WOW and holdups
Comcast is the nation’s largest multichannel video programming distributor - by far the leader in this category. It is also the largest residential high-speed Internet access provider. It’s the third-largest phone company in the country. Plus it owns several regional sports networks - programming that is “non-replicable” or “must have” if you’re a competing video distributor in the same area - and popular cable channels. It has launched a service called Fancast XFINITY that ties its cable customers to online video services that it provides through its Internet access networks.
NBCU is one of the country’s top four media and entertainment companies. It owns NBC, Telemundo, broadcast stations in some of the country’s largest markets, some very popular cable channels, and a 30% interest in hulu.com.
Yesterday’s House Energy & Commerce and Senate Judiciary hearings on the Comcast/NBCU transaction included testimony from Colleen Abdoulah of WOW!, a multi-channel video distributor in the Midwest. WOW! needs access to popular content at reasonable prices in order to survive in the cable marketplace. (WOW! also provides excellent customer service.)
Abdoulah makes some strong statements about current practices by dominant content providers, and suggests that this bad behavior will become far worse if Comcast is allowed to join forces with NBCU:
- Not all programming content is equal. Content providers package programming in take-it-all-or-leave-it bundles. MVPDs need the high-value content in order to compete and have to buy the bundles. This forces MVPDs to use up channels for programming consumers don’t really want, and makes them use channels for cable content rather than high-speed Internet access. Allowing Comcast to join its must-have sports content with NBC’s must-have channels will make this bundling and supra-competitive pricing even more destructive to Comcast’s competitors.
- Dominant content providers can already claim to be providing access to their must-have content while, in reality, slow-rolling negotiations, setting artificial market prices in cahoots with friendly distributors, and generally doing all they can to make de facto discrimination possible. The joint venture will use all of these tricks and more.
- Even the remedies for contesting slow-rolling and discriminatory treatment in the program access world are tilted in favor of the dominant content providers. It is enormously expensive and draining to fight; in many cases, it’s just not worth it.
Abdoulah said all Comcast-NBCU programming should be available on a non-discriminatory basis. A la carte. No more tying and bundling. The remedies should be fixed - third party review plus binding arbitration plus the ability to continue carrying programming during pendency of the review would make sense. Her testimony suggests that it would be good for DOJ to consider structural/divestiture remedies, as in Ticketmaster.
From the Comcast/NBCU testimony:
“The formation of the new NBCU will remove negotiation impediments by providing Comcast with control of a rich program library and extensive production capabilities that Comcast can use to develop novel video products and services that will be offered to consumers across an array of distribution platforms.”
WOW! and ACA’s point is that dominant content providers - and Comcast/NBCU would be an enormous actor in this area - have already “removed negotiation impediments.” The negotiation appears to be simple: take it or leave it.
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so the chain of market power becomes a closed loop, starting with dominant content providers, then to dominant MVPDs, then to ” … novel video products and services that will be offered to consumers across an array of distribution platforms.”, where those distribution platforms are walled off and heavily fortified from competitive entry by the physical nature of the cable system itself
it raises a burning question in regard to millions of broadband content providers from the supply side - since most of them cannot break through the closed loop and compete head-to-head on a level playing field, their only hope is to get recognized and resold by a dominant content provider, or perhaps a dominant MPVD at best
in this context, the Comcast-NBC deal represents an attempted reversal of one of the great innovations of the internet - it undermines the ability of end-use consumers on the demand side, effectively to supply via combination, their own content at any level of aggregation they choose, by cutting out and preventing access to the lower, raw input levels, then cream skimming off the highest valued levels, and bundling and tying everything else to that
Al Franken shot Comcast’s Brian Roberts dead on this issue.
See http://consumerist.com/2010/02/al-franken-makes-comcasts-ceo-look-like-a-tool.html