The Comcast-Time Warner combination deserves close scrutiny.
Mar 17, 2014, Vol. 19, No. 26 • By IRWIN M. STELZER
So Comcast’s chairman and CEO Brian Roberts is counting on his political clout with the Obama administration and a few inconsequential divestments to win regulatory approval for Comcast’s $45 billion acquisition of Time Warner Cable. And antitrust experts such as myself will be crunching numbers to see what the effect is on arcane and little-understood numbers such as the Herfindahl Index, which measures the increase in concentration caused by a merger. We really needn’t bother. This is a case in which common sense and anecdote trump statistical manipulation.
Comcast’s Brian Roberts
Start with political clout. If spending and hiring politically connected insiders constitutes clout, Comcast has that in spades. Its 100-strong lobbying army includes former lawmakers, former aides on the Hill and in the regulatory agency, and a former member of the Federal Communications Commission. Lee Drutman, a senior fellow at a “watchdog group,” told Politico, “They know how key decision-makers think and how the process works.” Nothing wrong with that, or with spending $20 million last year on its lobbying effort. But Comcast’s hiring of an FCC commissioner “not long after she voted to approve the [$30 billion] Comcast-NBCUniversal deal,” according to Politico, does give cause for concern that others now in government might see a path to future employment that is suboptimal for the credibility of the regulatory process.
I have no way of knowing what goes on in this world of below-the-radar advocacy. But my experience in antitrust matters tells me that political pressure on the Justice Department’s Antitrust Division and the Federal Trade Commission is often resented and counterproductive. Whether that remains the case in this administration, I know not.
But I do know, subject of course to any revelations when the regulators take a closer look, that there is much to suggest that this merger is about as anticompetitive, and therefore as anticonsumer, as one can get, which this anecdote makes clear. When News Corp., in the days when I was one of its consultants, brought out Fox News, it was crucial to get exposure on the Time Warner Cable system in New York City. Not only is Gotham a huge consumer market, it is the hub of the advertising industry, and if the Mad Men could not easily see what Fox was offering, they were unlikely to recommend to their clients that they sponsor some of the new channel’s programs.
But Time Warner did not want to see a competitor to its CNN gain traction. So it refused to allow Fox News access to its New York City cable system, one to which satellite is not a serious competitor and long before the emergence of any viable alternative to Time Warner. Pleas from Fox and then-mayor Rudy Giuliani were to no avail. It took an antitrust case and a disastrous deposition by Ted Turner, the founder of Time Warner’s CNN, one in which he stated his wish that Rupert Murdoch and, if I recall correctly, his children would starve to death, to get the cable monopoly to cave and grant Fox access. But only via a very high number on the channel listing. This, in an era when search engines and grids were less used by viewers, who typically searched for something to watch by scanning channels, starting with the lowest numbers: Before viewers ever got to the high numbers, many had selected something else. That was then, this is now: CNN badly trails Fox News in viewers.
Now, if this merger goes through, even after divesting itself of about 3 million customers the combined colossus would control access to 30 million customers, including those in the lush markets of New York City and Los Angeles. Yes, there is more competition than there was in the days when Time Warner sought to strangle Fox News in its crib, but make no mistake: Cable’s residual market power is sufficient to give it the power of life and death over new entrants that threaten to compete with its own programs, or in any way threaten the value of its investments in the status quo. Any creative person hoping some day to develop products that compete with the offerings of NBC, or the Universal film studio, or any of the big cable channels that are part of the Comcast empire, must be hoping that the regulators will understand that the mere fact that the merged company will control “only” 30 percent of the nation’s viewers is an irrelevant measure of its clout.
Comcast already possesses sufficient market power to behave as any such firm would: offer appallingly poor service. The Financial Times reports that Comcast and Time Warner “rank at the bottom of customer service satisfaction studies.” A combination of these companies might not reduce the number of delivery systems available to consumers in any zip code, as Comcast argues, but it would reduce the market for innovations by increasing the size of the sunk investment to be protected, and make it more difficult for providers of content for the combination’s digital pipes to compete with content provided by the new powerhouse.
Or so it seems. It would be bad policy and unfair to just say “no” before fuller inquiry. But healthy skepticism towards claims of consumer advantage, and insistence that political clout count for naught, do seem appropriate.
Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
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