How the Internet Drives Cable Companies' Consolidation

Media mogul John Malone appears ready to get the U.S. cable industry into mergers and acquisitions mode.

Three months after Malone’s Liberty Media acquired a 27 percent stake in Charter Communications, the fourth-biggest U.S. cable operator, Malone is angling to merge the company with Time Warner Cable, a company that is much larger and more profitable. Time Warner Cable has about 15 million customers, nearly three times as many as Charter. The potential dealing comes as Charter and other cable operators are facing a future in which their subscribers—millions of Americans who loathe them with a passion—are increasingly turning to the Internet to watch video, and content providers are inexorably seeking higher payments for sports and popular shows. Already the cable companies have seen millions of people defect, or “cut the cord,” on video service, turning to Netflix, Hulu, Amazon, and other online venues. But it has been a radically different story for cable companies’ high-speed Internet revenues, which continue to grow. At Time Warner Cable, for example, Internet revenue per customer rose to $42.60 in the first quarter, up from $38.96 a year prior, Barrington Research analyst James Goss wrote in a client note last month.

Into that void comes Malone’s new acquisition vehicle, Connecticut-based Charter, which reportedly wants to cobble together some parts of a fragmented industry.