Comcast is in talks with GE to buy NBC Universal which would give Comcast all of NBC’s television and movie assets. According to the Wall Street Journal we should know in a matter of weeks if agreement is reached but any deal would certainly be given a lengthy review by anti-trust authorities. A concern often cited is the motive of vertical foreclosure: a merged Comcast-NBC would use their alliance to gain advantage over competitors for content provision. This issue also foreshadows those that would arise with internet content provision should net-neutrality be abandoned.
Comcast is a monopoly provider of access to content. Think of Comcast as the guy at the door charging you a fee to get into the party. You want to get in because inside there are people providing various services, perhaps for an additional fee. The best structure of all for Comcast would be to take ownership of all the service-providers inside and act as a joint monopoly collecting entrance fees and selling the services inside.
What would such a monopoly do to maximize profits? It would maximize the value of the services offered inside and then extract that value in the form of an entrance fee.
But this same outcome is achieved with the structure in which the services inside are provided competitively. Competition among service providers maximizes the value of the service thereby enabling the monopoly gatekeeper to earn the same profits as if it owned the entire enterprise.
So if you think that content is provided competitively (in my opinion its pretty close) then you shouldn’t worry too much about vertical foreclosure. On the other hand we should still wonder why Comcast is interested in NBC. Are there any plausible efficiency gains from a merger?
Merger review is based on looking for likely anti-competitive results or motives and if there is no clear anti-competitive motive then the merger is approved. But it’s worth considering a different standard here (and in the net-neutrality debate as well.) If there are no clear efficiency gains and a merger enables anti-competitive behavior even though that behavior may not have any clear rationale, then the merger should be rejected.
Allowing the merger would be like leaving scissors within reach of my (then) three-year-old. No good will come of it, and if I trust that she acts in her self-interest no harm would come either. But she is hard to predict:
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November 3, 2009 at 8:48 am
chug
I assume that your then 3 year old was your first child.
November 3, 2009 at 1:17 pm
Bill
Agree, but this has happened before, like when Time Warner (a content provider) acquired a cable company. What happens is an elaborate consent decree. So, what will be interesting is the consent decree with the Antitrust Division.
One of the current Deputies at the Division is an expert in telecommunications law.
November 3, 2009 at 5:10 pm
donna
What’s worse is when you have the second child, and trhe first cuts the second’s hair for them…. ;^)
November 3, 2009 at 6:09 pm
Fred H Schlegel
Comcast is feeling significant competitive pressure in markets where overlay systems have begun to take hold. While they seemed to be at relative equilibrium with satellite offerings the ATT seems to be shaking things up again. Right now competition seems to be centered around pricing/contracts/equipment/quality. While Comcast is pretty aggressive around here in generating exclusive sports content (mostly high school I think) from what I have seen there are no ‘big gun’ content plays that the different services can use against each other yet.
Assuming all parities desire to keep rates where they are as households hit saturation then there could be an advantage to walling off popular content from other providers even at the expense of advertising revenue. Here the big threat may be standard net offerings and net neutrality that you mention. Kind of depends where the overall company sees its most profitable revenue from. In the past (as with the time warner example) wider distribution was seen as good even at the expense of a competitive advantage for pipe. Given today’s pipeline options that may no longer be the case.
November 17, 2009 at 11:48 am
salty
Comcast has always been very aware that they extract a whole lot of value for what is essentially organizing the same bandwidth they deliver much cheaper as an ISP. They expect that eventually channels will offer themselves directly to subscribers via the internet and rather than bundling 40-100 channels together people would only buy the 1-6 they watch.
They had similar justification for attempting to buy Disney a few years back (when Eisner was just about to get tossed out by the board).
It’s different tactics to win the same fight they’re losing on net neutrality.