Today’s WSJ story on Comcast/NBCU and the Department of Justice focuses on online video.
Here’s why the Antitrust Division is interested: Comcast can potentially maintain its regional-monopoly power over video-to-the-home by making online video distributors’ subscription products unattractive to consumers.
It’s called monopoly maintenance, and it’s just like what Microsoft did more than ten years ago – there, the DC Circuit agreed, MSN sought to leverage its market power into the nascent browser market in order to hang onto its operating system dominance. This time, the nascent market is online video aggregation and distribution – so-called “over the top” video.
Section 2 of the Sherman Act makes it unlawful for a firm to “monopolize.” 15 U.S.C. § 2. The offense of monopolization has two elements: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”
Here, the argument could go, Comcast possesses pay-TV monopoly power in several key markets in the US (including Chicago, Philadelphia, Miami, and San Francisco).
A few more facts: Comcast is tying access to its online content to a cable subscription. (So are other cable providers, like Time Warner – this is the TV Everywhere model.) Comcast is not required by any law to give competing online distributors access to its content so that they can distribute it. Comcast plans to put all of its cable channel material online (including the hugely popular NBCU channels like USA) behind a TV Everywhere authentication wall. The large cable systems have divided up the country and don’t compete with one another.
These few simple facts, taken together with the giant cable companies’ great power in particular markets, make tremendous gears turn.
Comcast knows that viewers may want to cut the cord. (Pew and comScore and other people say the cord-cutting numbers are growing.) They’d like to hang onto their pricing power in the face of this phenomenon. The cable programmers have every interest in playing along so that they can reap fees from guaranteed subscription distribution. And they have to do what Comcast wants because Comcast controls distribution access to 25% of US households. Comcast would like cable programmers to put everything behind a TV Everywhere wall.
So, if you’re a DirecTV subscriber with a AT&T DSL connection, you won’t be able to purchase access to Comcast’s TV Everywhere online portal (currently weirdly branded Fancast Xfinity TV) a la carte. And if you’re a competing online video distributor, with a new goofy name that we haven’t yet taken to heart, you won’t necessarily be able to buy access to programming that your subscribers love at a reasonable price. Not only that, but because Comcast is effectively pricing online video subscriptions at zero – by tying access to their cable subscription – consumers will be unhappy paying separately for anything substantial online.
It’s this last bit that the DOJ is focused on. If Comcast and the other cable companies have made it prohibitively expensive (or impossible) for online distributors to sell subscriptions to sports and other key programming, that is potentially anticompetitive.
The cable companies may be succeeding in holding off the threat to their cable video franchises. This delay is good for Comcast and other cable companies, because it maintains their monopoly in regional video-distribution. It’s good for traditional programmers. But it’s bad for consumers – who will inevitably be paying higher prices.
Excellent as always. You should have an NBC-Comcast category (or a merger category).
Do you know whether anyone has studied whether previous FCC merger conditions were ever enforced?
Great post. To add a couple things: Comcast also charges customers $15 more per month for your Internet package, if you don’t take Cable or VoIP service. Cable and VoIP pricing don’t receive similar treatment.
And of course its not just that Comcast has 25% of the distribution, its that, beyond access for advertising revenue, this makes them the largest contributor of subscriber fees to cable programmers. In other words, they hold the purse strings for a business with existing margins of 40-50%.