What's Next?

It was revealed yesterday that Sprint is in talks with Charter to merge.  For both parties, it would be in response to the consumer preference to have one-stop, discounted bundles for all telecom and media needs as the two industries continue to converge.  What makes things a bit more interesting in this case is that Charter and Comcast agreed in May to get each other’s blessing if they planned to sign a deal with a wireless company.  

And, then, there is the question of who else is talking or should be talking?  Verizon and …?  Disney and …?  CBS and …?  Viacom and …? T-Mobile and …?  Netflix and ...? I get the feeling that before the music stops, we will have a handful of media/telecom super giants that “do it all”.  Is that what consumers want?

Have the Democrats improved the odds of the AT&T-Time Warner Merger Being Approved?

When AT&T and Time Warner announced their merger plans last year, the immediate reaction by many politicians and some others was that the mega media deal was too big and would negatively impact the competitive landscape of the media industry. 

Nine months later, Trump has come around, seemingly less concerned about the concentration of power, in spite of his disdain for CNN, one of Time Warner’s key assets.  Meanwhile, Democrats are still not fans of the deal as revealed in a seven-page letter to the DOJ penned by a group a prominent players in the party (e.g. E. Warren, B. Sanders).  The opening paragraph of June 21 letter reads:

“We have strong concerns that the combined company's unmatched control of popular content and the distribution of that content will lead to higher prices, fewer choices, and poorer quality services for Americans - substantial harms that cannot be remedied with unreliable, unenforceable, and time-limited behavioral conditions. Our constituents face significant and growing costs for telecommunications services. Before initiating the next big wave of media consolidation, you must consider how the $85 billion deal will impact Americans' wallets, as well as their access to a wide-range of news and entertainment programming. Should you determine that the substantial harms to competition and consumers arising from the transaction outweigh the purported benefits, you should reject the proposed acquisition.”

Given their high level of dislike for each other, will this letter actually “encourage” the DOJ (Jeff Sessions) to approve the deal?  I think it just might!

Content, Content, Content

On Tuesday, it was revealed that Discovery Communications and Scripps Network were in advanced talks to merge.  If it happens, non-fiction content assets such as Discovery, Animal Planet and OWN would be combined with HGTV, Travel Channel, and the Food Network.

Without a doubt, the move is in response to threats, namely increased consolidation among distributors and cord-cutting.  Larger Pay-TV providers pitted against smaller content owners “win” in retransmission negotiations, especially if the content is not highly valued by viewers.  The creation of lower priced skinny bundles that may or may not have space for less in-demand programming fortifies the challenges faced by the likes of Discovery and Scripps.  But, does a combined firm change any of that?  I believe it does/will not.  The programming has to be better – more engaging and more interesting.  Without that, viewers, particularly millennials, will not have a willingness to pay, regardless of the scale and scope of the firm that owns them.

It's back...Net Neutrality

Today, FCC Chariman, Ajit Pai, spoke on "The Future of Internet Freedom" at the Newseum in Washington D.C.  In his remarks, he advocates reversing the 2015 classification of broadband providers as Title II common carriers back to the light-touch regulation of Title I information services.  Pai stated that "It's basic economics.  The more heavily you regulate something, the less of it you're likely to get."  The topic will be on the FCC's May 18th meeting's agenda.

Let the fireworks begin (again)!

http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0426/DOC-344590A1.pdf

It Only Takes ONE to Tango

At today’s FCC meeting, the Commissioners voted along party lines to phase in the elimination of price caps on Business Data Services (BDS) provided by traditional phone companies if, within a county, 50% of the businesses are within a half mile of a location serviced by a competitive provider or if 75% of census blocks are served by a cable operator.  If the percent threshold is met, the market (the entire county) is deemed sufficiently competitive.

http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0420/DOC-344487A1.pdf

The FCC Chairman, Ajit Pai, argued that “Price regulation—that is, the government setting the rates, terms, and conditions for special access services—is seductive.  Who can possibly resist the promise of forcing prices lower right now?  But, in reality, price regulation threatens competition and investment.”  Pai hopes the rule change will lure new entrants.  Opponents believe that the rule change will mean higher prices for a large number of businesses.

Let's Make a Deal

It’s looking more and more likely that the $85B AT&T-Time Warner deal will happen.  Why?  

First, President Trump seems to be less concerned about the deal than Candidate Trump did 6-months ago.  Second, the FCC, on Monday, approved Time Warner’s $70M preemptive sale of its Atlanta TV station to Meredith.  The broadcast station was the only one of Time Warner’s stations regulated by the FCC.  Had the FCC decided the review the merger, the requirement to transfer station licenses may have been an issue.  Third, the new head of the Antitrust Division of the DOJ, Maken Delrahim, does not see the merger “as a major antitrust problem” as it does not reduce the number of direct competitors in the marketplace.  This is in spite of the merger’s size and potential foreclosure issues.  

As the probability of this deal happening increases, could the announcement of others be far behind?

What is going on in the brick-and-mortar retail space is much like…

what is happening in the cable industry.  DISRUPTION by new entrants.  It started with Amazon (and e-commerce) in retail and Netflix (and other streaming services) in home entertainment.

 

In the 1980s/90s, retailers like Macys and JCPenney built-out their footprints at mall locations across the country.  At those locations, they largely sold the brands of unaffiliated merchandisers.   Consumers spent a lot of time at the mall to shop.  All was good in the retail space.

In the MVPD industry in the 1980s/90s, cable firms provided access to content owned by third-parties.  If consumers wanted to watch a live-sporting event, their favorite show, the nightly news, they turned on the television.  There were 90+ million MVPD households.  All was good in the TV business.

All was good because, in each industry, the relationship between the owners of “the box” and the owners of “the stuff” made available through the box was one of mutual dependency.  If you built it, “they” would come.  But, there was a change, a technological one, which shifted the preferences on how consumers shopped and watched programming.

In response, MVPD providers are consolidating, creating their own content, and providing different packaging options for consumers (e.g. skinny bundles and online access).  Retailers are merging and closing locations, creating their own merchandise, and expanding their online presence.    

http://fortune.com/2017/03/17/jcpenney-stores-closing/