Archive for September, 2010

Every day I try to do a couple of interviews about the Comcast/NBCU merger.  Today’s crop included a talk with a guy who said that in America “there’s a reluctant acknowledgement that big companies are going to do whatever the hell they want to do and there’s really not much we can do about it.”  He suggested that in the communications realm this reluctant surrender has become very apparent over the last couple of years; there are no competitors to go to, so Americans may be unhappy about how they’re treated but believe there’s not much to be done about it.

So this is just a brief note to mark the end of a long day.  Up in Canada, the communication regulator has called (again) for line-sharing.  I love the directness of this line from the Ottowa Citizen:

“Putting new lines into homes and neighbourhoods is too costly and would make too much of a mess.”

In other words, the regulator there, the CRTC, has come to the obvious conclusion that wired high-speed Internet connection is a natural monopoly.

“The CRTC said not only must those lines be opened to newcomers, but Bell cannot dictate how fast the Internet connection coming through those pipes can be. Newcomers should be able to provide customers with speeds that rival those supplied by Bell.”

Bell is appealing. The OECD suggests that the CRTC go even farther and require unbundling – a step that has been very helpful in France.

I clicked on the Michael Douglas article in the Ottowa Citizen while getting ready to write this post, and I noticed that all the comments were friendly.  It seems like a civilized place.

Here’s another key reason why DOJ is interested in the possibly anticompetitive activities of the country’s two or three giant cable companies:  sports.

As Richard Sandomir of the NY Times reported yesterday, the Tennis Channel (serving up the US Open) is having trouble reaching broad audiences – because large cable providers won’t distribute the Tennis Channel broadly.  The cable systems (who don’t, by and large, compete with each other) will distribute the Tennis Channel, but only on an expensive, additional-cost, additional digital sports tier. That’s Siberia if you’re looking for a good seat with a big audience that allows you to sell a lot of advertising.

Let’s consider the Tennis Channel’s complaint about Comcast.  Placement on a digital sports tier – which reaches only about 11% of Comcast’s subscribers – means the independent Tennis Channel can’t grow.  At the same time, Comcast puts sports channels in which it has equity (MLB Network, NHL Network, NBA TV) on a much more highly-penetrated tier – and it carries its own Versus and Golf channels on a tier that reaches nearly 100% of its 25 million subscribers.

As Sandomir says, “[I]t is reasonable to ask: if Comcast owned the Tennis Channel, would it make it broadly available on its systems or make customers pay extra for it on a sports tier?”

You can’t overstate the amount of fear most people have in dealing with the giant cable networks.  Programmers are terrified.  In particular, Comcast remembers and holds on to grievances.  Programmers may even be unwilling to speak to the Department of Justice, because there’s a risk the information they give about Comcast’s practices will leak over to the FCC and become public.  Comcast does not forget.

That’s why it’s so remarkable that the Tennis Channel is willing to speak up.

This isn’t just a squabble about tiering and channeling.  It’s not even, really, a tussle over contractual terms of carriage.  Nor is this a story about regulating the “speech” of Comcast – although they would undoubtedly claim that it is.

This is much a deeper issue.  When Comcast controls a dominant pipe into the home for all communications – voice, data, entertainment, interaction, you name it – in the areas in which it operates, it will be able to decide what goes quickly, what goes slowly, and how much Comcast gets paid for everything that passes over its lines.  That’s enormous power.  And if Comcast can keep rivals small so that they can’t constrain Comcast’s pricing power, there will be nothing stopping prices for its services from creeping steadily – even if slowly – upwards.

Much of this power already exists.  Comcast has 61% of the Chicago market; 63% of Philadelphia; 58% of San Francisco; 59% of Miami.  This power will be increased by the addition of NBCU content – particularly sports content.

The sports story is a good crystallization of Comcast’s power as a distributor.  Comcast carefully and jealously protected its distribution pipeline when it was dealing with the NFL Network in 2006 – when Comcast didn’t get exclusive distribution rights from the NFL Network, it moved the NFL Network to a (you guessed it) special sports tier.  The sports teams learned their lesson.  When the MLB Network was launched it immediately gave equity to Comcast.  No one needs to be crushed twice.

With the NBCU content, Comcast could put all of its sports online behind the Versus brand and behind an authentication wall so that you have to have a cable subscription to see it.  It would be a grand strategy to protect and grow Versus and avoid commoditization of the cable pipe. No rules apply to this online strategy, at least at the moment.

So – don’t just think white flannels and genteel announcements when you hear about the Tennis Channel.  It’s blood and guts stuff.  The Tennis Channel shouldn’t be an isolated example, and in fact they probably aren’t.  They’re just the people willing to talk.