By Shalini Ramachandran
Comcast Corp. on Friday ended its plans to acquire Time Warner
Cable Inc.
"Today, we move on. Of course, we would have liked to bring our
great products to new cities, but we structured this deal so that
if the government didn't agree, we could walk away," Comcast Chief
Executive Brian Roberts said in a news release Friday.
The transaction's demise is a stunning turnaround for the $45.2
billion deal, one of the largest proposed media mergers in years.
When it was announced in February 2014, many on Wall Street
believed the deal had a strong shot at being approved, albeit with
concessions to regulators.
The Comcast-Time Warner Cable deal had promised to reshape the
media landscape--forcing TV channel-owners and other pay-TV
operators to contemplate their own mergers. As a result of the deal
falling apart, companies across the industry will have to reassess
their calculations.
The deal's end will raise the prospect of another suitor going
after Time Warner Cable. Charter Communications Inc., which had
pursued Time Warner Cable before it was snapped up by Comcast,
remains interested in the company, people familiar with the
situation said. Charter has been in contact with banks about a debt
package in recent weeks, one of the people said.
Comcast this week sought to make last ditch efforts to save the
deal. On Monday, Comcast CEO Brian Roberts spoke to Federal
Communications Commission Chairman Tom Wheeler to try to persuade
him of the benefits for consumers. On Wednesday and Thursday,
Comcast officials met with FCC staff and were told in no uncertain
terms that no matter what the company offered in terms of
concessions, the deal was headed for trouble, one person close to
the companies said. "They wanted to kill it."
On Wednesday, The Wall Street Journal first reported that FCC
staff had that day recommended that the agency designate the merger
for a "hearing, " a procedural move that would spark a long,
potentially messy legal battle, signaling the deal was in serious
peril. The staff's recommendation was that approving the deal
wouldn't be in the public interest, a sign that Mr. Wheeler was
leaning against the deal, people close to the agency's
deliberations said.
Bloomberg News on Thursday reported Comcast's plans to drop the
merger plans.
Though Comcast could have fought to preserve the deal, the
drawn-out process may not have been worth it, which is why such a
hearing is known by regulatory experts as a deal killer. Agency
staffers said a hearing could take up to two years.
Regulators worried about the power Comcast would amass through
the deal, with roughly 30% of the U.S. pay-TV market and 57% of the
broadband market, which the FCC now defines as speeds of 25
megabits per second and higher. The agencies' biggest concerns came
down to how they could protect the nascent streaming TV industry
against the broadband colossus the deal would create, people
familiar with the meetings between Comcast and the regulators
said.
The Justice Department stepped up its own review in recent
weeks, asking media companies that opposed the deal for examples of
how Comcast may have abused its market power. The government also
was skeptical of whether some of the restrictions it put on Comcast
while approving its acquisition of NBCSHYUniversal had worked as
intended, people familiar with the matter have said.
The Comcast-TWC deal had sparked worries in all corners of the
media and Internet industry, with powerful opponents like Netflix
Inc., Discovery Communications Inc. and Dish Network Corp. banding
together to lobby against it. Major media companies including Time
Warner Inc., 21st Century Fox Inc. and Walt Disney Co. had also
privately made their serious concerns known to regulators, people
familiar with those companies' thinking said. (Until mid-2013, 21st
Century Fox and News Corp., owner of The Wall Street Journal, were
part of the same company.)
"I don't know one content group that isn't happy today," a
senior media industry veteran said. The deal also had major
opposition from consumer and public interest groups who said it
would hurt competition.
Among the companies' concerns were that Comcast could squeeze
them on prices to carry TV channels or to connect broadband traffic
into its networks. Some also worried about the influence Comcast
would have over the variety of streaming TV services and apps that
consumers are adopting in greater numbers.
A breakup scrambles two deals Charter had in the works. Comcast
had a deal with Charter to sell or spin off about 4 million
subscribers that Comcast and Time Warner Cable planned to divest in
their combination. Plus, Charter had agreed just last month to buy
cable operator Bright House Networks LLC for $10 billion. That
transaction was contingent on the Comcast-Time Warner Cable deal
closing.
With the bid for Time Warner Cable over, Comcast could be in a
position to do another major deal to seek out further growth. It
could go hunting overseas for cable operators or TV channel-owners,
as some of its peers in the media industry have done, or make a
push into the wireless business. Comcast has in the past several
years looked at various international assets but hasn't been
convinced to pursue any target, a person familiar with the matter
said.
Cable industry insiders still expect cable mergers to occur
between the smaller players: Time Warner Cable, Charter,
Cablevision Systems Corp., Bright House and Cox Communications.
"By this time next year there will be some combination of some
of those companies," one top cable executive said.
Time Warner Cable believes its assets are more valuable today
than they were a year ago thanks to better operating by management,
a person familiar with the company's thinking said. With its strong
balance sheet, TWC could be an acquirer in its own right should the
deal fall apart, one person said. Time Warner Cable has a roughly
$42 billion market capitalization
Both Comcast and Time Warner Cable are dealing now with a TV
landscape that looks much different than it did just 14 months ago
when the deal was announced. Cord-cutting--the trend of consumers
who are fed up with cable bills dropping their pay-TV
connections--is on the rise, threatening one pillar of the cable
business.
Cable companies now face competition from an array of new
entrants targeting cord-cutters, including Sony Corp. and Dish
Network Corp.'s Sling TV, which offer streaming TV services for a
monthly fee and carry many of the same TV channels as traditional
providers. Apple Inc. is planning to enter that market this fall,
people familiar with the matter said.
Some individual TV networks, like HBO and CBS, have also begun
marketing streaming services that don't require a pay-TV
subscription. Traditional pay-TV providers like Verizon
Communications Inc.'s FiOS are responding by offering "skinny"
bundles of channels that leave out some well-known networks.
But increasingly, with the television market stagnating,
companies like Comcast and Time Warner Cable will be relying on
their units that sell broadband access to power growth.
Norval Reece, a cable industry veteran who has long known Mr.
Roberts, said Comcast remains in a "very strong position" and could
use its cash for further acquisitions. "I think you haven't heard
the last of them."
When the Time Warner Cable deal was announced the day before
Valentine's Day in 2014, Mr. Roberts trumpeted the deal as a
foundation for growth and a chance to deliver innovative products
and service to customers amid a competitive marketplace. It was a
signature moment in Mr. Robert's career. He outmaneuvered John
Malone, the cable industry pioneer and backer of Charter who had
made a run at Time Warner Cable.
In recent days, as the pressure on the Time Warner Cable deal
mounted, people close to Comcast were playing down the strategic
significance of the proposed transaction.
In contrast to Comcast's troubles with the Time Warner Cable
deal, AT&T Inc.'s proposed purchase of DirecTV--which was
announced within months of the Comcast deal--is viewed as less
problematic at the FCC, people familiar with the agency's thinking
said.
While Comcast's bid for Time Warner Cable was one rationale for
media companies to consider getting bigger through mergers, it
wasn't the only one. Media executives say there are still reasons
for TV-channel owners to combine. As distributors look to cut costs
amid cord-cutting, smaller and midtier channels face the prospects
of lower carriage fees--or even being dropped altogether.
George Stahl and Dana Mattioli contributed to this article.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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