Let’s not overthink Brian Roberts‘ rationale for engineering Comcast‘s $45.2B all-stock deal today to buy Time Warner Cable. I don’t think he did it, as some observers say, primarily because he’s concerned about the falling number of cable video subscribers, the threat of competition from phone and satellite companies, or to help resist rising programming costs. Roberts pulled the trigger because he could pick up some of the country’s most important cable systems — including Manhattan and parts of Los Angeles — without having to write a check. The deal will be virtually tax free. And his power will be secure even after TWC shareholders own 23% of Comcast’s Class A shares. Roberts controls the company’s Class B shares which have 15 votes apiece, enabling him to cast a third of all votes. The deal was almost a no-brainer: Roberts keeps Charter Communications and its largest shareholder, Liberty Media’s John Malone, from becoming rival industry powers. And he scores TWC’s 11M subscribers, 52 news and local programming channels (including New York’s NY1), and two regional sports networks in Los Angeles. In addition to NYC and LA, TWC has substantial franchises in large markets including Dallas, Kansas City, Milwaukee, Cleveland, Cincinnati, Buffalo, Rochester, Hawaii and most of the Carolinas. They complement Comcast’s holdings in Philadelphia, Northern California, Houston, Minneapolis, Boston, Seattle, and Miami.
With the added reach, Comcast will find it easier to amortize costs for new video and broadband technologies, and launch new services. For example, Malone has said that Comcast should create a competitor to Netflix. Since cities have lots of companies, it’s easier for cable systems in big markets to expand into business services. Comcast also can boost revenues by operating systems much like broadcast TV networks run their O&Os, for example by offering advertisers opportunities to target or road-block their messages.
Many company watchers, myself included, were thrown off the scent over the last few months by assuming that Roberts was so battle scared from his fight to buy NBCUniversal that he’d sit out this particular mega merger. But it should be clear now, considering how often he returns to lobby for acquisitions, that he enjoys the process. He has the discipline to stay on message, and understands the concessions required to prevail — in this case guaranteeing net neutrality for a period of time, unloading enough subs to keep Comcast’s pay TV market share under under 30% and promising not to discriminate against independent programmers. You can wonder whether it’s foolish to double down on cable at a time when Internet technologies and services could empower consumers to cut the cord for video. The NBCU deal seemed to reflect his desire to reduce his dependence on wires. Yet broadband’s more lucrative than video, and is still growing. And ask yourself: What else can Comcast do? With a market value of $138.6B, it’s hard to imagine who might buy the cable giant. Besides, cable is the family business. And, from the look of things, Roberts is still having fun.