Regulators OK Charter-Time Warner merger

U.S. regulators have placed a number of conditions on the deal, intended to prevent the new company from upending SVOD and OTT competitors.
April 26, 2016

The U.S. Department of Justice has approved Charter Communications’ proposed US$78 billion acquisition (reported in the New York Times as $65.5 billion) of Time Warner Cable Inc. and its $10.4 billion acquisition of Bright House Networks LLC, enabling the creation of a massive new cable network amid increasing competition from broadband providers, SVODs and OTT services.

However, the approval came with a number of restrictions imposed by the Federal Communications Commission (FCC) and the U.S. Department of Justice in order to ensure that the behemoth new company known as New Charter — which is now the second-largest U.S. broadband provider with 19.4 million customers and the third-largest cable television provider with 17.4 million customers — will not upend those competing SVOD and OTT services.

The restrictions are intended to answer a complaint filed by the Department of Justice’s antitrust division, to a U.S. district court for the District of Columbia, which alleged that allowing the merger to procees without such restrictions would harm the competitive landscape between cable providers, telcos and SVODs (which the Department of Justice refers to throughout the documents as online video programming distributors, or OVDs).

“OVDs are beginning to revolutionize the way Americans receive and experience video content,” the complaint document stated. It outlined the different forms of OVDs, such as Netflix and Hulu which specialize in on-demand content, newer distributors such as DISH Network’s Sling TV and Sony’s Playstation Vue which combine on-demand content with live television channels, as well as the subscription services offered by linear networks such as CBS, HBO and Showtime.

“Continued growth of OVDs promises to deliver more competitive choices and a greater ability for consumers to customize their consumption of video content.”

The convenience and the choice offered by these services — as well as the price — have been factors in the increasing popularity of SVOD, OTT and transaction-based platforms. But that popularity has come at the expense of traditional providers. A recent study by SNL Kagan found that cable companies lost 599,000 U.S. customers in 2015, and satellite providers lost 487,000 subscribers, and that the total loss was more than four times that reported in 2014.

The Department of Justice said that the combined entity that is New Charter now has far higher stakes to protect — more than $16 billion in annual video revenues.

“Today, Charter, TWC and BHN each only act to protect its own (multichannel video programming distributor) profits. After the merger, however, New Charter would act to protect the much larger combined video revenues… New Charter will have greater bargaining leverage to insist that video programmers limit their distribution to OVDs.”

It also stated that Time Warner has already been very aggressive in imposing “alternative distribution means” or ADM clauses in its programming contracts “that either prevent the programmer from distributing its content to OVDs or place certain restrictions on such online distribution.”

The conditions agreed to include Charter’s abstaining from negotiations with programmers in order to keep their content off of SVODs such as Netflix. It also promised that for seven years it would not impose data caps on its broadband customers, which make it more difficult to stream online video. It has promised not to charge SVODs extra fees to sign up its customers. Charter will also offer cheaper Internet service for low-income households, although pricing details have not yet been revealed.

Following the approval, Charter issued a short statement that it was “pleased” with the decision, and that “the conditions that will be imposed ensure Charter’s current consumer-friendly and pro-broadband business practices will be maintained by New Charter.”

Michael O’Reilly, a Republican commissioner with the FCC, said in a statement that the conditions imposed may have been outside the FCC’s boundaries.

“At first blush, it appears that the Commission may have operated well outside the four corners of the merger application to pursue unrelated matters and policies,” O’Reilly wrote.

(From Stream Daily. Image: Shutterstock)

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