Coverage: Charter Communications spending $10 Billion for Bright House

Cable companies continue to consolidate with the latest multi-billion dollar merger agreement announced Tuesday. Charter Communications is paying more than $10 billion for Bright House in hopes of continuing to capture market share.

Emily Steel and David Gelles had this story for The New York Times:

In the cable business, the big keep getting bigger.

The wave of consolidation now reshaping the media industry continued on Tuesday when Charter Communications announced a $10.4 billion deal for Bright House Networks, now the sixth-largest cable operator in the United States.

The deal ultimately would create the second-largest cable operator in the country behind Comcast, controlling about 10 million video subscribers. It is part of a long-held strategy by Charter, backed by John C. Malone’s Liberty Media, to build a stronger national player that can fend off new and old rivals, keep pace with vast technical changes and provide more heft in negotiations with television groups over escalating programming costs.

“Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility,” said Thomas M. Rutledge, Charter’s chief executive. “Bright House has built outstanding cable systems in attractive markets that are either complete, or contiguous with the New Charter footprint. This acquisition enhances our scale, and solidifies New Charter as the second-largest cable operator in the U.S.”

CNET’s Lance Whitney added these details about the structure of the deal and the other companies that are involved:

The deal also involves other cable operators. As part of Comcast’s $45 billion agreement to buy Time Warner Cable, Charter agreed to pay about $7.3 billion in cash for Time Warner’s 1.4 million customers, while it will swap another 1.6 million customers with Comcast, The Wall Street Journal said.

The transaction itself will be conducted through a partnership of which Charter will own 73.7 percent and Bright House parent company Advance/Newhouse will own 26.3 percent. The deal is subject to several conditions, including Charter shareholder approval, the expiration of Time Warner Cable’s right of first offer for Bright House, the close of Charter’s previously announced transactions with Comcast and the standard regulatory approval.

The Reuters story by Devika Krishna Kumar and Abhirup Roy said that the deal could just be the beginning:

With Charter looking to close its gap with Comcast, the deal could be the first in a series of acquisitions.

Analysts have cited Mediacom, CableOne and Suddenlink as potential targets for Charter.

“I think it is inevitable most of the rest of the cable industry not owned by Comcast is sold to Charter,” Pivotal Research Group analyst Jeff Wlodarczak told Reuters.

Wlodarczak also said Charter could go after Time Warner Cable if the Comcast deal fell through, the likelihood of which was roughly 20 percent.

Charter’s shares rose as much as 8.5 percent to a record high of $199 on Tuesday.

The company said it would pay Advance Newhouse — the owner of Bright House — $2 billion in cash and the rest in common and convertible preferred units of a new partnership created for the deal.

The Wall Street Journal story by Angela Chen pointed out that the deal was coming at a time when consumers have more viewing options than ever:

The Charter and Bright House deal comes amid changes in how viewers consume television.

For years, TV channel owners and their pay-TV distributors—cable and satellite providers—were able to count on two reliable trends: that pay-TV subscriptions in America would grow each year, and that consumers would submit to paying ever-higher cable bills. In the past two decades, the pay-TV industry has grown by about 40 million subscribers to a total of about 100 million homes, and typical cable bills increased at a compound average annual growth rate of about 6.1%, according to the Federal Communications Commission.

But evidence mounted over the past couple years that something fundamental was changing. In 2013, the industry’s base of subscribers contracted for the first time. Last year, pay-TV subscriptions fell by 129,000 industrywide, according to MoffettNathanson, even as analysts said new household formation surged, typically a good sign for the industry in years past.

Instead, consumers increasingly are cutting the cable cord and signing up for TV services delivered over the Internet. Others, meanwhile, are “shaving” it and downgrading to cheaper packages that operators began to offer.

There has been a lot of press around cable and who’s going to come out on top in terms of winning viewers. Many media companies are trying to find ways to capture and keep attention. Some are looking at on-demand channels while others are consolidating their traditional media holdings. It’s hard to imagine a future where people continue to pay for channels and content they don’t want, which would cause a huge shift in what is made and who is making it.