my earlier
question: What does John Malone do now?
I think he reproduces in the U.S. the same strategy that he’s been doing in the rest of the world with Liberty Global: namely, create a rollup of
small to mid-size US MVPDs (those that are undervalued or have high debt loads being of particular interest, provided their underlying fundamentals are good). Then, Charter can use these MVPDs to
deploy a U.S. version of the highly innovative Horizon IP/cable hybrid platform that Liberty Global has developed and is aggressively rolling out elsewhere in the world.
Given the
brouhaha that the Comcast/TWC merger has already created, Charter M&A deals with small to mid-sized US MVPDs will more easily pass under the radar. As will the complex financial deal structures
that will probably accompany them (a Malone trademark – deals so complicated only he and a few mountaintop mystics in Nepal understand them).
So, even though John Malone is the largest
private landholder in the U.S. (really), he won’t be riding off into the sunset, at least figuratively, anytime soon. And I’m glad. He is a good candidate to shake up the U.S. MVPD
business through technological innovation, while also speeding the availability of a modern TV platform to the small/mid-sized communities that the “big guys” are likely to overlook.