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Kabletown Gets Bigger: Why The Comcast-Time Warner Cable Deal Matters

So, what’s all this about the Comcast-Time Warner Cable deal? First, let’s consider the dollar amount: $45.2 billion. That’s what Kabletown… er, Comcast is paying to take Time Warner’s cable business and become even more of a dominant player in the content production and delivery business. And… okay, then, what does that mean to us? I mean, you hear about everyone cutting the cord and getting all of their entertainment and information over the Net, so what does it matter who your cable company is, especially if you don’t subscribe to cable?

It matters a lot, as it turns out. First, the basics: The deal would give Comcast a dominant position in 19 of the top 20 U.S. markets, a combined customer base of 30 million (after spinning off 3 million), and almost 30% of the pay TV market. Its next closest competitor would be DirecTV at 20 million. And if you thought it was a pain in the butt when disputes between TV stations and your cable company take your favorite channels off the cable, wait until one company’s yea-or-nay can mean instant loss of most of the major markets in America. (You can hang an antenna off your TV, but if you, like me, happen to live in a spot where off-air reception is usually non-existent — damn you, mountains! — you’re SOL if, say, ABC gets pulled from your cable system and you can’t get the ABC affiliate off the air.) (I do not understand what you mean by “torrent” or “illegal stream.”) Right now, if, say, Comcast and Disney get into a rights battle, it wouldn’t affect markets like New York, Los Angeles, and Dallas where Comcast isn’t a player. Now, they will be, added to places like Philadelphia, Washington, San Francisco, and many others. Whatever assurances are given that the combined monolith won’t wield that power for evil, it’s obvious that they will have way more leverage against rival program suppliers than before, and since they also own NBC and several of the largest cable networks, the possibility of favoritism is going to be there, regardless of whatever conditions are placed on approval by the feds.

Ah, yes, favoritism. That’s an even bigger one. Net neutrality is already an issue, and this merger consolidates two of the biggest ISPs. Now, to be sure, they generally do not compete in the same areas — Comcast’s Xfinity and Time Warner Cable operate in the traditional local-franchise arena, and the competition is from the satellite services and phone company fiber like Verizon FiOS or AT&T U-Verse (and, in Kansas City, from Google Fiber), or from DSL… and wireless, which is a wild card, since it’s catching up on speed but regulated in a different manner and more expensive for the consumer. (Netflix plus data caps equals misery.) This won’t lessen competition for the end mile connection; you either get offered Xfinity or Time Warner, but not both. It will, however, mean that one company will have a solid plurality of the business.

And that means potential trouble. Even in the last week, we’ve seen reports of slowing speeds among ISPs, and the suspicion, heightened by the court ruling that the FCC’s attempted bifurcated regulation of ISPs is beyond the agency’s authority, that ISPs will, if they aren’t yet doing so, throttle competitors’ streaming offerings or hold them up for ransom and slow them down if they don’t pay the ferryman. (This is known in communications law circles as the Chris DeBurgh Conundrum. 1982-vintage jokes FTW.) Netflix says that it’s not seeing any throttling going on… yet. But if Comcast wants to make its own VOD or SVOD services more attractive, it’s conceivable, especially absent regulation, that competitors like Netflix or Amazon might be given the bandwidth shaft, and if that happens, that’s one way to damage a rival’s business model. And since everyone’s jumping into the SVOD pool — my provider, FiOS, would LOVE me to subscribe to Verizon Redbox Instant instead of that nasty Netflix, and they let me know it all the freakin’ time — there is a strong possibility of trouble in this regard.

So, where does this leave us? Consolidation is good for investors, but it’s not always good for consumers. If approval comes with strict and enforceable conditions to keep the Net open and keep the company from wielding undue power against competitors and independent programming suppliers, it might not be so troublesome. But that’s tricky — ask the satellite operators about the conditions placed on Comcast’s purchase of NBC Universal, especially the Philadelphia sports loophole (forced to for the first time offer Comcast SportsNet Philadelphia to satellite, the asking price became a little… high). The deal still has to go through the regulatory process and anti-trust scrutiny, so this should be interesting, and the public will get the chance to weigh in.

In the meantime, we can try and handicap the approval chances, and since I’ve covered the FCC and broadcast regulation for really way too long, I guess I’m as much of an “expert” as anyone. And I’d say that the chances are pretty strong that the deal will go through with conditions, because:

1. These are major lobbying entities. Comcast, in particular, knows how to get its way. They got to buy GE Sheinhardt NBC Universal AND keep the NBC and Telemundo television stations in markets where they have cable dominance, didn’t they?

2. There’s still competition. Satellite, telco, wireless, fiber. Some people don’t have a choice, but, increasingly, consumers can go elsewhere for their cable, phone, and Internet service.

3. Did I mention that they lobby the hell out of Capitol Hill and the agencies? Because they do.

I’m guessing the conditions will be that they spin off more than the 3 million subscribers they’re proposing to discard, and that all of their programming, but especially the sports channels (Comcast has all the regional Comcast SportsNet channels and NBC Sports Network, Time Warner Cable has the Lakers and Dodgers channels and New York’s SNY, of which Comcast also has a small piece), be made available at a reasonable rate to competitors, finally solving the Philadelphia situation that has DirecTV so angry. (YOU try selling a video service in Philadelphia without the Phillies, Flyers, and Sixers.) (Speaking of which, I miss PRISM, and you have to have lived in Philly in the ’70s through ’90s to understand…) They might — might — even force the company to agree to some form of net neutrality regardless if the ultimate court decision allows the FCC to regulate that or not.

Why wouldn’t it go through? Anti-trust concerns and undue concentration, like the AT&T-T-Mobile merger that never was. Fewer potential applicants for local franchise renewals. The net neutrality threat. The new FCC — Chairman Tom Wheeler is a former lobbyist for both the cable industry and the wireless industry, so it’s a coin flip as to which perspective he’ll favor, if either. The general ookiness of two of the least beloved businesses among consumers — two CABLE companies (ew) — merging. But I’d place the odds at 70% favorable right now. That can change as it moves through the agencies, and will REALLY change if the Justice Department decides to aggressively oppose the deal. But I would not bet against the Roberts family from Philadelphia. They haven’t lost very often.

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  1. It’s more about what the FCC and the DOJ will do. In the areas where this will be an issue — Time Warner doesn’t own systems outside sizeable metro areas — the argument (which will likely be focused on the cable TV part of the equation) will be that as long as there’s DirecTV and telco DSL and wireless/mobile (the FCC is big on wireless) and Dish Network (and, in some areas, FiOS or U-Verse), that’s enough to prevent de facto monopoly power. That’s how they think. But I think that the FCC has a huge opportunity to get net neutrality in here, at least in regard to Xfinity, by placing it as a condition of approval of the sale. The court wouldn’t let them do it as regulation, but as a condition, it’s possible, and I know that a majority of the Commission wants that. (And, as I wrote, Comcast is a veteran of approvals-with-condition, even if they found a way to circumvent that one…)

  2. Shayde says:

    You put too much stock in that there is other competition for bandwidth. I have one choice, and I live in an urban area.

    It is all about where it’s wired, and in a great deal of places you have no choice for broadband AT ALL. Just look at how poorly broadband distribution really is in the US and you’ll realize how much this is an issue.

    They should approve it ONLY with net neutrality at WORST.

  3. Will M says:

    I’m glad a story like this is getting posted on Nerdist. It’s something that will definitely affect a huge part of the population. I hope that you can keep posting updates as well as the events unfold.