In May 2015, Charter Communications announced that it will be buying Time Warner Cable for around $55 million. This occurs only a few months after Comcast was denied the right to purchase Time Warner by the federal government based on anti-trust laws. However, this deal would allow the second largest cable company in the country to buy the third largest, creating a new leader in cable service providers. The deal affects millions of people and has long-reaching financial effects as well.
Charter Is Not Done Yet
Charter Communications is taking the proactive step of indicating that, after it acquires Time Warner, it will then buy Bright House Networks for approximately $10 billion. Bright House Networks is the sixth largest cable company in the United States and the resulting company formed by Charter’s acquisitions would have approximately 23 million customers. That is still millions short of Comcast’s customer base of just over 27 million subscribers.
According to CNBC, market analysts generally approve of both acquisitions because the territories all three companies work in overlap very little. Instead of competing with itself, the newly-formed company will be in a position to directly compete with Comcast.
American consumers are always interested in how mergers and acquisitions affect the executives involved and the resulting pay raises for Charter and Time Warner executives could make consumers a little nervous. For example,Charter CEO Thomas Rutledge would receive a stock position worth around $111 million. His $16 million per year salary would most likely go up, since he will more than likely be taking over as CEO of Time Warner.
But consumers should not worry about Time Warner CEO Robert Marcus, as he could be in line for a $102 million compensation package when the sale goes through. Mr. Marcus will have to give up his job to Mr. Rutledge, but the $102 million compensation package should help cushion the fall.
Costs To Consumers
Is there a reason, aside from financial gain, why these large cable companies are starting to cozy up to each other? According to the Tulsa World, cable channels are asking for an increasing amount of money and there is a growing number of subscribers moving to Internet-based services. That means that the channels want more money, but there are less customers to help spread the costs around. By merging their customer bases, Charter Communications and Time Warner hope to have leverage against the cable channels to help keep subscription costs lower.
But will the costs to consumers go down? That is a loaded question. For example, Charter’s Internet service is faster and lower priced that Time Warner’s, but Charter may not be able to offer that deal to all of the subscribers of the combined company. While “cutting the cable” and using Internet streaming services sounds like it can save money, remember that the cable companies own a vast majority of the Internet access organizations. To combat the cable cutting trend, newly-formed conglomerates like Charter-Time Warner may raise their rates to offset losses.
Most customers of Charter and Time Warner are expecting their bills to go up a little after the deal goes through because that is just what customers are used to. But in this instance, there may be a bump in service to go along with the increase in rates that customers are not used to. There are a lot of dynamics at play in these large cable company acquisition deals and only time will tell who really wins and who really losses.