Changing, but cautiously

For the level of hostility generated in recent media takeover fights, the forces of consolidation have been relatively sleepy lately.

In the year since BROADCASTING & CABLE last compiled its annual list of top 25 MSOs, (see 2001 list ) just three large players have agreed to sell. Two of those involved huge and nasty fights in which the sellers, AT&T Broadband and DirecTV, furiously courted other buyers.

The third was small telco Ameritech, which sheepishly exited after two years of searching for a buyer of its overbuild operation that competed directly with existing cable systems.

That's a stark contrast with the flurry a few years ago when nine of the top 25 cable operators sold to other MSOs in 12 months.

Part of the problem is stock prices. Even recession-resistant cable operators have finally started to slide in recent months, most recently pummeled by debt and an insider-dealing scandal surrounding Adelphia Communications.

But dealmakers say institutional investors and established players have been waiting for Comcast's $58 billion takeover of AT&T Broadband to close, expecting Comcast to parcel out some of AT&T's system clusters to pay down debt.

'There are plenty of people looking,' said John Waller, chairman of investment banker Waller Capital Corp. 'Everyone wants to see the AT&T ripple effects.'

This year's list is a little odd. Typically, if a company is in the middle of a takeover, the buyer is credited with the additional subscribers. The magazine's editors assess the likelihood that a particular transaction will actually close, which in media is rarely a problem.

Hence, the list bumps Comcast from No. 4, where it was last year, to No. 1, folding in the subscribers it will inherit from AT&T Broadband. Sure, the Senate Judiciary antitrust subcommittee hauled Comcast President Brian Roberts in last Tuesday to defend his $58 billion takeover of AT&T. But opposition to the merger seems relatively mild and surmountable.

EchoStar's planned takeover of DirecTV, however, is a different story. There's a much bigger antitrust hurdle. Cable operators generally don't compete in the same markets. But the two DBS companies chase the same subscribers. Customers will clearly have one less provider to choose from if the deal is completed. And despite EchoStar Chairman Charlie Ergen's past success lobbying regulators and legislators, his $22 billion takeover seems shakier. (See story, Top of the Week.)

For now, the list continues to treat them separately.

(DBS companies are included in the ranking because they're in exactly the same business as cable operators.)

But, even separately, DBS companies are showing much stronger growth than cable operators. EchoStar added more that a million subscribers last year. DirecTV added 700,000 subscribers in the past year. If those 700,000 subscribers alone were a cable MSO, it would rank 12th on our list.

In fact, the entire cable industry added just about 700,000 subs a year.

What's next? Adelphia will likely splinter, but its controlling shareholder, the Rigas family, won't willingly sell the whole company in a down market. Cox is clearly a buyer of systems. Possible sellers: Charter and Cablevision. And just as overbuilder WideOpenWest bought Ameritech's systems, look for more marriages among overbuilders.