Thursday, October 23, 2014

FCC Puts Cable Mergers On Hold, But Should Approve Them

The FCC review of the Comcast - Time Warner Cable and AT&T - DirecTv mergers has been temporarily suspended.  According to Reuters, "The FCC, which will determine whether the deals are in the public interest, said it will pause its self-imposed, 180-day shot-clock deadline to decide how to handle highly confidential documents related to agreements with media companies." Content companies simply don't want to make public who gets charged what for their networks.  

Simply put, the cost that Disney or Discovery or Scripps or any other network charges for each of their networks will be less for an operator the size of Comcast then for an operator the size of Cablevision.  It is one of the dirty little secrets of contract negotiation.  Larger operators get charged less per subscriber because on the aggregate level, they pay a large total sum for all their subscribers.  The larger their reach, the better the deal they can negotiate.  And monthly costs for cable programming can get expensive as operators multiply it by all the channels they bundle to consumers.  It is why their is the latest contract fight between Turner and Dish.

At some point, the clock on these mergers will resume and the FCC will be asked to approve or disapprove each respective merger.  Ultimately, both efforts should be approved.  Size efficiencies are necessary to assure blanket coverage of cable and broadband across the country.  Disruptive technology assures that content companies can reach consumers outside the cable paradigm.  Netflix, Hulu, Amazon, and even CBS and HBO GO are great examples.  I believe these mergers actually improve the competitive front in the cable/broadband space with fewer, although more powerful competitors.  Will prices rise; they always do.  But the cable industry is simply following the industry life cycle curve that many other industries also face.  As they mature, the number of companies competing become fewer, yet bigger.  Look no further than industries like Airlines, Oil, and even Media.  It is the norm.  What is also true is that disruptive changes always occur that lead to new businesses and new competitors.  And that is what makes our free economy work. 

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