Drahi

Patrick Drahi, the billionaire ruthless cost-cutting owner of Altice SA told a French parliamentary hearing he didn’t go ahead with a serious bid for Time Warner Cable because he lacked enough management talent to run a huge cable company in a country he only recently entered.

“I didn’t follow up on the exchanges we had on Time Warner Cable that were mentioned in the media because we were not ready,” Drahi told a French parliamentary hearing on Wednesday.

Drahi testified French-owned banks were ready to help finance a deal that would have stolen Time Warner Cable away from Charter Communications. Instead, Drahi has decided to spend a little time digesting his acquisition of Suddenlink to gain experience in the U.S. cable market before he moves on other cable operators. Drahi believes he will be the only buyer left to cut major cable consolidation deals.

“Time is on our side” for the U.S. expansion,” Drahi said. “The two leaders Comcast and Charter will not be able to buy anything else because of their size so we will have an open boulevard ahead of us. If I buy five small operators, I can be as big as Time Warner Cable.”

The five most-likely cable operators Drahi will pursue, according to a business editor at RFI, the French overseas broadcaster: Cablevision, Cox, Mediacom, WOW!, and Cable One. Cox and Mediacom are privately held and Cablevision is tightly controlled by its founding Dolan family, so Drahi will likely have to sweeten deals to convince all three to sell.

Reuters reports Drahi is especially interested in the smaller, less profitable operators because they are ripe for his brand of cost management and consolidation-related savings.

“Even better, that means we will have room to improve them,” Drahi said.

Drahi remained enthusiastic about Cablevision, despite the fact it serves one of the most competitive markets blanketed by Verizon FiOS in the United States.

“It’s good actually since it means they know how to compete,” Drahi said.

Drahi’s reputation is well-known in Europe based on his earlier acquisitions. Altice favors telecom and cable companies seen as poorly managed or undervalued which Drahi targets for massive cost-slashing to improve profitability. The investments he does make are largely to benefit high-end customers he values the most.

THE FRENCH SLASHER: Patrick Drahi’s cost-cutting methods are legendary in Europe. He could soon be bringing his style of cost management to America.

Patrick Drahi and his Luxembourg-based Altice SA appears to be out of the running to buy Time Warner Cable, but are likely to quickly turn their attention to acquiring several of America’s remaining medium-sized cable companies: Cablevision, Cox, and Mediacom.

“While it is still possible that Altice counters on TWC, we do not believe that it can match Charter [and backer John Malone’s] funding firepower and will ultimately lose out,” wrote Macquarie Capital’s Kevin Smithen. “In our opinion, Altice is more likely to turn its attention to Cablevision or privately held Cox or Mediacom, in an effort to gain more fixed-line scale in order to compete against Charter and Comcast.”

Last week, cable analysts were surprised when Drahi swooped in to acquire Suddenlink, one of America’s medium-sized cable operators.

“Altice’s decision to buy Suddenlink (at an unsupportably high price) creates even more uncertainty in an industry where virtually every element of the story is now in flux,” said MoffettNathanson analyst Craig Moffett.

Cablevision recently seemed to signal it was willing to talk a merger deal with Time Warner Cable, but that now seems unlikely with the Charter acquisition heading to regulator review. Drahi met last week with Time Warner Cable CEO Robert Marcus about a possible deal with the second largest cable company in the U.S., which seems to indicate he is serious about his plans to enter the U.S. cable market.

“On paper, Cablevision was already overvalued,” Moffett said. “And Altice’s acquisition of Suddenlink, which has no overlap with Verizon FiOS, would suggest that they are quite cognizant of the appeal of a carrier without excessive fiber competition. The spike in Cablevision’s shares only makes that overvaluation worse. Then again, if Altice is willing to overpay for one investment, might they not be willing to overpay for another?”

Drahi has been topic number one for the French telecom press for months after his aggressive acquisition and cost-cutting strategies left a long trail of unpaid vendors and suppliers, as well as employees forced to bring their own toilet tissue to work. Customers have also started leaving his French cable company after service suffered as a result of his investment cuts.

As a new wave of cable consolidation is now on the minds of cable executives, several Wall Street analysts have begun to call on the cable industry to consolidate the wireless space as well, buying out one or more wireless companies like Sprint or T-Mobile to combine wired and wireless broadband.

“Unlike Europe, we continue to believe that the U.S. is not yet a ‘converged’ market for wireless and wireline broadband services but that this trend is inevitable in the U.S. due to increasing need for small cells, fiber backhaul and mobile video content caching closer to the end user. In our view, Altice believes in convergence and so mobile will be a strategic objective in the long-term,” Smithen wrote.

Other Wall Street analyst/helpers have pointed out there are other cable targets ripe for acquisition: WideOpenWest Holding Cos (a/k/a WOW!) and Cable One have a combined 1.92 million video subscribers.

Cable One’s history as a former part of the Washington Post and its publishers — the Graham family — will come to an end next year as it is spun off to shareholders, positioned for a quick sale as the march towards consolidation of the cable industry continues.

The board of directors of Graham Holdings authorized company management to spin-off the cable company in a tax-free transaction. Many industry analysts believe that is a prelude to maximizing shareholder value by selling the cable operator to a larger cable operator, most likely Charter Communications.

Cable One serves just under 500,000 customers in rural markets in 19 states. The company struggled in 2014 with high-profile battles over programming costs, notably with Viacom, that has led to channel blackouts running nearly seven months. Cable One’s small footprint has put the cable company at a disadvantage, unable to qualify for deep volume discounts for cable programming. Frequent competitor AT&T U-verse has taken a toll on the cable company’s video subscribers, down 15% since the fall of 2013. Cable One spent much of 2014 investing in network upgrades, particularly to improve its newly prioritized broadband service.

The news boosted shares of Graham Holdings stock, increasing in value as much as 12% to $886.05 per share late last week. Shareholders are positioned to benefit the most from a sale of the company, which could fetch as much as $2.5 billion in a sale. The most likely buyer is Charter Communications, which serves similar-sized communities in the central and southern United States and is ready to grow larger with acquisitions of smaller companies like Cable One.

Viacom has blocked website content for Cable ONE customers in an escalating dispute with the cable company over the cost of the programmer’s cable networks.

Cable ONE dropped 15 Viacom channels from its cable systems nationwide April 1 claiming Viacom’s contract renewal price was unreasonable. Subscribers found a way around the dispute by accessing Viacom streamed content online. This week, Viacom closed that loophole and blocked access to all streaming content for Cable ONE subscribers.

“Cable One has chosen to no longer carry Viacom programming and, as a result, it is no longer available to Cable One customers in any form,” Viacom said in a terse statement.

All 730,000 Cable ONE customers in 19 states found the Viacom networks replaced on the cable lineup with alternative programming from BBC America, Sprout, The Blaze, Hallmark Channel, National Geographic, Investigation Discovery, TV One and SundanceTV.

Cable ONE is used to playing hardball with programmers and dropped Time Warner-owned Turner Network programming from its systems for three weeks last fall over a similar dispute, now resolved.

There is no word about the current status of negotiations between Viacom and Cable ONE.

Small cable systems across the country and on overseas military bases are being granted hourly reprieves that are keeping up to 24 Viacom-owned cable channels on the air after negotiations to extend an agreement with their program buyer stalled.

Cable operators belonging to the National Cable TV Cooperative, which represents independent cable systems on cable programming matters, report Viacom is demanding an unprecedented 100 percent rate increase for its networks and a guaranteed rate hike of 10% annually on each of its channels.

Viacom’s demands would cost each subscriber at least $4 a month, noted Jack Capparell, general manager of Service Electric’s cable system in the Lehigh Valley of Pennsylvania. Service Electric is a private, family owned cable business with 250,000 subscribers in central and northeastern Pennsylvania and northwestern New Jersey.

The impasse also affects cable systems serving American military bases. Americable has notified subscribers in Yokosuka, Atsugi, Iwakuni, and Sasebo, Japan Viacom was likely to cut off 10 of its cable channels to military families sometime today. Allied Telesis, which offers service to Air Force bases in Japan is also expected to lose programming.

NCTC members complain Viacom requires cable systems to carry nearly all of its lineup, including lesser-known channels few customers have even heard of, much less want. Even if a cable system chooses not to air a Viacom channel, Viacom’s contracts require cable providers to pay for them if they want to carry Viacom’s most popular networks.

Some cable systems are breaking away from NCTC’s negotiations and opening one on one talks with Viacom. Metrocast secured an agreement for its customers earlier today by negotiating directly with Viacom.

For most affected cable operators, there is a ‘wait and see what happens’ approach. Others, including Cable ONE, have already moved to replace the Viacom networks with other channels.

“Viacom asked for a rate increase greater than 100%, despite the fact that viewing is down on 12 of their 15 networks – some by more than 30% since 2010,” said Cable ONE. “We asked Viacom to either reduce their rates or allow us to drop some of their less popular networks to reduce the total cost. They refused these reasonable requests.”

Earlier today, Cable ONE didn’t wait for Viacom to pull the plug. They pulled it themselves.

“Cable ONE has let these networks go and expects to add many top-rated networks you’ve requested and expand several other highly requested networks to our most popular level of service. Some of the new networks include BBC America, Sprout, Investigation Discovery, the Blaze, Hallmark Channel, National Geographic, TV One, Sundance, and more,” said the company, which expects to publish a full list of the new networks on Wednesday.

Viacom responded with a news release tailored for each affected provider:

We are offering Service Electric a double-digit discount off of our standard rate card. It is a better deal than HUNDREDS of other TV providers in the country have agreed to. We have been actively trying to get a deal done with Service Electric for months and they have refused to negotiate in any meaningful way. And now, on top of this, Service Electric is throwing out numbers which simply aren’t true. Our expiring deal with Service Electric is nearly five years old. In that time, we have been great partners and given Service Electric more channels, more on demand content and access to our content beyond the TV – at no additional cost. We don’t understand why Service Electric has chosen to negotiate in this manner. And now, as a result of their lack of interest in coming to a mutually beneficial agreement, you are at risk of losing 19 Viacom networks. We are serious about getting a deal done.

Virtually the entire state of Alaska is also affected.

“We’ve unified to fight for Alaskans and to work toward a fair, long-term agreement that keeps prices stable for our customers,” said Paul Landes, GCI senior vice president. “Viacom wants a rate increase that is 40 times that of the rate of inflation. Alaska pay TV providers, along with 700 small to mid-sized operators nationally, are saying ‘no’ to Viacom’s take all 26 channels or nothing demands.”

GCI is joined by Alaskan providers MTA and KPU in the dispute.

[flv]http://www.phillipdampier.com/video/Cable ONE Viacom Channels Removed New Channels Added 4-1-14.mp4[/flv]

Cable ONE released this video earlier today informing customers they were dropping Viacom networks. (1:00)