The Proposed Merger of Comcast and Time Warner Cable In

 

The Proposed Merger of Comcast and Time Warner Cable

In February 2014, Comcast and Time Warner announced their intention to merge–a deal worth about $45 billion. The merger would form the largest cable TV and Internet provider in the United States and enable the company to control 27 of the top 30 markets in the United States, and three-fourths of the overall cable market. The merger first had to be approved, however, by the Department of Justice (to assess antitrust concerns) and the Federal Communications Commission (the FCC, which evaluates media deals to assess their influence on the public interest).

Comcast and Time-Warner argued that the deal would not significantly influence competition in the cable industry because the companies operated in nonoverlapping geographic markets, so customers would not be losing an option for getting cable service. They also argued that the merger would enable the companies to make investments that would provide customers with faster broadband, greater network reliability and security, better in-home Wi-Fi, and greater Video on Demand choices. As argued by David Cohen, Comcast’s executive vice president, in front of a Senate panel: “I can make you and the members of this committee one absolute commitment, which is that there is nothing in this transaction that will cause anybody’s cable bills to go up.”

Opponents of the merger, however, argued that the size and scale of the merged company would make the company dangerously powerful (particularly given that Comcast had recently acquired NBC Universal). Whereas the merger might not change the cable options available for end consumers, it definitely would change the options available for content providers such as Disney and Viacom, or on-demand programming providers such as Netflix, Cinema Now, Hulu, and others. The merged company’s overwhelming bargaining power over suppliers could also create cost advantages other TV or Internet providers might be unable to match, thereby enabling it to squeeze competitors out of the market. For example, satellite operator Dish Network argued that the combined company would be able to use its size to force providers of content to lower their prices, and that companies such as Dish Network would be at a competitive disadvantage. Dish also argued that the merged company might undermine video services such as Netflix or Cinema Now by altering streaming speeds either at the “last mile” of the Internet (where it is delivered into people’s homes) or at interconnection points between Internet providers. Netflix noted that Comcast had already required the Netflix to pay “terminating access fees” to ensure that customers did not get a downgraded signal. If the cable companies downgraded the signal for on-demand providers, customers would abandon services like Netflix and turn to on-demand options the cable operators themselves were providing. Senator Al Franken pointed out that when Comcast had acquired NBC Universal in 2010, it had defended that vertical integration move by referring to Time Warner as a fierce competitor. “Comcast can’t have it both ways,” Franken argued. “It can’t say that the existence of competition among distributors, including Time Warner Cable, was a reason to approve the NBC deal in 2010 and then turn around a few years later and say the absence of competition with Time Warner Cable is reason to approve this deal.”

For Brian Roberts, CEO and chairman of Comcast, the merger would be yet another milestone in the megadeal acquisition spree he has used to grow the company into a $68-billion media behemoth. The deal was a more nuanced proposition for Robert Marcus, who had been CEO at Time Warner Cable for less than 2 months when the deal was announced: He would get a $79.9-million severance payoff to walk away. The investment bankers advising the deal also stood to rake in $140 million in fees. After a year of reviewing the proposed merger, the Department of Justice announced that it planned to file an antitrust lawsuit against the merger, citing the reduction of competition in the broadband and cable industries that would result. Thus, on April 24, 2015, Comcast announced that it would no longer seek to acquire Time Warner Cable. 

 Questions

  1. What do you think are the advantages and disadvantages of vertical integration between content producers and distributors?
  2. Do you think both of these companies were above minimum efficient scale? If so, what does that suggest about whether and where they would reap savings from the merger?
  3. Do you think this merger would have been good for consumers? Why or why not?

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