May 2015

Planned Charter Mega-Merger Does Nothing to Benefit Customers or Boost Competition

Charter Communications announced plans to acquire Time Warner Cable in a deal valued at $56.7 billion. Charter also confirmed that it would acquire Bright House Networks, a smaller cable company, for $10.4 billion. These potential mergers won’t make Charter as massive as a merged Comcast-Time Warner Cable would have been but they raise similar public interest concerns, and the Federal Communications Commission should apply the lessons learned in its prior review here. The cable platform is quickly becoming America's local monopoly broadband infrastructure. Charter will have a tough time making a credible argument that consolidating local monopoly power on a nationwide basis will benefit consumers. Indeed, the issue of the cable industry's power to harm online video competition, which is what ultimately sank Comcast’s consolidation plans, are very much at play in this deal.

Ultimately, this merger is yet another example of the poor incentives Wall Street’s quarterly-result mentality creates. Charter would rather take on an enormous amount of debt to pay a premium for Time Warner Cable than build fiber infrastructure, improve service for its existing customers or bring competition into new communities. We will carefully examine Charter’s case, in particular its arguments for why this transaction is supposedly better for competition in the broadband and pay-TV markets than new investment. Charter needs to explain why this consolidation will improve competition, and a simple argument of scale won’t work here. Charter’s network is already superior to TWC’s and that of other large cable companies, which proves that you don’t need to become a colossus to succeed in this business.”

If You Like the Airlines’ Consolidation, You Might Love an Even More Concentrated Broadband and Cable Marketplace

[Commentary] With several cable television operations in play, perhaps we should consider what’s behind the urge to consolidate? Bear in mind that the broadband and cable television business already is quite profitable and concentrated, a key difference with the US airline industry that lacked profits and high concentration before its flurry of mergers. The answer: more concentration makes it easier for the survivors to avoid sleepless afternoons innovating, competing and enhancing the value proposition for consumers. It is that simple: with fewer major players, the odds decline substantially that a maverick will buck the incentive to match the terms and conditions set by the major operators.

I don’t see much upside to consumers in having a stronger number two cable and broadband provider. Recall that Comcast executives emphasized how their company does not compete with Time Warner Cable. Comcast’s logic was that if it didn’t compete with Time Warner, then there shouldn’t be any problems in acquiring their market share. So how would a larger number two cable and broadband operator become a more aggressive competitor of Comcast?

Web Video Companies Push Branded Entertainment Over Media

How many branded entertainment deals can any one brand actually make? That’s a question some media executives are asking now that the glare has faded from the dozens of NewFronts and TV upfronts held over the past several weeks. With TV’s share of the advertising pie seemingly vulnerable in 2015, many of the top Web outlets smell a big opportunity to steal some ad budgets -- which explains why there were 33 NewFronts in total. That’s why it was curious that at so many of the those events, digital media companies from BuzzFeed to Fullscreen to Stylehaul were pushing branded entertainment as their core offering to advertisers.

In fact, many MCNs almost treated selling media space as secondary to selling marketers on producing video content that either prominently features their products or is produced entirely on behalf of a marketer. That trend was in direct contrast to the TV networks, who, even as they preached data, were primarily offering ad space alongside TV shows that reach millions of viewers. If the Web video industry is hoping that major marketers decide to move ad dollars from TV to online video in big chunks in 2015, isn’t branded entertainment–and its perceived highly customized, not-so-scalable nature–a tough way to go about it?

Charter Communications to Merge with Time Warner Cable and Acquire Bright House Networks

Charter Communications and Time Warner Cable announced that they have entered into a definitive agreement for Charter to merge with Time Warner Cable. The deal values Time Warner Cable at $78.7 billion. Charter will provide $100.00 in cash and shares of a new public parent company ("New Charter") equivalent to 0.5409 shares of CHTR for each Time Warner Cable share outstanding. The deal values each Time Warner Cable share at approximately $195.71 based on Charter's market closing price on May 20, or approximately $200 based on Charter's 60-trading day volume weighted average price. In addition, Charter will provide an election option for each Time Warner Cable stockholder, other than Liberty Broadband Corporation ("Liberty Broadband") or Liberty Interactive Corporation, who will receive all stock, to receive $115.00 of cash and New Charter shares equivalent to 0.4562 shares of CHTR for each Time Warner Cable share they own.

In addition, Charter and Advance/Newhouse Partnership (a parent of Bright House Networks, LLC) announced that the two companies have amended the agreement which the two parties signed and announced on March 31, 2015, whereby Charter will acquire Bright House Networks for $10.4 billion. That agreement, as amended, provides for Charter and Advance/Newhouse to form a new partnership of which New Charter will own between approximately 86 percent and 87 percent and of which Advance/Newhouse will own between approximately 13 percent and 14 percent, depending on the Time Warner Cable shareholders' cash election option described above. The consideration to be paid to Advance/Newhouse by Charter will include common and convertible preferred units in the Partnership, in addition to $2 billion in cash. The common and convertible preferred partnership units will each be exchangeable into shares of New Charter. The Charter-Advance/Newhouse transaction is expected to close contemporaneously with the Charter-Time Warner Cable transaction.

Statement of FCC Chairman Tom Wheeler on the Charter/Time Warner/Bright House Announcement

The FCC reviews every merger on its merits and determines whether it would be in the public interest. In applying the public interest test, an absence of harm is not sufficient. The FCC will look to see how American consumers would benefit if the deal were to be approved.

In Cable Deal, Charter Seeks National Heft

[Commentary] It was only 15 months ago that Charter Communications looked like a big loser in the race to add heft in the cable and broadband industry. Comcast, a rival, had swooped in with an audacious $45 billion bid for Time Warner Cable, appearing to end the prolonged takeover battle that Charter had been waging for the cable operator. How different things look now.

Charter and its main backer, the billionaire media mogul John C. Malone, are on the verge of buying Time Warner Cable for about $55 billion, or roughly $195 a share in cash and stock, in a move that would help fulfill Charter’s long-held strategy to become a legitimate national player in the industry. The deal -- along with what appears to be an imminent acquisition of another cable operator, Bright House Networks -- would make Charter the nation’s second-largest cable television operator, behind Comcast, and would give it more clout in negotiations with television groups over soaring programming costs. It’s a significant turn of events for a company that looked like it had been beaten to punch then had to wait and wonder whether the Comcast deal would go through.

The latest Time Warner Cable merger isn’t Comcast all over again, execs argue

Hanging over the Charter/Time Warner Cable announcement is Comcast. You can't talk about an acquisition of Time Warner Cable without discussing Comcast's failed bid for the nation's second-largest cable company, which collapsed in April. It's clearly something Charter has thought about, too -- and the company addressed the issue head-on in response to the first question on an investor call on May 26. "We're a very different company than Comcast, and this is a very different transaction," Charter chief executive Tom Rutledge said.

Just like the Comcast-TWC deal, the Charter-TWC merger has to be approved by federal regulators, including the Federal Communications Commission. Charter is already moving to counter some of the arguments that helped sink the Comcast merger. For instance, what executives are calling the "New Charter" will be much smaller than a Comcast-Time Warner Cable mash-up would have looked like, company officials say, which could help limit regulators concerns about potentially anticompetitive behavior. While a Comcast deal would have controlled more than half the country's high-speed Internet subscribers and roughly one-third of the nation's cable TV market, the latest deal would give Charter only about 30 percent market share in broadband and 17 percent in cable video, according to the company.

Push to name donors in political ads hits FCC roadblock

Democratic Representatives' push to strengthen political ad disclosures in time for the 2016 elections appears dead for now after hitting a roadblock at the Federal Communications Commission. Amid a divisive legal battle over new network neutrality rules and other pressing telecommunications issues at the FCC, Chairman Tom Wheeler suggested the FCC has little appetite to take up a fix on its own. "Maybe you noticed -- we have a long list of difficult telecommunications related decisions that we are dealing with right now. And that will be our focus," Chairman Wheeler said when asked if the FCC would initiate new rules on its own.

Billions of dollars are expected pour into the 2016 election, and Democrats have pressed the FCC to update its rules to require large donors to be identified at the end of television ads purchased by super-PACs and other outside groups. Lawmakers in both chambers have introduced bills to force the agency's hand and Chairman Wheeler, a Democrat, noted he would "clearly follow" any mandate from Congress. But the title of the House proposal -- which overtly references GOP mega-donors Charles and David Koch -- indicates that the party sees it as more of a messaging bill than anything else. And a failed vote on the legislation in a House Energy and Commerce subcommittee confirmed that the proposal would not be able to get passed Republican opposition. "This isn’t the place for it. If you want to do campaign finance reform, there are other committees of jurisdiction," said House Communications Subcommittee Chairman Greg Walden (R-OR). Convincing Chairman Wheeler to move alone appeared to be the only avenue ahead of 2016.

Apple and Google Just Attended a Confidential Spy Summit in a Remote English Mansion

At an 18th-century mansion in England’s countryside, current and former spy chiefs from seven countries faced off with representatives from tech giants Apple and Google to discuss government surveillance in the aftermath of Edward Snowden’s leaks. The three-day conference, which took place behind closed doors and under strict rules about confidentiality, was aimed at debating the line between privacy and security. Among an extraordinary list of attendees were a host of current or former heads from spy agencies such as the CIA and British electronic surveillance agency Government Communications Headquarters, or GCHQ. Other current or former top spooks from Australia, Canada, France, Germany and Sweden were also in attendance. Google, Apple, and telecommunications company Vodafone sent some of their senior policy and legal staff to the discussions. And a handful of academics and journalists were also present.

According to an event program obtained, questions on the agenda included: “Are we being misled by the term ‘mass surveillance’?” “Is spying on allies/friends/potential adversaries inevitable if there is a perceived national security interest?” “Who should authorize intrusive intelligence operations such as interception?” “What should be the nature of the security relationship between intelligence agencies and private sector providers, especially when they may in any case be cooperating against cyber threats in general?” And, “How much should the press disclose about intelligence activity?”

Which Students Get to Have Privacy?

[Commentary] It seems that student privacy is trendy right now. At least among elected officials. Congressional aides are scrambling to write bills that one-up each other in showcasing how tough they are on protecting youth. The bills are pretty spectacularly different, pushing for a range of mechanisms to limit abuses of student data. Some are fine-driven; others take a more criminal approach. There are also differences in who can access what data under what circumstances. The bills give different priorities to parents, teachers, and schools. Of course, even though this is all about *students*, they don’t actually have a lot of power in any of these bills.

It’s all a question of who can speak on their behalf and who is supposed to protect them from the evils of the world. And what kind of punishment for breaches is most appropriate. (Not surprisingly, none of the bills provide for funding to help schools come up to speed.) As a youth advocate and privacy activist, I’m generally in favor of student privacy. But my panties also get in a bunch when I listen to how people imagine the work of student privacy. As is common in Congress as election cycles unfold, student privacy has a “save the children” narrative. And this forces me to want to know more about the threat models we’re talking about. What are we saving the children *from*?

[danah boyd is Principal Researcher at Microsoft Research]

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