Will AMC Money Drive Malone’s Deals?

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AMC Networks’ planned $1 billion purchase of Chellomedia from Liberty Global will undoubtedly turn the mid-level U.S. cablenetwork company into an international content giant. At the same time, expect Liberty Global to become even larger.

In fact, by this time next year, Liberty may well become even a bigger player in the U.S. cable industry. (It already is the largest global cable operator, with 24.5 million subs, according to third-quarter earnings.)

Having an additional $1 billion on hand, combined with relatively favorable capital markets, can help accomplish that kind of thing — especially when such buying power is combined with the drive of Liberty chairman John Malone, as the once-and-future “king of cable” plots a U.S. expansion.

Earlier this year, Liberty bought a nice chunk of Charter Communications, the third-largest U.S. cable MSO. Since then, Malone — who sat atop the cable world as head of giant Tele-Communications Inc. from 1973 to 1996 — has been vocally calling for more cable consolidation. He’s suggested, for example, that Charter could merge with No. 2 MSO Time Warner Cable and/or No. 4 Cablevision Systems.

The $1 billion from the AMC deal gives Malone additional resources to put his money where his mouth has been.

Let’s look at some numbers from Leichtman Research. At the end of the second quarter, leading MSO Comcast had 21.7 million subscribers. Combined, TWC, Charter and Cablevision had 19.1 million. If Malone could control all of those three MSOs and also pick up a third or so of the 9.6 million subs now under the control of smaller MSOs, guess who’s going to rule the cable roost once again?

Whether or not Liberty actually takes Comcast’s position as the top cable MSO, Malone should at least obtain additional leverage across various crossindustry initiatives and/or negotiations with vendors and suppliers.

Those efforts are uniquely important because, while this allows Malone to continue to enhance his position in cable through acquisitions at a time when it may become increasingly difficult to grow the subscriber base by signing up more cable subscribers organically. That’s because it’s no secret that all cable MSOs — and satellite distributors DirecTV and Dish Network — are feeling the threat from such over-the-top cord-cutting enablers as Netflix, Hulu, Amazon and others.

The video-subscriber losses have been partially offset by the cable operators’ efforts on the telephone and ISP sides. But with landlines declining, and PCs/desktops giving way to tablets and other mobile devices, the future of those businesses is also in question.

No doubt then that Malone wants to accumulate cable companies not for their traditional cords, but for their cordless potential. After all, for every series like Netflix’s House of Cards, cable companies have dozens and dozens of shows to exploit — like AMC’s Mad Men, Breaking Bad and The Walking Dead, for example. Cable operators’ “TV Everywhere” efforts are allowing them to exploit their content relationships across multiple platforms.

In the end, AMC’s infusion of such vital content may prove as crucial to the future of Liberty and Malone as its tantalizing $1 billion.

Shadid Khan is chairman and co-founder of MediaMorph, a provider of media workflow, data and analytics solutions.

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