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.”
TWC’s pro-consumer and pro-competition view will not survive the merger. Instead, Comcast will fight to maintain the corrupted and broken business model that denies consumers reasonable choices. Other anticompetitive effects are also likely. Comcast will favor its own programming when making carriage decisions within its own distribution network, making it more difficult for independent programmers to gain distribution rights. Comcast could also use its power over programming to disadvantage rival distributors (e.g., making it more difficult or expensive for rival distributors to get access to NBC Universal programming).
Most frightening of all, with control over the Internet pipeline for 30 million households, Comcast could use discriminatory pricing and other strategic tools to stifle viewer access to video streaming services such as Netflix and Amazon Prime.
Comcast comes into this proposed merger with unclean hands. It is a primary actor in maintaining a grossly anticompetitive system of forced bundling and tiering restrictions, something that is no longer tolerated in Canada, where consumers pay an average of $30 a month less for pay-TV subscriptions. At a minimum, the merging parties should demonstrate their good faith by voluntarily eliminating forced bundling and allowing all distributors to offer consumers a la carte or smaller customized bundles. They should also agree not to discriminate in prices for Internet access and to sell that access without bundling it with cable-TV programming.
Finally, the two firms could eliminate substantial anticompetitive effects of this proposed union by agreeing to divest all of their programming assets. As it stands, the merger should be prohibited as a violation of the Clayton Act, which governs anticompetitive mergers.
Warren Grimes is a professor at Southwestern Law School in Los Angeles, where he teaches and writes about antitrust and communications issues.