Fighting Big Cable (and why it matters)

Most of my time the last few weeks has been taken up with cable ownership issues. If you want the short version and the immediate, easy action to take, click through to my friends at Free Press. For those interested in a little more detail and what else you can do, read on . . .

Comcast (the nation’s biggest cable company) and Time Warner (the second biggest) are dividing up the bankrupt corpse of Adelphia. At the same time, they are swapping their own systems so that in cities where Time Warner and Comcast compete against each other (like New York and Los Angeles) they won’t compete anymore.

In a related issue, the FCC is having another go at setting a limit on how big a cable operator can get. Right now, no one can own up to 30% of the subscription television market in the U.S. (cable, satellite, and the less than half a million “other” systems out there). Back in 2001, the D.C. Circuit told the FCC it had done a lousy job justifiying 30%, strongly hinted it would love to see something much higher (like 60% — as the DC Cir. hates regulation generally and media ownership rules in particular), and sent the matter back to the FCC. I and the other folks at MAP (as well as our buddies at CFA and Consumers Union) killed ourselves to get major comments in on an expedired basis in Dec. 2001 and January 2002. Then the FCC sat on it forever. About two months ago, Martin released a new “Further Notice” to refresh the record (since, lets face it, a lot has happened since 2002). Comments on ownership are due August 8.

In the meantime, Comcast, which controls about 40% of the cable market but only about 27% of the “MVPD market” and Time Warner, which controls about 20% or 10% depending on whether you use cable or MVPD subscribers, are dividing up the bankrupt Adelphia. (MVPD stands for “multichannel video programming distributor,” and means anyone who sells multiple channels of prgoramming on a subscription basis. These days, that basically means the two satellite companies, DirecTV and Dish Network (Echostar))

As part of the deal, Comcast and Time Warner will also swap systems. At the end of the day, no city will have both Comcast and Time Warner. Comcast will dominate the Northeast/midatlantic region (except NYC), Time Warner will dominante NYC, LA, and a number of other markets. (Although it faces some competition from Cablevision in NYC and very limited competition from Charter in LA).

Well, you may ask, what’s the big deal? So I switch from having no choice but Adelphia to no choice but Comcast or Time Warner. Why should I care?

The answer depends on some rather complicated economics. Briefly, to advertisers, programmers, and politicians, the ability to control a city (or, as they call it when measuring effects, a “designated market area” or DMA) is much more valuable than the same number of customers spread out over the whole country. Also, it turns out, DBS makes a rather poor competitor to cable, for much the same reason that Apple made a poor competitior to Microsoft.

The full blown explanation can be found in the comments filed by Media Access Project, which you can get from our homepage. Here’s the short version without the math.

I’ll start with the free speech/corporate censorship issues first. Lets talk about what happened to After Downing Street.org.

For those who didn’t follow the link, afterdowningstreet.org is a coalition of organizations tryng to get the public excited about the Downing Street Memos. Comcast blocked any email with “afterdownngstreet.org” in the body of the email for a week. Comcast claimed it was a spam blocker, but it did not block an IP address or a domain name. Nor did it let through forwarded email. If I, a Cavalier DSL subscriber, forwarded an action alert from afterdowningstreet.org to a friend subscribed to Comcast, my friend would never get the email and I would never get a bounce message or any other indication the email was blocked.

Eventually, Comcast resolved the problem. According to Comcast, it blocked the email because it received a large number of spam complaints.

Whatever the merits of Afterdowningstreet.org, whether Comcast acted from political bias or from a general network administrator concern, time sensitive political speech was blocked from the nation’s largest broadband subscriber for an entire week. A week in which afterdowningstreet.org were trying to mobilize people around the third anniversarry of the Downing Street Memos.

I confess, I am perhaps more uncomfortable that a single company has the power to screw up potentially important political speech by mistake than by design.

Now multiply that power over an entire region. I and my neighbors will never know we’ve been blocked. No one in the region will get the message out to organize. Yes, folks on narrow band and DSL will get it. But cable continues to dominate residential broadband, and more folks switch from narrow band to broadband all the time (oh yeah, and the biggest narrow band ISP is owned by Time Warner).

Moving out of broadband to plain old cable television, the behavior of Comcast and Time Warner in the recent fight over state-wide franchising in TX should raise eyebrows. During the recent tussle in TX on legislation to abolish local franchsing for phone companies offering video, Comcast and Time Warner refused to run SBC political ads. OTOH, they ran free advertisements opposing the legislation.

Again, I don’t care about the merits of the legislation. I care about the fact that Comcast and Time Warner can effectively block one side of a polictical debate and blare out their own side. Then I magnify that power over a whole region rather than just scattered neighborhoods, and I get very, very worried.

So, for free speech purposes, national concentration and regional concentration matter.

Now for the straightforward economics:

Not all customers are created equal. If I as an operator have the power to keep your advertisement or programming or products away from whole geographic regions, particularly the “top DMAs” that have the greatest population densinity and the greatest concentration of wealthy customers, then you would much rather have me carry you than have all the other systems (and, lets face it, there aren’t that many) carry you. So if I control a region, I can decide what programming gets carried. I can force you to “give” me ownership in your programming to let you on my systems. I can screen out potential competitors.

I can also block advertisements for potential competitors to my other services. For example, Comcast and Time Warner refuse to carry advertisements for competing DSL services. Yes, you can still buy a much more expensive national advertisement on CNN, rather than a local ad on my local cable system, but I’ve just made it much harder for a rival to compete.

So I can raise prices. I can raise subscription prices, I can make you rent a set-top box from me rather than allow a third party to make one cheaper. If your neighbor has a competing cable system that desn’t do that, then you get all mad and complain to your local cable regulator. But if everyone is suffering the same, and has no basis of comparison, you will grumble and pay.

Finally, taking over the whole region diminishes the ability of your local government to help you. The biggest remedy a local franchise authority (LFA) has is to take the franchise away from the incumbent and give it to someone else. But if there is no one else in the area, no one will want to take over your LFA as a stand alone system. It isn’t economical. So te local cable co (and Comcast has increasingly done this), can just thumb its nose at the LFA.

So why not switch to satellite? We’ll start with the fact that most people in cities can’t get satellite unless their landlord o.k.’s it, and most landlords have exclusive deals with the cable companies. Satellite only works if you have an unobstructed view of the Southern sky (where the satelites are in orbit). If you rent an apartment that faces south, you may be able to get satellite (if the building next to you dosn’t block the view). But if you face North, East or West, you are out of luck.

Also, it is a big hassle to switch your provider. Is it really worth it after that 5% rate increase? Is it really worth it to switch just to see different programming? Will it really get better? Sure, if cable systems raised subscription rates to a $300/month for basic, people would switch. Just like if Microsoft raised its licensing fees too high, people would switch or do without. But, as a general rule, a cable monopoly that controls a whole region can raise prices for everything higher than if there is a cable system next door that does things differently.

Finally, if you switch, you will have to give up your email address. Increasingly, this has become a big deal, especially if you do online banking or have other kinds of business or financial things linked to your email address. You can switch, but it is a major hassle. Is it really worth it?

For most people, the answer turns out to be “no.” While there are a hardcore of libertarian folks out there who, even if they accept the idea of antitrust generally, think that as long as any possible competitor exists, there is no monopoly, that’s not what the law actually says. As the D.C. Circuit put it in United States v. Microsoft, if a company can raise prices above the competitive level profitably, and if barriers exist that keep consumers from easily switching, you have market power and the basis for a monopolization claim. So, even though people could switch to Apple or Linux did not undercut the government’s claimthat MS had a monopoly, because a careful examination of the reality showed that it was really, really hard for people to switch operating systems, even in the face of anticompetitive conduct.

So what can anyone do about it? As I’ve said before, there is no substitute for representative democracy. If you want you can:

1) File a comment with the FCC. You can go through the Free Press link, or go directly to the FCC’s comment page. (The Docket Number for the Comcast merger is 05-192; for the general cable ownership proceeding it’s 92-264. Free Press provides a basic template. But I want to urge everyone to speak in their own words. It really makes a huge difference. Tell the FCC (a) why you care; (b) whether or not you subscribe to cable, satellite or a broadband provider, and (c) if you subscribe to cable, why you feel you can’t switch (or why you stay despite your concerns).

2) Your Senators and Representatives from Congress will be in town for the next month. Take the chance to talk to them and tell them you care. Democracy For America has already scheduled meet ups to go in and talk to memebrs about Rove, Iraq, the Supreme Court, etc. But, whether you are a Republican or a Democrat or a whatever, if you feel strongly about not letting big cable get bigger, take five minutes to talk to them about cable ownership and the Comcast/Time Warner/Adelphia system swap. They’ll be amazed and surprised and, frankly, probably glad for a bit of a break on the “hot button” issues the media focus on.

Stay tuned . . .