The last two years have been characterized by horizontal
mergers in the PayTV/Broadband industry.
And, with the exception, of the Comcast-Time Warner Cable (TWC) deal,
regulators have approved them. Looking
forward, this may be the year of the vertical merger, partly out of mutual necessity,
partly due to the fact that there are few horizontal pairings left that
regulators would approve.
Video distributors and content owners need each other. So, when AT&T, one of the largest
distributors of content (via PayTV, broadband and wireless) brings content in
house, the concern is that competitive content providers (e.g. Viacom, 21st
Century Fox) will be disadvantaged, particularly in terms of access to
customers. In recent years, carriage
disputes between distributors and content owners have become more commonplace
and nastier. A vertically-integrated
distributor with a large national footprint increases its leverage in these
negotiations. (Comcast bargains from a much
stronger position than Altice USA (Cablevision).) Could this merger stem the tide of rising
programming costs that are largely to blame for higher cable bills and
cord-shaving/cord-cutting?
Doubtful. What is certain? Lower
prices, more choices, and innovation will come from more competition, not less. The good news is that consumers are “going
outside the box” and getting content from indirect competitors. The reality, however, is that those
competitors still need to get to customers via the pipes controlled by the
likes of AT&T and Comcast. (Note:
Google Fiber is slowing its expansion.)
Another risk is in the other link of the supply chain. It could be argued that competitive
distributors (e.g. Charter, Verizon) could be withheld access to the vertically
integrated media giant’s content at reasonable prices. For regulators, this was one of the major
concerns with the Comcast-TWC merger. AT&T’s
strategy of increasing its breadth with its DirecTV acquisition before its
vertical stretch into content may have been in consideration of what went wrong
for Comcast, a vertically-integrated firm (with valuable NBC Universal content)
trying to expand its subscriber base.
