Television distribution in the United States is broken. The system denies consumers reasonable choices at affordable prices. Comcast’s proposed acquisition of Time Warner Cable will make a dismally performing and anticompetitive industry even worse.
Comcast is already a giant among media firms. It owns the nation’s largest cable distribution network, serving more than 22 million households. It also owns NBC Universal, one of the largest programmers and broadcasters. A combination of Comcast and TWC will make Comcast larger on both levels: TWC is the second-largest cable distributor, serving roughly 12 million households, and also operates a news channel in New York and sports channels in Los Angeles. Although the two companies have announced a plan to divest distribution facilities serving 3 million subscribers, their combined share of more than 30 million households would dwarf rival cable firms and would be 50 percent larger than the largest satellite distributor, DirecTV of El Segundo.
Consumers might not feel the immediate impact of this deal. The two companies operate cable networks in distinct and nonoverlapping geographic markets. A change in the name of the cable company that extracts ever-increasing monthly subscriber fees probably matters little to most consumers.
In the longer term, however, the deal will make video programming delivery even less responsive to legitimate consumer interests. The reason is that a vertically integrated company such as Comcast stifles the highly beneficial and naturally occurring competition between distributors and programmers. This vertical competition, often ignored or undervalued by economists and enforcers, is vital to ensuring that the system remains competitive.
Distributors, when they are independent of programmer coercion, can and do respond to consumer interests. They can do this by offering varied and attractive buying choices and advocating for consumer interests in business transactions and regulatory matters. Last summer, TWC fought, albeit with limited success, to limit or delay the $2-a-month charge that CBS sought to impose on subscribers.
A year ago, Cablevision, a New York-based cable distributor, brought a major antitrust suit against Viacom (one of the largest programmers) challenging the bundling and tiering restrictions that Viacom imposes on all its distributors. The suit, if successful, could unravel the elephantine bundles that are forced on pay-TV subscribers. When the suit was filed, a number of distributors, including TWC, enthusiastically endorsed it. DirecTV, for example, wrote that “the current all-or-nothing system dictated by programmers is completely broken,” complaining that “for programmers to force this (bundling) system on all pay-TV customers just so they can line their pockets ... is shameful.”
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