Charter Communications (NASDAQ:CHTR) may have one of the brightest futures of the cable providers, depending on its success in courting Time Warner Cable (UNKNOWN:TWC.DL) for a merger. The fourth largest cable company, Charter, rumors say, may potentially make a bid for the second largest cable operator as part of an industry veteran's plan to reshape the cable landscape. (It is also a quarter owner of the business.) In the meantime, the company posted earnings this week that showed growth across the board, and even some positive subscriber numbers -- a rarity in the current cable business. Still, the big question for investors is whether Charter can accomplish a delicate M&A tango.

Earnings recap
In the company's third quarter, Charter posted a more than 5% gain in top-line sales, to $2.1 billion. Growth came in the form of improvements across not only Internet and commercial revenue, but video, as well -- again, a contrast to the industry at large.

The company added 46,000 new residential subscribers year over year, which comes on the heels of a 24,000 subscriber gain in the year-ago quarter. On the unit level, average revenue per customer bumped up to $108.52, from $105.53.

Investors should note that, despite the solid headline numbers, the percentage of customers on a non-video plan increased to 24% of the total, up from 17%. Whether it's immediately evident in Charter's results or not, "unplugging" is as prevalent as ever for video consumers.

Adjusted EBITDA grew by 5.1% based on the revenue growth and controlled costs. Revenue and EBITDA numbers are based on a pro forma basis, not including the company's acquisition of Bresnan, which closed over the summer.

Overall, the results were great; but what investors should really focus on here is the potential M&A activity.

Long-term trends
As it stands now, the cable industry needs to adapt. The common tale of streaming-induced unplugging is going to chip away at every single provider, all while the providers battle it out in court with broadcasters over content costs (like Time Warner Cable did with CBS this fall, resulting in a 300,000 customer flight).

John Malone, Chairman of Liberty Media and quarter owner of Charter, is pushing hard for industry consolidation. Even though Charter and its larger brethren are big, big companies with a lot of sway over our video airwaves, they just aren't big enough to have enough pricing power over broadcasters and the Internet's streaming businesses. Combining the No. 2 company, Time Warner Cable, with Charter would be a formidable first step in the process, and bring both companies into better long-term standing.

The reason for Charter taking over the larger Time Warner is largely a matter of Charter's tax assets that, in the case of a merger/acquisition, would be beneficial to the newly formed entity. Charter has loss carry-forwards that could take a chunk out of the merged business's income tax, helping the companies and investors. Beyond the tax incentives, though, this would be the best strategic move for the company to ensure its continued growth.