Cable Leviathan Moves to Devour Whale

by Dave Schuler on February 13, 2014

Comcast Cable, the largest U. S. cable company, has announcd its intention to purchase Time-Warner Cable, the second largest:

Comcast announced on Thursday an agreement to acquire Time Warner Cable for more than $45 billion in stock, a deal that would combine the biggest and second-biggest cable television operators in the country.

For Comcast, which completed its acquisition of NBC Universal, the television and movie powerhouse, from General Electric less than a year ago, the latest deal would be its second big act to radically reshape the media landscape in the United States. And the merger is almost certain to bring to an end a protracted takeover battle that Charter Communications has been waging for Time Warner Cable.

The resulting company would provide cable service for more than half of all cable customers.

If I were a regulator, not only would I not approve the merger, I would be watching cable companies’ handling of the new freedom the courts have given them recently very closely and, if they were found to be giving advantages to their own content in streaming, I would be seriously considering antitrust procedures against them.

Cable companies don’t operate within a market system. They have local monopolies and within their territories by and large do not compete with other cable companies. You need look no farther to identify the reason for the shoddy and expensive service for which cable companies are renowned. As Wil Wheaton put his reaction to news of the merger

Streaming services threaten the cozy situation that cable companies have and explains the eagerness that cable companies have shown to use their monopoly powers to dominate the broadband Internet service business in the areas they serve. I honestly don’t see how very large cable companies which are government-granted monopolies that produce their own content and control broadband are in the interest of their customers.

{ 11 comments… read them below or add one }

... February 13, 2014 at 9:34 am

Am I wrong to think that approval of this deal depends solely on whether or not the top guys at the companies involved have greased the right palms?

Trumwill February 13, 2014 at 10:07 am

I had the same thought, but I think Matt Yglesias makes a good counterpoint. The effect this will have on competition is multipying zero by larger numbers. If as a part of the negotiations for allowing this to go through, concessions are made with regard to net neutrality, it could be an overall benefit.

TastyBits February 13, 2014 at 10:08 am

Over the air access is one solution. Another solution is a public build out of fiber, and private use as with highways. The companies could pay a toll for the upkeep.

Dave Schuler February 13, 2014 at 10:20 am

If as a part of the negotiations for allowing this to go through, concessions are made with regard to net neutrality, it could be an overall benefit.

There’s an old Yiddish proverb that always occurs to me when I read hypotheticals like that: Az di bobe volt gehat beytsim volt zi geven mayn zeyde. (If my grandmother had balls she’d be my grandfather.)

I think that’s a pretty unlikely outcome.

PD Shaw February 13, 2014 at 10:32 am

I probably agree with Matt; the cable companies are largely not in competition with each other prior to the merger, so there is no apparent anti-competitive effect. The cable companies will further argue that their competitors are the telephone lines and wireless.

The more interesting question to me is the relationship between content and distribution. Does a larger cable company give it more “hand” in disputes with content providers? My impression is that the content providers generally win the high profile disputes where a cable company initially refuses to pay the ESPN asking price.

PD Shaw February 13, 2014 at 10:39 am

Now, that I’ve rad Matt’s comment, I realize that I’ve written basically the same thing. (Substitute “the more interesting implications” for “the more interesting question “)

Trumwill February 13, 2014 at 11:18 am

I think that’s a pretty unlikely outcome.

I think there’s a good chance it could be the outcome (though I think a more likely outcome is that it won’t be approved at all). The government wants net neutrality and frequently places demands on conglomerates that want to merge. Prior to reversing course, the AT&T-TMo merger contained concessions. I don’t know if it will be done, but I think it could be.

Trumwill February 13, 2014 at 11:23 am

PD, that’s actually a way I think this could be good for the consumer. I think anything that gives the distributors more leverage is probably good for the customer. Last I checked (and maybe the wind has been blowing in the other direction since) the networks had almost all the leverage. Which allows them to charge ever-more because the networks are easier to replace than the cable companies.

It’s honestly not the cable aspect of this that has me concerned. We actually do have some competition there with satellite. The internet side, though, is a different matter. That part does concern me (with or without the merger) and I hope the government can get some concessions here.

PD Shaw February 13, 2014 at 11:56 am

@Trumwill, since I don’t have cable-based internet at home or at the office, I guess I’m not as concerned. I’m not sure the cable company has ever been interested in connecting the downtown buildings here.

Dave Schuler February 13, 2014 at 12:21 pm

Does a larger cable company give it more “hand” in disputes with content providers?

Comcast owns NBCUniversal which includes not only NBC, MSNBC, and Universal, but USA, Syfy, and other cable properties.

I find two key problems. First, horizontal monopolies are monopolies, too. A combined Comcast/Time-Warner would have a majority of the cable users as well as being the largest broadband provider. Cable+broadband+content is troubling to me. The court’s findings on network neutrality render it intolerable.

More importantly, I find government-granted monopolies using their monopoly power to expand into other areas troubling on its own.

Red Barchetta February 13, 2014 at 6:11 pm

“More importantly, I find government-granted monopolies using their monopoly power to expand into other areas troubling on its own.”

Precisely. Financing the “other areas” does not need to stand on the merits.

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