HBO Balks at Charter-TWC Deal Over Its Impact on Web Video

Charter Says Video 'Is Great for Our Business'

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Credit: Eric Liebowitz/HBO

Time Warner Inc. began HBO's streaming video service last year, letting consumers watch "Game of Thrones" or comedian John Oliver over the internet without a cable-TV subscription.

Now the entertainment programmer wants to make sure online video competition isn't squelched if its former cable unit is purchased by Charter Communications Inc.

Time Warner said in filings with U.S. regulators vetting the deal that statements from Charter officials raised concerns that the company will try to harm streaming video if the merger with Time Warner Cable Inc., which is no longer part of Time Warner, is approved.

The Federal Communications Commission should "take as much time as is necessary to investigate these concerns," Time Warner Inc. said in a March 3 filing.

Charter pushed back with a blog post, saying that online video "is great for our business" because it increases the value of the company's broadband offering.

"There is friction between the internet community that wants more ways to expand contact with consumers versus cable providers who want to keep everything within their own ecosystem," said Gene Kimmelman, president of the policy group Public Knowledge and a former federal antitrust official. He said online video is "going to be a focal point" as the merger review continues.

Deal scrutiny
The company's input adds to the concerns from lawmakers, public interest groups and other content creators over whether upstart video offered over the Internet will thrive as cable companies seek to consolidate.

The $55.1 billion deal would create a new, larger No. 2 cable provider behind Comcast Corp., with customers in cities such as Los Angeles and New York. Charter and deal supporters are jockeying with critics during what could be federal regulators' final weeks of reviewing Charter's deal proposed in May. Charter Chief Executive Officer Tom Rutledge said in February he hoped to conclude the review this month.

Charter has worked to ease concerns over broadband, saying it won't impose caps on data usage that might discourage viewing of internet video, pledging not to block rival traffic, and not charging video providers to connect Charter's network.

'Significant risk'
Critics, including Harry Reid, the Senate Democratic leader, say the deal would create a duopoly that could squelch online competition. Mr. Reid in a Feb. 29 letter told regulators the deal could pose "a significant risk to consumers."

Mr. Rutledge, in a Nov. 12 interview on CNBC, said HBO was running "risks to their business" by offering online the same thing it was selling to cable companies. But he added that "it doesn't appear" that HBO is jeopardizing its position in cable lineups. "It all depends on what their business practices are in the long run," Mr. Rutledge said.

Time Warner Inc. in a March 2 meeting told FCC staff about Mr. Rutledge's comment, and about "nonpublic interactions with Charter" said to said to show the possibility of harm to online video.

Charter in its blog post Monday said deal opponents "have been attempting to mischaracterize past comments" by Mr. Rutledge "in an effort to seek unnecessary concessions as the merger review process enters its final stages."

"To be clear, we are excited about programmers like HBO who are starting to offer over-the-top versions of their content through products like HBONow, simply because it makes our unlimited, high-speed broadband more valuable for consumers," Charter said in the blog post. Over-the-top is another term for online video.

Neil Grace, an FCC spokesman, declined to comment.

Prevailing view
Investors show confidence that the deal will close, with the difference between the price for Time Warner Cable shares and the price Charter promises to pay at closing narrowing to less than 3% from a high above 9% in September.

Despite Mr. Reid's letter, the "now prevailing view" is that the deal will win approval by the FCC and antitrust officials at the Justice Department, with authorities demanding some limits on the company's behavior after the merger, New Street Research said in a March 1 note. The notion of a duopoly is "a very good political argument but is a weaker antitrust argument," according to New Street.

Charter has said 88% of households have the choice of two or more broadband providers, and there is little overlap among subscribers of Charter and its proposed merger partners.

In a blog post, the company acknowledged questions about the deal's impact on online video. "We're interested in continuing to offer our customers the content they want," Charter said in the blog post. It said the company doesn't have significant programming interests to protect.

'Closely review'
Time Warner Inc.'s concerns are shared by some influential lawmakers and public interest groups.

Regulators should "closely review" the merger for impact on online video, Senator Mike Lee, a Utah Republican, and Senator Amy Klobuchar, a Minnesota Democrat, said in a Feb. 17 letter to the FCC and Justice Department. Mr. Lee and Mr. Klobuchar, who lead the Senate's antitrust subcommittee., said if the merger is approved, Charter and Comcast will control 70 to 90% of the broadband connections to American homes.

Five other senators, including presidential candidate Bernie Sanders, also have expressed concern the deal could raise prices and thwart online competition.

In early February, FCC staff questioned executives from the Walt Disney Co. and 21st Century Fox Inc. about competition to traditional video from broadband sources. Topics included whether pay-TV companies can use contract provisions to inhibit the development of new companies entering the market, according to disclosure filings.

With the deal, Charter would almost quadruple its cable subscribers, gaining 12 million customers in cities including New York, Los Angeles and Dallas. The combined business would have about 17 million basic cable customers, compared with Comcast's 22 million.

-- Bloomberg News

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