Cable M&A Motivated by Need for Better Marketing, Product Development, TWC’s Britt Says
Cable operators will need to get bigger to remain competitive against large foes such as the phone companies, Time Warner Cable CEO Glenn Britt said at a UBS conference Monday. He said Time Warner Cable has the scale it needs now, but predicted a wave of consolidation in 10-15 years. The prospect of getting discounts on TV programming contracts had motivated past consolidation, he said. Now, companies need large engineering, product development and marketing departments to remain competitive, Britt said. “It’s about engineering and sophisticated marketing in a world where we're competing with larger enemies,” he said. “I think scale becomes more important."
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Smaller operators will eventually sell out, Britt said. For now, Time Warner Cable won’t buy companies “just to get bigger,” he said. The company looks at all potential deals in the market, he said. This year, most of the transactions have involved smaller systems and “nothing of any real size” has been for sale, he said. Other executives have predicted more mergers and acquisitions among cable systems, especially among small and mid-size operations (CD Nov 18 p8).
Time Warner Cable will begin simulcasting its programming in an IP format within a few years so it will be viewable on devices capable of displaying IP video, Britt said. Just as cable operators are now simulcasting analog, digital and HD programming, they will soon add IP versions, he said. Eventually, that will lessen the company’s need to buy new set-top boxes, he said: “The newest TVs and Blu-ray players or whatever you buy … you will be able to plug in without a set top."
The coalition of pay TV distributors and programmers Time Warner Cable helped put together in Washington to lobby for changes to retransmission consent rules is “getting some traction,” Britt said. Though retrans is not a top priority for Congress now, nor should it be, “eventually they'll get to this, perhaps as part of a broader telecom rewrite,” he said. The main question is “if the government wants to subsidize over-the-air broadcasting, then there needs to be a mechanism for figuring out the amount other than these public fights that we're having,” he said.
As online video traffic grows, more skirmishes along the lines of the Level 3-Comcast dispute may arise, Britt said. Carrying Internet video content isn’t free, he said. “It’s a physical set of networks that really need to be expanded to accommodate the growing traffic. Somebody will bear the cost at some point or the investment won’t be made, so you will see some pushing and shoving over that.” Likewise, ISPs may begin charging broadband users based on the amount of bandwidth they consume, he said. “As the volume of usage goes up, there needs to be some charging for it,” he said: “Facilities providers like ourselves have to invest more money and there has to be a return associated with that” investment.