Charter buys Time Warner Cable as the number of TV subscribers drops down …

31 May 2015 | Author: | No comments yet »

Cable merger is nothing to sweat in Dallas viewing area.

Sixteen months ago, Charter Communications said the shares of Time Warner Cable were worth $37 billion. Just two years ago, the man who made a fortune building Tele-Communications into a US broadcasting titan was spending much of his time trying to repeat the trick in Europe through London-based Liberty Global. Through a mix of golden parachutes, advisory fees and investment returns, a handful of cable executives, traders and bankers stand to reap enormous profits when and if the transaction closes. Marcus’ compensation package includes $4.5 million in base salary, $15 million in continued bonus payments and stock awards valued at $57.3 million as of December 31, 2014, according to the New York-based company’s May 18 proxy filing.

Major cable TV systems again ranked among the worst in overall customer satisfaction for TV service in the latest telcom survey released today from Consumer Reports National Research Center. Now, with the Comcast deal having fallen through, Charter is paying $57 billion for the same company, an increase of roughly 50 percent from its initial bid. Losing out to Comcast was considered a big blow to Malone after he tiptoed back into the US cable waters in 2013 by becoming the biggest shareholder in Charter. Ratings for the value provided in the TV and Internet components were especially awful: 38 out of the 39 Internet services, and 20 out of the 24 TV providers, received the lowest scores possible.

Because he could well be terminated without cause after the deal closes — another way to say he would be leaving the company after selling it to a competitor — Mr. Verizon FiOS and satellite TV companies DirecTV and Dish scored higher in customer satisfaction among TV service providers in categories such as picture quality, channel selection, reliability and ease of use. Today’s bid at $195.71 a share, 14 per cent more than Time Warner Cable’s May 22 close, would catapult Charter from the fourth-largest cable company to the No. 2 slot behind Comcast.

All this pressures the industry to consolidate, cut costs and boost investment in broadband service, a segment in which cable operators still enjoy competitive advantages. No surprise, CR also uncovered “behavioral shifts” in the way consumers are accessing TV. 19 percent of those 45 and younger and 31 percent of survey participants ages 26 to 35 now use a paid video streaming service as their main viewing source. 16 percent of those in the 18-25 range cited free online video as their primary connection for content. Comcast would have owned 30 percent of the pay-TV market and more than half of U.S. broadband if it had bought Time Warner Cable; Charter will control about 17 percent of pay TV and 30 percent of broadband. Netflix is far and away the favorite paid service, cited by 81 percent of subscribers, trailed by Amazon Prime (46 percent) and Hulu Plus (11 percent.) Having lost one bidding war, Charter didn’t want to lose another. “They felt pressure,” says David Heger, a telecommunications analyst at Edward Jones. “Charter figured they had better move fast before it got taken out from under them.” How can Charter justify the higher price?

The business model of pay TV-Internet providers is one in which new customers are drawn in with low introductory rates, which escalate higher and higher the longer you’re a subscriber. Being bigger should help it negotiate better prices for everything from advertising to technology and, importantly, it will have more leverage with TV channel owners such as Disney and Viacom. He ultimately struck a deal with Comcast last year that also would have given him a billowing golden parachute worth $80 million, but that agreement fell apart last month.

These customer service agents might otherwise be providing, you know, actual customer service, but instead they focus on negotiating with subscribers who call to complain about rising monthly bills. After all, instead of tweaking the structure to eliminate complaints about pricing, the system all but encourages subscribers to complain, haggle, and threaten to drop the service in order to be treated fairly. One routinely complains and, amid lengthy, frustrating phone calls, is rewarded with monthly rates that are lower than they otherwise would have been. It has minimum Internet speeds of 60 megabits per second and is less expensive than comparable Time Warner tiers, he told analysts in a call last week. “For consumers, this transaction will mean better products at better prices,” Rutledge said, adding that cost savings from the merger would help fund some improvements.

It’s no surprise, then, that both of these categories of subscribers would give their providers extremely low satisfaction ratings and say that they are poor values. Because cable companies have regional monopolies, they don’t have much financial incentive to make things easier for customers, said John Bergmayer, senior staff attorney at Public Knowledge, a consumer advocacy group in Washington. Rutledge told analysts that Charter “will be expanding our wireless footprint and building out our Wi-Fi networks in a public way,” and that the future may bring “opportunities to create new subscriber relationships that may be based entirely on mobility.” Those are big bets, and Charter in its current form doesn’t have the ability to make them.

In theory, golden parachutes are good for shareholders as well as executives, because they encourage C.E.O.s to strike deals instead of resisting to preserve their well-paid jobs. “It does provide appropriate incentives for the executives,” said David F. Morgan Stanley, the lead adviser, will receive a larger slice, with Citigroup and two independent investment banks — Centerview Partners and Allen & Company — splitting the rest. Because LionTree has fewer than 100 employees, the deal — along with LionTree’s work on Charter’s related acquisition of Bright House Networks — will be a transformative payday for Mr. The other banks listed as advisers to Charter — including Guggenheim Partners, Bank of America Merrill Lynch and Credit Suisse — may receive little more than credit for the deal and a role in the financing. Paulson paid for that stake, a filing in September 2013 showed that he had already bought about half of it when the stock was trading below $140 a share.

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