The Comcast-NBC merger is such a terrible idea from the perspective of consumers that I think we have to fight it.
But I’m so certain that Comcast in the long run will make an utter hash of the deal that I almost want to see it go through.
The very thing that makes the deal sensible for Comcast—and bad for us—in the short run is exactly what will make it a disaster for Comcast in the long run.
Comcast has made it’s money by using its political and economic power to generate monopoly profits. It fears losing that monopoly and wants to use its cash reserves to create a new monopoly. It shouldn’t be allowed to do so.
But if it does, the company is utterly unsuited to running businesses that operate in a competitive world and that mangage creative talent. It is likely to fail at doing so.
Monopoly and Political Power as the Basis of Comcast’s Success
Comcast, like the rest of the cable industry is all about monopoly. It’s huge profits have come from the stranglehold it has held on the pipes that come into our homes, a stranglehold that is maintained not by innovation or good customer service but, rather, by exercising political and economic power.
Comcast’s political power has worked to keep competitors far away, regulations on its profits minimal, and commitments to the common good unenforced. Here in Philadelphia Comcast has worked vigorously to deny other companies the right to wire the city. It has negotiated sweetheart deals with our city government that allow it to raise its rates even where there is no economic justification for doing so. And it has encouraged the city to stall for years on the requirement that Comcast contribute to public access TV in the city.
Much the same happens in other political jurisdictions where Comcast operates.
When faced with real competition, Comcast was allowed to cripple satellite TV by not allowing their competitors to carry Sixers and Flyers games on their systems. The story of how this manifest violation of any notion of fair competition was allowed to escape scrutiny by those who are supposed to enforce anti-trust laws—or City Council—is yet to be written.
And to add insult to injury, Comcast was rewarded with a $30 million handout by the state of Pennsylvania to build their gold-plated headquarters in the city.
The other side of Comcast’s monopoly power is exercised over the suppliers of content. Because Comcast controls the pipes that go into our homes—and because of its sheer size—the company is able to negotiate favorable rates with all the content providers, primarily the cable channels, that cannot survive unless they have access to those pipes.
How Comcast Didn’t Succeed
Comcast’s success has had little to do with customer service, as many of us can attest from personal experience. I struggled for six years to get a decent television picture at my house until a Comcast executive moved into the neighborhood. Only then did the company finally do the rewiring necessary to get our signal up to acceptable levels.
Nor has it had much to do with technical innovation. Like the rest of the cable industry, Comcast has adopted technological innovations like on-demand television much more slowly than similar innovations have moved forward in a truly competitive market, such as that for internet services.
If political power were the not basis of Comcast’s monopoly profits, why else would David L. Cohen, a man with no known expertise in either technology or customer service, but plenty of political smarts and connections, become an important executive at the company?
The Threat to Comcast’s Monopoly
But now Comcast’s monopoly is being severely threatened in two ways. Verizon and other phone companies—companies that have the clout to fight Comcast in the political arena and that already have relationships with a customer base larger than that of Comcast—are building an alternate set of pipes to our houses, a fiber network that promises to give us much faster access to the internet as well as far more channels of cable TV. And the internet itself promises to be a way for cable channels to reach consumers directly—or through services like Hulu—without going through Comcast or other cable or phone companies.
So Comcast is looking at a future in which its monopoly position with regard to both consumers and the suppliers of content is shaken to the core. In other words, it is looking to a future in which it become merely a provider of a pipe to the internet in a competitive market that includes the pipes provided by telephone companies like Verizon, wireless phone companies whose 4G networks provide fast broadband access, and possibly other technologies, like WiMax, as well.
That is a future with much reduced profit margins and few prospects for growth.
Content as the Basis for a New Comcast Monopoly
Thus Comcast’s interest in NBC, like it’s interest in Disney a few years ago, is an attempt to use the vast financial resources created by its rapidly eroding monopoly to create a new monopoly in content. If Comcast can control a major television network and movie studio—with its huge library of films—it can leverage that control to give favored access to its own cable and internet provider business and thereby gain a competitive advantage over other cable and internet providers.
And if we fail to establish network neutrality—which would prohibit Comcast and other internet providers from favoring some internet content providers over others—the economic benefits to Comcast of controlling content will be even greater.
Comcast, whose success has mainly rested on its the monopoly position as cable TV company, is looking for anew sources of monopoly profits to replace those that it is rapidly losing.
It probably makes sense for Comcast in the short run. Using political and economic power to secure a rate of return higher than that which can be secured in a competitive field is, after all, what Comcast does best. Monopolizing some content will undoubtedly boost Comcast’s profits in the short term.
And that is a very good reason why this merger should be prohibited. If we are going to have real competition among and between internet and cable providers, then none of them should have any preferential access to content. Content—movies, TV shows, sports events—should be available on as many cable and internet sites as possible to give consumers maximum choice. This will have the additional benefit of improving the competitive position of content providers. And some of those benefits might trickle down to the artists who ultimately create what I’m still not totally comfortable calling “content.”
Comcast as Content Provider: A Disaster Waiting to Happen?
If, however, Comcast does wind up buying NBC, I have every confidence that it will make a mess of everything but wringing monopoly profits out the Universal film library. Everyone who has ever seen a movie or a TV show thinks he is a critic. And it’s not far from thinking oneself a critic to thinking oneself a movie producer or a television network programmer. But there is nothing in the history of Comcast, or the Roberts family members that own it, to think that there is hidden artistic talent there waiting for a chance to show itself.
So I suspect that Comcast will, like other companies that have overstretched themselves by merging with a very different kind of business, quickly run the TV network and film studio into the ground. And given the reaction of stockholders to the news of the proposed merger, that seems to be the general opinion.
I’m somewaht reluctant to admit that I’m not above a little schadenfreude. So given my years of frustration with Comcast, I suppose that I would enjoy Comcast damage itself by this merger. But it seems clear to me that it is in the interests of consumers, content providers, and maybe even artists to block it.