Comcast CEO Roberts, Liberty Media make a deal

SAN FRANCISCO -- The swap of some customers, sale of others and new holding company agreed to Monday by No. 1 cable provider Comcast and No. 4 Charter Communications shows how profoundly the industry is transforming after Net Neutrality rules were overturned in January by a federal court ruling.

It's also a shrewd tactical move by Comcast CEO Brian Roberts to diffuse potential criticism of Comcast's proposed $45 billion acquisition of No. 3 provider Time Warner Cable.

Charter just last month had come out against that deal in a regulatory filing, calling the plan risky and the result of a "flawed" process.

It urged Time Warner Cable shareholders to vote against it and open negotiations with Charter, whose largest shareholder is Liberty Media, the company controlled by veteran cable investor John Malone.

The Time Warner acquisition, pending a regulatory review by the FCC, will extend Comcast's lead as the No. 1 cable provider.

It will also strengthen Comcast's leverage in negotiations with content providers or smaller distributors who want to use its network to provide digital entertainment to consumers over the Internet.

That's why the giant, industry-reshaping deal has also been publicly opposed by Netflix, which earlier this year re-negotiated its distribution agreement with Comcast.

The new Netflix agreement with the top cable provider was the first since the court ruling threw out rules that forced cable providers to charge the same rate for all data traffic users.

While Netflix CEO Reed Hastings hasn't disclosed its terms, he's since loudly urged Congress to pass new laws guaranteeing unfettered Internet access, also known as Net Neutrality, to companies like Netflix.

Rather than fight both Netflix and Charter, Comcast's Roberts has co-opted his smaller rival by offering Charter enough subscribers to make it the No. 2 U.S. cable provider.

And in a sign of how confident top cable CEOs are that the FCC will approve the Comcast-Time Warner deal! , Roberts and Malone are already proposing a deal to trade 1.6 million Time Warner cable customers for the same number of Charter's.

Comcast last week reported first-quarter profit that was one-third higher than a year ago. Sales rose 14% as it gained subscribers even as Charter and other rivals are shedding customers to Internet-based programming.

The online entertainment industry is headed for a tiered pricing model favorable to cable industry profits, so it's no surprise that Comcast, Charter and others are looking to quickly seal up a top share of the market.

This week Roberts cut a deal worthy of Malone -- who's made himself and his early investors rich with decades of epic cable industry deal-making – with Malone himself.

Both will get something they want as the industry consolidates.

The loser in the long run, thanks to decreased competition in the cable industry, will be cable subscribers stuck paying higher monthly fees.

John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.