03/31/2015 13:23 EDT | Updated 05/31/2015 01:12 EDT

As cable giants consolidate, Charter Communications buying Bright House Networks in $10B deal

NEW YORK, N.Y. - In the latest big pay-TV company deal, Charter is buying Bright House Networks for $10.4 billion.The companies said Tuesday that the deal would create the second-largest U.S. cable operator.Charter had previously wanted to buy Time Warner Cable, but lost out to a $45 billion offer from Comcast. That deal, along with the $48.5 billion combination of AT&T and DirecTV, are both under long-running regulatory reviews.The pay-TV industry is consolidating to gain more leverage against programmers such as The Walt Disney Co. Content costs have risen markedly, even as the pay-TV industry has shed video subscribers in recent years. New options for video that appeal to "cord-cutters" have sprung up in recent months, such as a Web version of HBO, an online set of about 20 channels from Dish called Sling and a $50-a-month service from Sony.Charter Communications Inc. said the Bright House Networks LLC purchase hinges on the Comcast Corp.-Time Warner Cable Inc. deal closing. As part of that combination, Charter is growing substantially. It's paying $7.3 billion for 1.4 million Comcast subscribers, swapping 1.6 million customers with Time Warner Cable and getting a one-third stake in a new cable company comprised of 2.5 million existing Comcast customers.But some analysts have become less optimistic that the government will approve the Comcast deal. Consumer advocates have said it will control too much of the country's Internet access, with more than 50 per cent of high-speed Internet subscribers and nearly 30 per cent of U.S. pay-TV customers.The Bright House deal is also subject to regulatory review. Charter, based in Stamford, Connecticut, is currently the fourth-largest cable operator in the U.S., with 4.3 million video customers, mostly in the Midwest, West and South. Bright House is the sixth-biggest with 2 million customers, mostly in Tampa and Orlando, Florida, but also in Alabama, Indiana, Michigan and California. According to a client note by MoffettNathanson analyst Craig Moffett, Bright House also has "a strong reputation for service and customer satisfaction," a rarity among cable companies.Bright House and Charter are not competitors in any of their markets.The Charter-Bright House deal is "kind of small in the scheme of things," says John Bergmayer, a senior staff attorney at Public Knowledge, a non-profit group that advocates for Internet access. "Trends in consolidation are always worrying but this deal by itself is not as bad as some other deals out there."Public Knowledge doesn't think the Comcast-Time Warner Cable deal should be approved.Advance/Newhouse — the parent company of Bright House — will own 26.3 per cent of the combined company. Charter is paying it $2 billion in cash and the rest in stock and preferred units that convert into common stock of the new company.Once the Bright House deal closes, John Malone's Liberty Broadband Corp., Charter's biggest shareholder, will buy $700 million shares of the new company, giving it a 19.4 per cent stake.The board of the new company will include 13 members, with three directors appointed by Advance/Newhouse and three directors appointed by Liberty Broadband.Shares of Charter Communications added $13.05, or 7.1 per cent, to $196.44 in midday trading. Liberty Broadband's stock gained $3.75, or 7 per cent, to $57.45.___Follow Tali Arbel