MEGA-DEAL

03.06.14

Is the Media Mega-Merger of TWC and Comcast a Match Made In Hell?

A cacophony of protests from commentators and consumers greeted the proposed $45.2 billion marriage of the nation’s two largest cable companies. Will it really increase choice for the consumer, or take it away?

To a casual observer, the proposed $45.2 billion marriage of the nation’s two largest cable companies, Comcast and Time Warner Cable, might appear so problematic that it will never get to the altar.

And yet the odds—not to mention the overwhelming political power of these two corporate behemoths—strongly favor a consummation.

Since the engagement was announced last month, along with a scheme to merge 30 million subscribers comprising nearly a third of the U.S. market for video and broadband Internet service, the planned nuptials have provoked a cacophony of protests. Many commentators are skeptical of Comcast CEO Brian Roberts’s claim—-during a celebratory joint appearance on Comcast-owned CNBC with TWC chief Robert Marcus—that “the deal is pro-competitive, it’s pro-consumer. We’re going to be able to bring better products, faster Internet, more channels, on demand, TV everywhere, in a national-local platform that’s really special.

“Special” it most certainly would be: in much of America, the colossal new Comcast would enjoy a virtual monopoly when it comes to charging business customers for access to the Web. “The reason this deal is scary,” Harvard Law School visiting professor Susan Crawford recently observed, “is that for the vast majority of businesses in 19 of the 20 largest metropolitan areas in the country, their only choice for a high-capacity wired connection will be Comcast.”

In an interview with The Daily Beast, Crawford lamented that Internet service in the United States, unlike first-world countries in Europe and Asia, is dominated by broadband cable instead of much faster fiber, and the economic realities of Comcast and TWC are equally backward. “I’m a Comcast subscriber in Cambridge, and a Time Warner subscriber in New York,” she said. “In New York City, I’m paying four times as much as someone in Stockholm for a service that’s 17 times as slow.”

The vertically integrated, pumped-up company—with a massive distribution infrastructure joined to a vast original content portfolio, including television shows, a Hollywood studio, and several regional sports networks—would wield unparalleled leverage in the marketplace.

No wonder CBS chief executive Leslie Moonves, appearing on CNBC hours after the merger announcement, was less than convincing as he attempted to put a happy spin on the situation. “Obviously, as a content provider,” he said, “the good news about Comcast is that they own a network that competes with us, and they own a number of cable channels, so they are a company that believes in content, and they believe in paying fairly for content.”

“In New York City, I’m paying four times as much as someone in Stockholm for a service that’s 17 times as slow.”

Last summer, Moonves won a protracted battle with TWC over carriage fees after the cable company blacked out the Tiffany Network in an attempt to force CBS to accept lower rates. “A bulked-up Time Warner Cable in the arms of Comcast will be able to carry out the strategy that Time Warner Cable attempted vis a vis CBS,” Harvard Law’s Crawford told The Daily Beast. The new company “will have much greater heft to make those kinds of demands,” she added.

Moonves is not alone. Officials at Disney and Time Warner Inc., TWC’s former parent company, are privately worried about the implications of the merger. 

“I must say, we were all surprised,” Moonves said on CNBC, looking like he’d eaten a bad clam.

Aside from proliferating shareholder lawsuits (PDF) complaining that the deal woefully undervalues TWC—never mind that Comcast’s $158.82-per-share offer for an all-stock transaction represents a 17 percent premium on TWC’s market price—there has been a growing public outcry that the merger will hurt already-gouged cable customers and snuff out competition. 

“This is a match made in hell,” opined a typical commenter on the social networking site Reddit, while another wrote: “I don’t know much about Time Warner but as a past Comcast customer I can confirm that they are dreadful.” A third suggested the following grim scenario: “Imagine being a Time Warner customer that winds up on Comcast. It’s like having cancer, and having your cancer cured, but the cure also gave you HIV.”

Organized opposition or, at a minimum, serious qualms have sprung up from labor unions representing thousands of TWC and Comcast workers and from at least one U.S. senator, Democrat Al Franken of Minnesota, who chairs the Judiciary Subcommittee on Privacy and Technology. Last week Franken wrote (PDF) to the Federal Communications Commission warning that Comcast can’t even be trusted to fulfill its previously agreed-upon legal obligations. He cites, among other examples, the company’s resistance to placing Bloomberg News in the same desirable channel neighborhood as MSNBC and CNBC—an FCC-imposed condition of the Comcast/NBC Universal merger—and instead banishing Bloomberg to the channel equivalent of Siberia. It took a lawsuit to force Comcast to do the right thing, Franken wrote.

Two of Franken’s Judiciary Committee colleagues, Minnesota Democrat Amy Klobuchar and Tea Party Republican Mike Lee of Utah, have pledged to hold hearings in the Antitrust Subcommittee, possibly in late March, “to carefully scrutinize the details of this merger and its potential consequences for both consumers and competition.”

And Jay Rockefeller, chairman of the Senate Commerce Committee, has raised doubts that “the creation of an even larger video and broadband juggernaut [will result] in greater choice and lower rates for consumers. This has not been my experience with previous mergers of this size.”

A formidable roster of potential adversaries, right?

Not really.

“This is just gnats nibbling at an elephant,” said Crawford, an industry expert who has written extensively about the clout of the cable giants. “The elephant continues to make its way through the field.”

The only hope of stopping the deal would be the Department of Justice, which generally reviews such mega-mergers and could find this one wanting. “It’s a law enforcement agency that’s not subject to the same kind of political pressure that the FCC or Capitol Hill would be,” Crawford said. Still, she acknowledged, it’s a longshot.

Crawford’s 2013 book, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age, chronicles Comcast’s four-year quest to swallow NBC Universal whole.

Franken, a longtime NBC employee in his former life as a writer and performer on Saturday Night Live and the star of the short-lived NBC sitcom LateLine, is a major character in Crawford’s narrative. He was a leading opponent of that merger, and repeatedly urged the FCC (PDF) to exercise its authority to stop it or at least impose tough conditions to protect the public.

But the agency ultimately discounted Franken’s concerns that allowing a single company to control news and entertainment content as well as the “pipes” of video and Internet distribution would discourage competition, provide negligible incentive for local public interest programming, and leave customers undefended against rapidly rising fees.

“He was one of the very few who understood what was going on and said something about it,” Crawford told The Daily Beast about Franken, who was unavailable for an interview. By Crawford’s account, his dire predictions came true, and four months after the Comcast-NBC Universal merger was approved, FCC commissioner Meredith Attwell Baker, who had voted for the deal, left her government job to accept a lucrative position as a Comcast lobbyist.

“From my perspective, they have unlimited political power,” Crawford said. “They’ve got Brian Roberts golfing with the president”—a reference to Barack Obama’s intimate golf outing last August with Comcast’s chief executive on Martha’s Vineyard. “They’ve hired former FCC commissioner Meredith Baker. They’ve got the former chairman of the FCC, Michael Powell, leading the National Cable Television Association. They have talented communicators and they can operate with a man-on-man lobbying force. They’ve hired the chiefs of staff from many of the key congressional offices.”

Crawford credits Comcast executive vice president David Cohen, whom she describes as the chief strategist, “puppeteer” and “consigliere” of the cable giant’s multi-million-dollar lobbying operation. “They’re all very smooth operatives,” she said. “It’s not that this will be a particularly clever campaign, but it will be enormous and touch every level of government. It will touch local authorities and make donations to the pet non-profits of those authorities. It will get state governors to write letters supporting the merger. It will get statehouse representatives and state senators writing in and saying what good corporate citizens these companies are. A flood of communication about what great thing this merger is will reach Washington.”

Crawford scoffed at Brian Roberts’s vague suggestion that the merger would create greater scale and resulting efficiencies that could be passed on to consumers in the form of savings. “It’s a beautiful argument, but it’s a complete canard,” she said.

Her evidence: the words of the selfsame David Cohen, who in a conference call explaining the proposed merger, admitted: “We’re certainly not promising that customer bills are going to go down or even increase less rapidly.”

Cohen estimated that the deal will be completed within nine months to a year.