Not worried about Comcast-Time Warner Cable? You should be

CNET's Charles Cooper is still waiting to hear a convincing argument that what's good for Time Warner Cable and Comcast is good for the United States.

Comcast's corporate headquarters in Philadelphia. Getty Images
With Washington, D.C., snowed under, Time-Warner Cable and Comcast picked the perfect day to announce a controversial mega-merger.

That's because we're talking about a snow job of epic proportions.

Comcast has presented the proposed $45.2 billion combination, which would cobble together the country's biggest and second biggest cable and Internet companies, as being pro-consumer. I would expect nothing less. In a blog post, Executive Vice President David Cohen offers a boilerplate list of particulars, but the gist is that since Comcast and Time-Warner Cable don't compete to serve customers in any ZIP code in America -- they call that "horizontal overlap" -- "the transaction will not harm competition or reduce consumers' choice in any way."

Cohen's entitled to his point of view and once the weather clears and the hired help in the nation's capital starts returning to work, Comcast's contention will get a serious airing. As it ought to receive. I'm awestruck at the enormity of corporate ambition but are there any major cable mergers which have led to lower prices? You're sure to hear a lot about why this is something America needs and that this time will be different. That's because Time-Warner Cable and Comcast know how the game gets played and they have the checkbooks to craft a concerted message. The two companies combined spent more than $25 million to buy lobbying clout last year.

But before the regulatory authorities crack open the books, I came across a couple of data points from a report last spring (PDF) by the advocacy group Free Press that are worth pondering:

  • Consumer Expenditures on cable and satellite TV grew at an average annual growth rate of 4.9% from 1983 to 2012.
  • From 2007-2011, multichannel distributors collectively increased the price of expanded basic cable service by 22 percent.
  • Rate hikes and other fee increases helped the industry increase video-segment revenues by 27 percent -- and this was when there was no growth in the total number of multichannel video subscribers.

And this from a survey by the Federal Communications Commission: the average price of "expanded basic" cable service consumers pay climbed from $25 per month in 1995 to $54.46 by 2011.

"It's pretty unbelievable. They own everything -- the conduit and the content," said A. Michael Noll, the former dean of the Annenberg School for Communication and Journalism at the University of Southern California and Bell Labs researcher. "Their power is too big -- and now they're going to become bigger? Good grief!

"Many many years ago, when I was in Washington, Robert Pepper at the FCC told me that in the old days we allowed cable companies to control the content in order to get going. He implied to me that the issue would get revisited. But it never got revisited and that's the problem with this merger," Noll said. "If they were just conduits like the phone company I wouldn't care. The issue is the content issue -- with them using that conduit control along with this incredible packaging of content that they've got."

Took the words from my mouth.

No word from Netflix and Hulu, whose execs remained huddled in their command bunkers trying to figure out what all this might mean. I understand their reticence to go public just yet but they obviously understand the worst-case scenario. The deal would create a new and lopsided power relationship which could get messy for streaming companies as well as for content creators and Internet companies. (For now, the court's recent Net neutrality decision will not have much effect for Comcast, which is locked into the old FCC rules under the conditions it accepted to get the NBC Universal deal passed. Comcast said those conditions would apply to TWC if it takes that company over.)

And while we're speaking about broadband, here's another statistic (spotted by Om Malik) that's worthy of an asterisk: The Comcast-Time-Warner Cable combination would create the nation's biggest broadband provider with about 33 million broadband connections. Were he around these days, even Adam Smith would recognize that as a lot of power to award to a single company.

Expanded basic cable price index includes services offered by wired cable, satellite, and some telco TV distributors. Free Press Research,FCC

So might we see more standoffs between cable companies and broadcast networks like the one last summer pitting Time-Warner Cable and CNET's parent company, CBS? A dispute over pricing led to millions of customers losing their access to CBS for a month. Time-Warner ultimately buckled. But an enlarged Comcast would have much bigger muscles to flex in any future argument.

Maybe there is someone who can explain how what's good for Time-Warner and Comcast is good for the United States. That's not going to be an easy sell.

 

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