AMC Networks’ planned $1 billion purchase of ChelloMedia from Liberty Global will undoubtedly turn the mid-level U.S. cable network company into an international content giant. At the same time, expect Liberty Global to become even larger. In fact, by this time next year, Liberty may well become even a bigger player in the U.S. cable industry (it already is the largest global cable operator, with 24.5 million subs, according to third quarter earnings).
Having an additional billion dollars on hand, combined with relatively easy capital markets, can help accomplish that kind of thing. Especially when such buying power is combined with the drive of Liberty chairman John Malone – as the once-and-future “king of cable” plots an expansion in the U.S. cable operator landscape.
Earlier this year, after all, Liberty bought a nice chunk of Charter Communications, U.S. cable’s third largest multiple system operator (MSO). Since then, Malone – who sat atop the cable world as head of giant TCI from 1973 to 1996 – has been vocally calling for more cable industry consolidation. He’s suggested, for example, that Charter could merge with #2 MSO Time Warner and/or #4 Cablevision.
The $1 billion from the AMC deal now gives Malone additional resources to put his money where his mouth has been.
A Battle for Subscribers
Let’s look at some numbers from Leichtman Research. At the end of the second quarter, leading MSO Comcast had 21.7 million subscribers. Time Warner, Charter and Cablevision had a combined 19.1 million. If Malone could control those three MSOs and pick up a third or so of the 9.6 million subs now under the control of smaller MSOs, guess who’s going to rule the cable roost once again?
Whether or not Liberty actually takes over the top cable MSO position from Comcast, Malone should at least obtain additional leverage across various cross-industry initiatives and/or negotiations with vendors and suppliers.
Those efforts are uniquely important because, while this allows Malone to continue to enhance his position in cable through acquisitions, at a time when it may become increasingly difficult to grow the subscriber base by signing up more cable subscribers organically. It’s no secret that all cable MSOs – and even satellite distributors DirecTV and Dish, for that matter – are feeling the threat from Over-the-Top players like Netflix, Hulu, Amazon and other cord-cutting enablers.
The video sub losses have been partially offset by the cable operators’ efforts on the telephone and ISP sides. But with landlines declining, and PCs/desktops giving way to tablets and mobile use, the futures for those businesses are also in question.
No doubt, then, that Malone wants to accumulate cable companies not for their… well, traditional cords – but for their cordless potential. After all, for every “House of Cards” on a Netflix, cable companies have dozens and dozens of shows to exploit — like AMC’s “Mad Men,” “Breaking Bad” and “The Walking Dead,” for example. Cable operators’ “TV Everywhere” efforts are allowing them to exploit their content relationships across multiple platforms.
In the end, AMC’s infusion of such vital content may prove as crucial to the future of Liberty and Malone as its tantalizing billion dollars.