An Ignoble Experiment

2. Charter mulls competing to acquire Time Warner Cable

As expected, members of the Senate Judiciary Committee called on Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) executives to defend a proposed $45.2 billion merger, with at least one senator stating outright, "I am against this deal."

The executives appeared before the committee to explain why they should be allowed to join the nation's biggest and second biggest cable operations.

"If this transaction is approved, it will give us the scale and reach to innovate and compete against our national and global competitors," Comcast Executive Vice President David Cohen said. "There is nothing in this transaction will cause anyone's cable bills to go up."

Minnesota Sen. Al Franken wasn't buying it.

"I'm against this deal," said Franken, a frequent opponent of media consolidation. "I believe this deal will result in fewer choices, higher prices and even worse service for my constituents."

Vermont Sen. Patrick Leahy called on Comcast to support "stronger [net neutrality] rules that will protect consumers and drive innovation."

He also questioned a reported "golden parachute" payout for departing TWC execs when the deal goes through. CFO Arthur Minson, who represented the company at the hearing, is expected to receive $27 million and Chairman-CEO Robert Marcus would get $80 million.

"I would say for transactions of this size, for transactions this complex, I would think you would find they are in line," Minson told Leahy, who responded, "You may find not all consumers agree."

Another hot topic was sports programming, especially in markets where Comcast and Time Warner Cable control the local broadcast rights.

"These markets are plagued with anticompetitive conduct," Connecticut Sen. Richard Blumenthal said.

Other opponents of the deal also voiced opinions. Gene Kimmelman, head of Public Knowledge and a former Justice Department antitrust official, voiced concerns about how the large company will control Internet access and online programming.

"If we want more innovative, low-price Internet-delivered services, this merger must be rejected," Kimmelman said.

For more:
- see this Reuters story
- and this Marketwatch item
- and this MSN TV story

Read more about: Senate Judiciary Committee, Comcast
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By Jim Barthold

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3. Comcast-TWC may have allies in TV station owners

Even as Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) executives put on a united front defending Comcast's $45.2 billion takeover of TWC, Charter Communications (NASDAQ: CHTR), a spurned suitor for the nation's second biggest MSO, is mulling a bidding war.

A Bloomberg report, citing people with knowledge of the matter, said that Charter has not overcome the sting of being rejected in favor of Comcast and could rise up to again compete with Comcast. Adding to the intrigue, and creating a slight opening for Charter, is the fact that Comcast's stock price has declined since the merger was announced, reflecting market concern about the deal.

The St. Louis-based Charter could raise its bid for TWC, but if it loses, it may not even get the consolation prize of 3 million subscribers Comcast has pledged to divest if its deal goes through. Those subscribers would, at least in part, satisfy subscriber growth targets set by Charter's biggest investor, John Malone's Liberty Media.

Comcast has said it would sell the 3 million subscribers, probably for $18 billion. Other MSOs have expressed interest, and there was at least one report that a group of exiled Time Warner Cable execs would take the subs and start a new company.

Charter has already ruffled some features at both Comcast and Time Warner by publicly urging TWC investors to reject the Comcast bid.

"Charter is probably still getting under Comcast's skin by continuing their proxy effort," Wunderlich securities analyst Matthew Harrigan said in the story.

Comcast has certainly gotten under Charter's skin. Charter had started the bidding for Time Warner Cable for $37 billion with Comcast as a potential partner. The Philadelphia MSO then topped that bid and left Charter in the cold.

It is, for all intents and purposes, becoming more personal than just business.

"It's a real game theory situation that's tough to address," Harrigan said. "Comcast probably doesn't want to go higher on the price for Time Warner Cable. You have to be careful about cable valuations in this environment. But that affects Charter too. So I think Charter's in a bit of a box."

Spokesmen for both Comcast and Charter declined to comment on the Bloomberg story.

For more:
- see this Bloomberg story

Read more about: John Malone
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By Jim Barthold

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4. Cablevision executive appointments keep family in family-run business

The nation's largest TV station owners have a good reason to support—or at least not oppose—a $45.2 billion merger between Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC). They have been--and continue to want to--band together to get more leverage when negotiating with the pay-TV service providers who carry their products.

Station group owners like Sinclair Broadcast Group, Tribune and Gannett have all been quietly growing their numbers via acquisitions of other television groups, so they have good reason to remain quiet about Comcast getting bigger.

"From the standpoint of the broadcaster, all this merger would do is to increase Comcast's footprint," Andrew Schwartzman, a public interest lawyer and professor at Georgetown Law School told The Street. "Broadcasters have a stronger interest in the mantra that consolidation is good than they do in picking on somebody else's consolidation."

Some smaller cable operators worry that more consolidation in the broadcast space will lead to more rancorous retransmission agreements. A bigger Comcast—bulked up with Time Warner Cable subs—would seem to tip the scales in favor of the cable operators. That, in turn, could lead broadcasters to argue for a loosening of the rules that govern their own consolidations.

"If the deal is approved, I would hope that there would be some reflection on some of the ownership limits that we live with in broadcasting that might be a bit dated," said Larry Wert, Tribune's president of local broadcasting during an interview conducted at the NAB trade show in Las Vegas. "If you think of the scale of that company and you think of some of the holdups on owning multiple media outlets in a city, it certainly doesn't seem like equitable rules for the playing field."

The American Cable Association, for one, would beg to differ.

The ACA says the real unfairness is in what it considers the vagaries of retransmission consent negotiations, noting that "Frequently, a broadcaster demands the smaller cable operators pay an exceptionally higher per-customer fee than other larger operators in the same market. Broadcasters charge smaller cable operators retransmission consent fees as much as twenty times more than what the largest distributors pay. There is no justification for the price discrimination faced by small cable operator because the retransmission is costless for the broadcast station owner. The burden to a broadcaster of having its signal carried on a large system or a small one is identical."

The group has been particularly adamant in opposing situations where multiple stations in a market band together under a single ownership—a situation increasingly exacerbated by consolidation within the broadcast industry.

For more:
- see this The Street story
- see the American Cable Association's stance on its Web site

Read more about: Comcast, retransmission
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By Jim Barthold

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5. Data, U.S. cable operations drive 18 percent better second quarter results at Cogeco Cable

Cablevision (NYSE: CVC) continued to define the model of a family-run business when CEO James Dolan stepped down as president, relinquishing that title to his brother-in-law Brian Sweeney and naming his wife, Kristin Dolan, as the company's COO. Both were also elected officers of the company.

Brian Sweeney, left, and Kristin Dolan

The appointments also filled an executive void that had lasted about two years after former COO Tom Rutledge left to run Charter Communications (NASDAQ: CHTR).

"Brian and Kristin have each played critical senior roles in our efforts over the past two years to reposition Cablevision as a leader in customer service and product innovation in this industry," James Dolan said in a press release announcing the changes. "Their decades of experience, strong leadership, technical expertise and sharp business acumen have helped to propel Cablevision forward during a time of great change."

Sweeney, a two-decade veteran of the company, will work closely with James Dolan on the company's strategic direction and overall management. Additionally, he will work with Kristin Dolan on the day-to-day workings of company operations. His direct responsibilities include oversight of the company's key strategic initiatives, engineering, technology and business management along with local media properties Newsday Media Group and News 12 networks.

Kristin Dolan, also a two-plus-decade employee, will "lead all aspects of the company's cable operations as chief operating officer," the press release said.

Her direct responsibilities include managing the end-to-end Optimum customer experience and overseeing the company's advertising sales division.

Gregg Seibert, in addition to serving as vice chairman and CFO, will continue to oversee Cablevision's Lightpath commercial services arm.

For more:
- see this press release

Read more about: Jim Dolan, Optimum
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By Jim Barthold

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