Here’s what the $56 billion Charter and Time Warner Cable merger is really about


The proposed $US56.7 billion marriage of Charter Communications and Time Warner Cable, which the cable companies announced on Tuesday morning, is all about broadband.

People are watching less TV as they increasingly stream video from online services like Netflix, Hulu, and Amazon. So the companies that for years have made money through TV subscriptions are battling over the pipes that you depend on for streaming video online.

If the merger is approved by regulators, the new company, which would be made up of Charter, Time Warner Cable, and Bright House Networks — the last of which Charter said in March it would acquire for more than $US10 billion — would become the second largest cable company in the country, just after Comcast. And the new company would control nearly 30% of the U.S. broadband market, according to MoffettNathanson, a media and telecommunications research firm.

Traditional TV subscriptions are on the decline. The U.S. pay TV industry lost 31,000 subscribers in the first quarter of the year, marking the first time the industry lost subscribers during what is typically a strong period, according to a report earlier this month from MoffettNathanson.

People are watching less live TV, and ratings are down. Americans are tired of paying for expensive cable bundles that come with hundreds of channels they don’t watch, especially when so many streaming services offer on-demand programming anytime, anywhere, and on nearly any device.

Americans are streaming more video online than ever, and even premium TV networks like HBO and Showtime, which have for years only been available to people who subscribe to TV packages, are offering standalone streaming services. Companies like Dish and Sony are offering online options for live TV, Verizon will launch one later this year, and Apple is rumoured to be building its own TV service that will be streamed online.

Daenerys game of thrones season 5
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As a result,an increasing number of Americansare “cutting the cord,” or even choosing never to subscribe to cable when they move into a new home.

TV subscriptions may be declining, but broadband internet is booming. During the first quarter of the year, the same three-month period that saw the decline in TV subscriptions, the 17 largest cable companies in the country, which make up 94 per cent of the market, added 1.2 million broadband subscribers, according to Leichtman Research Group, a media and telecommunications research firm.

Cable subscribers by service q1 2015
Cable subscriptions are declining, but broadband subscriptions are increasing BI Intelligence

Comcast, the largest cable company in the country, which last month withdrew its own bid for Time Warner Cable over regulatory concerns, reported earlier this month — for the first time ever — thatit now has more high speed internet subscribers than TV subscribers.

Providing internet is a higher-margin business than providing TV. Internet providers certainly have costs — they have to pay employees and pay to maintain their networks and infrastructure — but they don’t have to pay high fees to networks like ESPN, TNT, and The Disney Channel. Those programming costs are the main reason your cable bill continues to go up every year, according to the Wall Street Journal.

Finally, high speed internet is even less competitive than TV. Many people have the choice of one cable company and at least one satellite company — and perhaps even a third company like Verizon or AT&T — to pay for a TV subscription.

But according to the FCC, which earlier this year changed the definition of broadband internet to 25 Mbps, nearly 75% of households in the U.S. have one or no options for broadband.

Because there’s little real competition in broadband, cable companies could simply raise the price of that subscription to offset any revenue declines they have from people cutting the cord. As Zachary Seward of Quartz points out, broadband internet is a major growth area for cable companies, and the Charter-Time Warner merger would be a way to capitalise on that.

And you’d likely have no other choice than to pay up.

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