A confusing business, this cable lark. Doubly confusing in that
what happens in the UK is often merely the faint aftershock of decisions
taken in a far bigger global game. Business models are replaced with
such regularity that you’re never very far away from inheriting the one
you first thought of.
Take the Flextech discussions with Telewest revealed last week - all the
talk there was about the merits of vertical integration. Flextech’s
parent company has been around this particular block several times in
the US. Flextech was previously owned by the US cable giant, TCI, but
when TCI was merged with another megasaurus, AT&T, the company’s
programming entities, including Flextech, were restructured into a
separate company, Liberty Media.
Here was a clear division between programming and infrastructure. Oddly
though, and perhaps rather untidily, Liberty retained a piece of
infrastructure property in the form of its 21.6 per stake in Telewest:
in short, Flextech and Telewest are already kissing cousins. But the
main point is that, when it comes to structural models, Europe appears
to be different - in the US, where integration is a potential regulatory
issue, it has not always been pursued with great enthusiasm.
Will it work here? Vertical integration evangelists point to several
potential advantages. They argue that a deal between the two companies
will put cable, or at least Telewest’s share of the UK cable industry,
on ’more of a level playing field with BSkyB’. Flextech, they argue,
would have a guaranteed distribution route for its programming, while
Telewest would have a more attractive platform on which to build its
digital interactive offerings in the future. Last week, Telewest
coincidentally revealed that it is planning to sign up 300 content
providers for its interactive services over the next three years -
including retailers, financial institutions and entertainment
brands.
Others, though, have pointed out that this sort of vertical integration
only really makes sense when the content is of a high value. Think of a
TV network - ABC, CBS or Fox/Sky - tying up with a Hollywood film studio
- Disney, Paramount and 20th Century Fox, respectively.
The proposed Telewest-Flextech deal isn’t in that league, obviously. But
some observers are doubly sceptical. For instance, as things stand, not
everyone in the UK can sign up to Telewest cable (around 15 per cent of
UK homes are passed by its networks), and aside from its UK TV joint
venture channels with the BBC, Flextech’s strongest properties are the
Trouble, Living and Bravo channels. How, they also wonder, does
Flextech’s avowed philosophy of being ’platform neutral’ - in other
words, keen to supply programming to any distribution channel - fit with
a vertical integration model?
Paul Longhurst, the managing director of Quantum New Media Services,
questions the relevance of vertical integration in this case. He says:
’For me, these talks are all about Telewest ensuring it is less
vulnerable should the deal between the other two major cable players
(NTL and Cable & Wireless Communications) go through.’
Flextech’s agreement last week to supply NTL with channels for its
digital cable service was heartening for those who feared that a
Telewest-Flextech deal might restrict other broadcasters’ access to its
contents.
There are those who believe that the value of a Telewest-Flextech deal,
should it go through, could lie principally in the bargaining chips it
creates. And, as many pointed out last week, the timing was
immaculate.
The proposed NTL/Cable & Wireless merger referred to by Longhurst was
referred to the Monopolies and Mergers Commission two weeks ago - so
this latest development certainly gives everyone something to think
about.
If, as many predict, cable ownership is bound to consolidate eventually
into one company, the odds on that company being Telewest could now
shorten considerably.
