Netflix Supports Charter Acquisition of Time Warner Cable

“Charter’s policy will promote efficient interconnection with online content providers and with the transit and content delivery services that smaller online content providers rely on to reach their consumers”, Netflix’s Christopher Libertelli, vice president of global public policy, wrote in the filing.

Charter Communications, Inc. and Time Warner Cable, Inc. have submitted an application to the state Department of Commerce and Consumer Affairs’ Cable Television Division, seeking approval of the indirect transfer of control of Oceanic’s six cable television franchises statewide, pursuant to the merger transaction between Charter and TWC.

The support for the deals, worth a combined $67.1 billion, is contingent upon Charter’s new Internet interconnection policy, which would cover the company’s new larger footprint and extend through 2018.

“It’s certainly a positive for closing the deal, absolutely”, said BTIG analyst Rich Greenfield, and a “nice win for Netflix”.

The service will soon expand to Greensboro and Wilmington.

Oceanic Cable could merge with another company.

Why does this matter?

Netflix’s support for the merger is tied to its interest in limiting the number of commercial arrangements in which it has to pay to exchange traffic with Internet service providers.

Greenfield speculates that if millions of Charter customers choose Apple for video over Charter it could leave Charter in a substantial bind, unable to charge Apple for interconnection nor charge consumers for bandwidth while bleeding video revenues. According to Internet research firm Sandvine, Netflix watchers account for 36.5 percent of traffic downloads during peak evening hours.

In a conference call with investors Wednesday, Netflix CEO Reed Hastings said he hoped the government would impose a similar mandate on AT&T and DirecTV to approve their proposed merger. The company has a market cap of $52.44 billion and a price-to-earnings ratio of 26.29.

Compared to other peers in the CATV Systems sector, Netflix has outperformed in terms of quarterly revenue growth year over year at 0.24 vs. the industry average of 0.17. Analysts expect that Time Warner Cable will post $7.33 EPS for the current fiscal year. Time Warner Cable now has a consensus rating of Hold and a consensus target price of $172.90.