Debate Continues as Formal Filings End for NBC/Comcast Merger

Debate Continues as Formal Filings End for NBC/Comcast Merger

Thomas Cheplick

Thomas Cheplick, a freelance reporter for the Heartland Institute, writes from Cambridge,... (read full bio)

As federal government regulators pondered whether to allow the nation’s largest cable provider—Comcast—and the NBC TV network to merge, analysts continued their criticisms of the agency’s failure to approve the merger. Federal Communications Commission (FCC) regulators are expected to determine by the end of this year whether to allow the purchase or block it.

Comcast is attempting to purchase 51 percent of NBC from its current owner, General Electric, for $13.75 billion. The total value of the transaction is estimated at $30 billion.

The Comcast/NBCU deal would rank ninth behind other media mergers in transaction value when announced. Top-ranked is the 2000 AOL-Time Warner merger at $165 billion.

According to Comcast, more than 250 elected officials on the federal, state, and local levels support the merger, including six U.S. senators and 97 U.S. representatives.

Government as Bigger Threat
George Mason University economics professor Don Boudreaux says the merger is not the real threat to competition; it’s the FCC’s intervention.

“The surest—and, practically speaking, the only—source of monopoly power is government prohibitions on competition,” Boudreaux said. “Restrictions on entry and regulation of prices are two methods that governments frequently use to bestow monopoly privileges on a few producers at the expense of many consumers.”

Boudreaux continued: “Antitrust history gives us no reason to believe that mergers are ever a threat to consumers or to competitive markets—and every reason to believe each day a merger is delayed by government is a day consumers are denied the greater efficiencies that would result from that merger.”

Competitor Complaining
Opposing the merger is satellite company and Comcast competitor DirecTV, which has been expressing concerns Comcast will begin charging additional fees for content provided by NBC and NBC-owned cable channels (see related story on broadcast retransmission fees on page 1). Should Comcast impose these fees, DirecTV claims, a price increase for DirecTV customers would result.

But in an FCC filing, Comcast refuted assertions it will charge other carriers an additional fee for NBC content, which not only includes programs on the Peacock Network but also NBC-owned cable channels such as USA, Bravo, CNBC, Oxygen, and SyFy. Instead, Comcast says it is seeking to reduce “double marginalization”—higher market prices with lower profits.

“In an earlier FCC proceeding,” wrote Gregory L. Rosston and Michael D. Topper on behalf of Comcast in an FCC filing this past July, “DirecTV conducted a similar analysis of the benefits from a reduction in double marginalization.”

Conspiracy Theory
New York Law School professor and former Obama administration Special Assistant for Science, Technology, and Innovation Policy Susan Crawford is a pro-intervention stalwart. She says what Comcast really wants is to “take down not NBC content per se but those very popular cable television shows and get them put behind an online authentication wall that only Comcast subscribers will be able to access for free,” she said. “The most valuable part of NBC isn't NBC; it is the cable channels—USA, Bravo, CNBC—which make up to 80 percent of NBC’s money.”

But doing so would slash revenues from NBC properties, noted Comcast Executive Vice President David Cohen in a blog item: “It’s important to remember that more than three-quarters of the video customers in the U.S. don’t use Comcast, more than 80 percent of broadband users aren’t Comcast customers, and only one out of seven channels on a typical Comcast cable system will be affiliated in any way with Comcast-NBCU after the closing of the joint venture.”

Cohen stated merger opponents are mainly groups interested in settling decades-old scores that have nothing to do with the merger discussion, or business competitors trying to gain a marketplace advantage.

“As in many prior transactions,” Cohen wrote, “various parties have attempted to use this review to try to advance agendas they may have on industry-wide issues, and to ventilate pre-existing grievances, that have nothing to do with this transaction. Some competitors are opportunistically trying to get the FCC to put conditions on the transaction that will give them business advantages or hamper us from competing effectively.”

Hamstringing the Industry
Michael LaFaive, fiscal policy director of the Mackinac Center for Public Policy in Midland, Michigan, says the FCC has “a very transparent history of hamstringing the cable industry to assist traditional broadcasters since the 1960s. And now the up-and-comers in the industry want the FCC to deny this merger to increase their own competitive advantage,” he said.
It’s all part of a regulatory spiral in which each round of regulations creates problems the government then sets out to solve with new requirements.

“Once you put regulations in place to favor one player in the market over another, as the FCC and Congress did with the Communications Act of 1992, you have to keep adding new rules and regulations to maintain that dynamic,” he said. “This distortion of market forces places tremendous burdens on Comcast. The FCC and, in fact, all government entities should remove themselves from picking winners and losers in any industry, including telecommunications.”

Boudreaux agrees. “It’s impossible for antitrust enforcers and the courts to keep up with the supersonic speed of innovative change that is now a constant in telecom industry,” he said. “All that they can do is slow things down—which means less vigorous competition and fewer consumer benefits.”

Thomas Cheplick (thomascheplick@yahoo.com) writes from Cambridge, Massachusetts.

On the Internet

“The Proposed Comcast NBCU Transaction: Response to Comments and Petitions Regarding Competitive Benefits and Advertising Competition” by Gregory L. Rosston and Michael D. Topper: http://www.heartland.org/infotech-news.org/article/28467

“FCC Comment Cycle Closes on Comcast NBCU Joint Venture” by David Cohen: http://blog.comcast.com/2010/08/fcc-comment-cycle-closes-on-comcast-nbcu-joint-venture.html

List of U.S. Legislators supporting Comcast-NBCU transaction: http://www.comcast.com/nbcutransaction/federalofficials.html

Chart: “Major Media & Telecom Transactions:” http://blog.comcast.com/assets/majormediatelecomtrans.jpg

Thomas Cheplick

Thomas Cheplick, a freelance reporter for the Heartland Institute, writes from Cambridge,... (read full bio)