The announcement by Comcast that the cable, Internet, and media giant plans to purchase competitor Time Warner Cable (TWC) has media industry veterans such as Steven W. Korn, former Vice Chairman of CNN, sitting up and take notice. The merger will increase Comcast’s subscriber base by 50% (from 22 million to 33 million).
Consumers, regulators, and competitors are concerned about the $45.2 billion merger, too. Will the merged company have monopoly power? Will streaming content still be available? Will consumer’s cable and Internet bills be affected? A merger of this size and complexity will have many effects, almost all of which derive from the size of the merged company.
Merged Firm Not a Monopoly, Says Steven Korn
Like many industry observers, Steven Korn is concerned about how the merged company will exercise its newfound market power. “This deal will not create a monopoly,” he said. “I don’t think anyone seriously makes that contention. The question is really whether the deal will give the merged company an excessive level of market power.”
Economists distinguish between monopolies, which have no competition and can set prices and terms at will, and firms large enough to exercise limited market power to set and maintain prices. The new Comcast/TWC will certainly be large enough to influence prices paid by cable and Internet consumers. It will also be large enough to exercise monopsony power, which is the ability of a buyer to command lower prices from its suppliers. Walmart, which aggressively pushes its vendors to meet low price points, is an example of a firm with monopsony power.
Comcast is already a large and diverse media company. In addition to its cable and Internet services, the company also owns the NBC/Universal family of broadcast and cable television stations, movie and television program production studios. This means Comcast/TWC will be able to push its own content ahead of content from its competitors. Because of its size and influence in both content delivery and content production, the proposed merger is a tricky one for regulators to evaluate.
Comcast and the Regulators
A few days after Minnesota Senator Al Franken criticized the proposed merger, Comcast responded with a report detailing how it met or exceeded all of the conditions the government set following the merger with NBC a couple of years ago. These included a new low cost Internet service for low income households, investment in local broadcasting children’s programming, and investment in broadband infrastructure.
For the Time Warner merger, Comcast has said it plans to expand the low cost Internet service program to more families. It will also transfer 3 million of Time Warner’s subscribers to other providers.
“It remains to be seen what kinds of conditions the government may or may not place on this merger,” said Steven W. Korn. “The merger will likely be approved, albeit with specific requirements or restrictions for Comcast to obey. These conditions may relate to the terms and conditions of the access afforded to unaffiliated content providers to the merged company’s systems. There should not be any antitrust issues related to the fact that both companies are cable system operators with exclusive franchises in particular jurisdictions. In that basic capacity the two companies do not overlap or compete in any meaningful way with each other. The antitrust issues arise because access to those systems by unaffiliated web or television content providers will be crucial to the viability of those content providers. The Federal Trade Commission and the Antitrust Division of the Department of Justice have dealt these exact issues in previous mergers and the type of undertakings to which others have had to agree are pretty well established.”
At least one unaffiliated content provider — Netflix — has decided it can’t wait for regulators to act. Within 10 days of the merger announcement, Netflix announced that it had reached an agreement with Comcast to stream its movies and TV shows more smoothly over Comcast’s network.
What About Consumers?
What can consumers expect? It’s hard to say, but most cable and Internet subscribers probably won’t notice much of a difference, if any. That’s because most Americans get their cable and Internet service from local monopolies. Further, Comcast and TWC do not compete with one another in their respective local markets. For those customers, the merger will not lead to loss of competition.
For its part, Comcast says it plans to bring some of Time Warner Cable’s technology to its subscriber base. It has also promised to invest millions in TWC’s infrastructure to bring faster connections and more reliability.
The consumer experience is not the primary motivation behind a merger as large as this, however.
“The deal is really about improving shareholder value. Providing better service and other factors as well, such as reduction of overhead and obtaining synergies are merely means to the end of improving shareholder value,” said Steven Korn.