Tuesday, May 20, 2014

We're doing it for consumers (not)

Last February, Comcast announced that it had agreed to acquire Time Warner Cable for a bit over $45 billion. The Comcast press release announcing the deal had the sub-head "Transaction Creates Multiple Pro-Consumer and Pro-Competitive Benefits, Including for Small and Medium-Sized Businesses." The press release had three discussions of the benefits that the merger would bring to consumers, and in subsequent Congressional hearings, both Comcast and Time Warner Cable executives have touted how their merger will benefit consumers.

Last Sunday, AT&T announced that it has agreed to acquire DirecTV for $49 billion. The joint AT&T/DIRECTV press release mentioned consumer benefits twelve times, including this quote from DIRECTV President and CEO Mike White: “This compelling and complementary combination will bring significant benefits to all consumers, shareholders and DIRECTV employees."

Earlier today, the National Association of Broadcasters, which represents the major broadcast networks, as well as radio and television station owners, issued its own press release questioning the consumer benefits of the AT&T/DirecTV deal, while emphasizing its own interest in looking out for consumers. NAB executive VP Dennis Wharton was quoted as saying “AT&T’s proposed merger with DirecTV demands a hard look in an increasingly consolidated broadband and pay television marketplace. It is hard to see how decreasing competitors in the pay TV marketplace – while increasing regulatory restraints on local TV stations – truly benefits consumers.”

Let's be clear: AT&T, Comcast, DIRECTV, the National Association of Broadcasters and Time Warner Cable couldn't give a damn about consumers. They're saying what they think they need to say in order to get the appropriate governmental agencies to approve or block the mergers. Let's look at what the parties really want or are afraid could happen:
  • Comcast wants Time Warner Cable's subscribers in order to increase its subscriber count to 30 million households, or about a third of all households in the U.S. that watch television. The merger will increase Comcast's revenues and profits dramatically, after years of little or no subscriber growth. It will also make it much riskier for broadcast and basic cable networks to threaten to black Comcast's channels out during retransmission negotiations, because losing Comcast's households would mean immediately losing a third of their viewers, and substantially more than that from major markets controlled by Comcast. That would directly impact ratings and force networks to make up the lost viewership to advertisers.
  • AT&T gets a national footprint by acquiring DIRECTV. It will be able to sell TV service, and to bundle mobile and TV service, anywhere in the U.S. It will be able to sell DIRECTV out of every AT&T mobile retail store. The merged company will have roughly 26 million subscribers--second only to the merged Comcast/Time Warner Cable. That will give AT&T the same leverage in retransmission negotiations that Comcast will have. AT&T also gets access to DIRECTV's unique programming, including NFL Sunday Ticket, which generates $300 of revenue per subscribing household each year.
  • The National Association of Broadcasters fears its members' loss of leverage in retransmission negotiations as much as Comcast and AT&T are looking forward to it. Instead of negotiating with ten big cable operators, two big satellite providers and two big IPTV providers (AT&T and Verizon,) broadcasters' negotiating partners are going to be Comcast, AT&T and everyone else. Broadcasters are afraid that Comcast and AT&T will squelch their ability to raise retransmission fees, and may even be able to lower them.
  • Smaller cable operators (represented by the American Cable Association) are concerned that if the broadcast and basic cable networks can't get the money they're looking for from Comcast and AT&T, they'll try to get it from the smaller cable operators, which have far less negotiating leverage.
None of this has anything to do with improving service or lowering costs for consumers. As Bloomberg Television pointed out yesterday, Comcast and AT&T could do something that would be of great benefit to consumers: For far less than the $45 to $49 billion that each merger will cost, they could dramatically increase consumers' Internet speeds to 1 Gigabit per second. That would give customers near-instantaneous access to Internet content and services. However, Comcast and AT&T are only planning to offer 1 Gigabit service in those markets where Google Fiber either already offers it or plans to offer it in the future.

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