Liberty's Malone sees deals necessary in U.S. cable market

SUN VALLEY, Idaho, July 11 Thu Jul 11, 2013 10:45am EDT

SUN VALLEY, Idaho, July 11 (Reuters) - Liberty Media Corp chairman and cable pioneer John Malone, whose offer to buy Time Warner Cable Inc was rejected by its management, sees Time Warner Cable as a buyer of other cable operators in an industry that needs to be consolidated.

Cable companies need larger scale through consolidation, whether through mergers or joint ventures, the so-called "King of Cable" said in an interview on the sidelines of the annual Allen and Co media conference in Sun Valley, Idaho.

Malone's Liberty Media, which has a 28 percent stake in cable operator Charter Communications, has been circling Time Warner Cable. Liberty also has a 1 percent investment in Time Warner Cable.

"(Time Warner Cable) should be a consolidator because they're the second biggest," he said.

Time Warner Cable, with roughly 12 million subscribers, is the No. 2 U.S. cable provider behind Comcast, which has more than 21 million video customers.

Since the 72-year-old Malone jumped back into the U.S. market with Liberty Media's investment in Charter earlier this year, analysts have predicted a wave of cable consolidation. The U.S. cable TV market faces rising programming costs as well as technology threats from upstarts such as Netflix, which offers movies and TV shows to subscribers online.

Malone recently made an offer for Time Warner Cable, which was rejected by its management because they believe it is not beneficial to shareholders, Reuters has reported.

When asked Thursday if he wants to buy Time Warner Cable, he answered only "that's a tough question." While Malone indicated Time Warner Cable could do its own deals, he left open the scenario that Charter could still buy the company.

"Whether A merges with B, B buys A or A, B and C get together to do a joint ventures to do things that have to be done in larger scale, that's really the message I'm trying to deliver," he said without specifying which companies those letters represent.

Companies have to get bigger to thrive, he said.

Comcast is large enough to do OK. The rest of the industry needs consolidation, in our view, in order to get scale economics," Malone said.

In terms of the kind of deals Malone likes, he said that geographically "buying the guy next door makes the most sense," referring to a decade-long push by larger companies to swap local cable systems with one another to create larger clusters.

"Horizontal mergers are the safest, usually have the most synergies and are the easiest, but a lot of that has already been done in the industry. At this point you tend to look more for scale."

Time Warner Cable, which has long viewed Cablevision as an acquisition target because it makes sense geographically in the New York area, has reached out to smaller operators Cox and Cablevision about creating larger clusters in some of its main markets.

"Obviously if you find you could buy the guy next door, that's the best but those opportunities are somewhat limited," Malone said.