Few rivalries in the media world match those of cable operators and broadcasters. Since the first cable regulation by the FCC to prevent cable operators from importing blacked out sports events and “distant signals” that threatened local broadcast content back in the 1960s, broadcasters and cable operators have constantly sought regulatory advantage over one another. Broadcasters once ruled video as its unchallenged masters. Then came cable, which became the dominant platform for delivery of video. But broadcasting continues to aggregate mass audiences and produce more popular programming. Despite all the yapping about how no one can tell broadcast and cable apart anymore, neither one can survive without the other, but both have radically different interests. As a result, the broadcasters and the cable operators, and therefore their trade associations, are constantly at loggerheads.
The fact that Comcast, after acquiring NBC’s broadcast stations, will be eligible to join the National Association of Broadcasters, underscores just how radically and completely the proposed Comcast acquisition of NBC extends Comcast’s reach into every sector of communication. In ideological terms, it is rather like Vatican City joining the Arab League. But that’s not the only powerful trade association Comcast would now be eligible to join. Comcast will also be able to join the MPAA. Depending on how it develops its broadcast spectrum and other wireless assets, it could join CTIA and other wireless trade associations. These, of course, join the already impressive list of trade associations Comcast already belongs to as the largest broadband access provider, one of the largest residential phone companies, purchasers of telecommunications equipment, etc.
So I propose a new metric for measuring antitrust impact of mergers, the uniquely Washington “Trade Association Scale.” How many trade associations will you qualify for after the merger. If the number is too high, that shows you are getting into far too many lines of business to be healthy, because you have too much influence on everybody else’s business. And on the Trade Association Scale, the Comcast/NBC merger ranks a 10 out of 10.
More below . . .
I will confess that the more I contemplate the length and breadth of this merger, the more stunning it becomes. Indeed, while conventional wisdom holds that it will be approved with conditions, I think there is a small but not unreasonable chance that it will collapse under its own weight. For example, while Douglas Ginsburg and his merry band of judicial activists on the DC Circuit eliminated the rule against cable operators owning broadcast licenses that cover their franchise areas back in 2002, the FCC and the FTC/DOJ will need to consider the very legitimate concerns of independent NBC affiliates in Comcast territory (who could find their affiliation agreement threatened if they don’t grant retrans consent on Comcast’s terms), group owners with NBC affiliates even if the stations in Comcast territory are not NBC affiliates (“give us retrans for your ABC affiliate here or we yank your NBC affiliation in another market”) and the myriad of ways Comcast could benefit itself to the disadvantage of DBS or overbuilder/Telco rivals with its possession of so much broadcast content — including whatever broadcast clearance scheme the FCC may evolve.
And those concerns are just one piece of the larger puzzle of how allowing the largest residential broadband provider, which is also the largest cable operator, to include all the rich content assets that will drive evolution of video online. As cable companies fret about customers “cutting the cord” (giving up cable subscription for broadband), Comcast will have an ownership interest in one of the major online video providers (NBC’s stake in Hulu) as well as plenty of content to seed its TV Everywhere initiative. At a time when the Commission is considering the importance of competition in the cable network attachments market to our national broadband plan, the largest single purchaser of cable set-top boxes, which is also the largest residential broadband access provider, will suddenly acquire a whole new set of content interests that it will wish to simultaneously exploit to its advantage and protect from rivals. At a time when the Commission is being importuned night and day by Hollywood about how important it is to get movies on VOD, and when Hollywood wants to start cutting into the profits of DVD rental operations such as Netflix and Amazon, Comcast proposes to combine with a studio and unite unprecedented control over the physical network with unprecedented interest locking up content.
Comcast’s opening salvo in its charm offensive has been rather weak tea instead of a strong prescription to address concerns about creating this kind of market power in every sector of the American media and telecommunications market. David Cohen, Comcast’s Executive VP for Government Affairs offered a five page letter which proclaimed that while the merger was “pro-competitive and pro-consumer,” Comcast anticipated there would be parties that raised “competitive concerns” that it would address with “voluntary commitments.” Tellingly, not a single one of these voluntary commitments touches on the competitive concerns we’ve raised in the past about TV Everywhere, or any other concern about how this will impact the evolution of online video — such as whether or not Comcast will make content available to “over the top” video providers such as Netflix and Amazon or whether it will give its video on demand service early releases of movies (with or without the SOC waiver). Nor does Comcast even make a nod to network neutrality by promising not to favor its own content online. Given that Comcast has gone to court to argue that the FCC has no authority to prevent it from degrading competing online video content by enforcing its network neutrality principles, such a “voluntary commitment” would have been somewhat reassuring.
Instead, most of the concessions involve things that are either: (a) arguably already required by law (don’t migrate PEG channels to digital early and stop screwing with them; negotiate the retrans agreements for broadcast programming in good faith under the “program access rules” standard); (b) freebies to consumers that don’t actually cost Comcast anything (include PEG in On Demand programming); or (c) things the FCC would require Comcast and NBC to do without the merger if it had any interest in promoting program diversity (expand Telemundo’s multicasting to increase Spanish language programming, put more independent programmers on Comcast’s system).
It’s not that these things are unimportant, mind. It’s just that such gestures cannot be taken seriously as an effort to address the multitude of concerns this merger raises in every single sector of the media and telecommunications business in this country. It is rather like the way in which Congressional Republicans in 2006, desperate to stem voter anger over so many things going wrong, proposed a $100 gas rebate as a “solution” to skyrocketing gas prices, and they were pilloried as hopelessly out of touch clueless idiots.
I recognize this is just Comcast’s “opening gambit,” but it’s a damn poor one. Comcast either does not grasp just how many toes this merger stomps on, or it thinks it can bull its way through by pretending otherwise. When Craig Moffett — normally the cable industry’s #1 cheerleader — warns that Comcast will face “probably 12 months of regulatory hell as they try to get this deal closed,” it behooves Comcast to come out of the gate with its “A Game” and face the broadband competition issues head on rather than try to low-ball the opening offer and pretend the Internet questions are somehow irrelevant because, gosh darn it, this is just an old media merger no one focused on the future of broadband ought to think twice about.
Bottom line, on a scale of 1-10 on the Trade Association Scale, this merger ranks a 10. That means lots of people, from big companies to cute little public interest groups like us, are all going to ask federal regulators to take a close look at this and reject the merger if Comcast cannot come up with better answers to these very real concerns than the “voluntary commitments” offered so far. Perhaps Comcast should wait a bit before filling out an NAB application.
Stay tuned . . . .