What's in our best interest?

Included in arguments for regulatory approval of its merger with Time Warner Cable and Bright House, Charter stated that it will comply with net neutrality rules even if they are later found to be illegal on appeal, and will continue to significantly invest in its broadband network.*

   

So, what happens if this merger and future ones are approved?**   Should we believe that we will be better off with fewer providers who may have greater scale and scope to provide all of our communication needs?  Isn’t this what the phone company was decades ago (as a regulated public utility)? 

Let competition thrive!  Both regulatory overreact and further industry consolidation will impede this from happening.

*The National Cable and Telecommunications Association supports Net Neutrality but not Title II reclassification.  (A position I agreed with.)    

**Highly unlikely Charter/TWC/Bright House is the last merger.

Former merger partners have contrasting plans for the set-top box

Within a few weeks of each other, former merger partners, Comcast and Time Warner Cable (TWC), announced different plans for the cable box that subscribers pay hundreds of dollars in fees to rent each year.  Comcast wants to leverage the data captured in those boxes and license it to third parties who are interested in knowing what/how/when we watch video programs.  TWC, on the other hand, is experimenting with getting rid of the box all together and replacing it with an app that interacts with media streaming devices such as Roku.  While both cable providers are among the two most hated firms in America (according to the American Customer Satisfaction Index), if TWC is able to make this happen (and merge with Charter), Comcast may find itself alone at the bottom.  Let’s see what happens!  

wsj.com: comcast-seeks-to-harness-trove-of-tv-data

cbsnews.com: time-warner-cable-lets-lose-the-cable-box

Step 1 in Getting a Cable Merger Approved…Don’t Upset the Little “Guy”

Apparently, a necessary (and maybe sufficient) condition in getting regulators to approve a cable system merger is to have an agreement by the MVPD to carry RFD-TV.  Charter just renewed its agreement to carry RFD-TV.  The rural channel and its parent, Rural Media Group, now support the Charter-Time Warner-Brighthouse merger.   AT&T agreed to carry the channel on its U-verse systems after announcing its plans to merge with DirecTV.  The deal closed this summer. 

Comcast wasn’t so easy to “win over”.  Comcast dropped the channel in some of its urban/suburban markets because of low viewership numbers.  Because of its concerns that the industry’s consolidation trend ignored the interests (and viewing preferences) of rural Americans, RFD-TV asked the FCC to impose rural carriage conditions if it approved Comcast’s merger with Time Warner Cable.  Comcast didn’t acquiesce.  The merger didn’t happen.  

Another Merger....Everyone Knows the Drill

A few months after regulators approved its $48.5M merger with DirecTV, AT&T, in an October 13^th letter to the FCC, raise concerns that the Charter-Time Warner (and Bright House) merger would harm competitors and consumers.  They claim that cable firms, who choose not to compete head-to-head in local markets (see map), will find it easier to coordinate national activities, namely sharing affiliated programming with each other and raising costs to non-cable rivals.*  AT&T claims that:

“Cable companies share common, national rivals in broadband, video, and telecommunications services.   These geographically segregated cable companies therefore have incentives to coordinate their activities to fend off these common rivals and have demonstrated the ability to do so.”

Dish also petitioned the FCC on Tuesday to deny the merger claiming that similar to the Comcast-Time Warner merger, the larger operator could harm online video services (e.g. Sling).

Publicly opposing the merger is what the satellite providers have to do.  (In hindsight, Verizon should have been on record opposing the 2011 AT&T-T-Mobile.)  A more concentrated market helps the remaining competitors.  In the months/years ahead, expect more consolidated in the saturated pay TV/broadband market.  And, expect more weak statements of opposition from competitors.

*While AT&T is now the largest paid TV provider with 26M subscribers, its 5M broadband subscribers is much smaller than the 20M+ subscribers each for Comcast and a combined Charter-TW-Bright House.

Streaming Your Way: The Disutility of Too Many Choices

From the beginning of cable time, we have been “offered” a limited number of programming packages.  And, for most of us, regardless of what package we selected, we were getting channels we didn’t watch.  For decades, we clamored for the ability to select the channels we wanted to watch even when warned by the cable operators that it would cost us more money.  

Fast forward to 2015.  We now have an expanding array of skinny bundles from video distributors/program outlets.  (An incomplete list is below.)   If this is the transition to the new normal of selecting and paying for all channels on demand, I’m not sure we will be better off.  And, it’s not just about the money it’s going to cost us.  It’s about what Barry Schwartz calls the “paralysis of choice”.  (See link to his Ted talk below.)  With so much to choose from, will we become overwhelmed and increasingly dissatisfied?  What is the right number and variety of programming that would make us feel better off?  Does it exist?  Or, are we destined to be unhappy because we long for the good ole days when TV (with a handful of broadcast channels) was free.  

Barry Schwartz's Ted Talk

Firm	Genre	Monthly Price
NBC Comcast (Seeso)	Comedy	$3.99
CBS (All Access)	Multi	$5.99
Time Warner	HBO Programming	$14.99
Dish (Sling)	Multi	$20 (includes ESPN, CNN)
Hulu (ABC, NBC, the CW, FOX)	Multi	$7.99 (with ads) $11.99 (w/o ads)
Netflix	Multi	$9.99
Amazon Prime	Multi	$99 per year

Carriage Disputes and the FCC’s Role

Is it fair to expect that FCC involvement or threat of involvement in carriage disputes would lessen the frequency of blackouts in local markets?  Would it be to the advantage of the consumer if they do?

Over the past several years, must-carry fees compensating broadcasters for their station feeds have skyrocketed.  With declining pay-TV subscriptions, MVPD operators have pushed back on both the requested rate hikes and the continued bundling of sub-channels in with top-tier channels.  Broadcasters have counter-punched by withholding channels and blocking online access to shows during disputes.  Nearly 150 broadcaster blackouts so far in 2015 have caused consumer harm.  By “using” the consumer in negotiations, is that fair?  But, by regulators preventing or limiting the use of a private party’s leverage in negotiating an agreement, is that fair?  

When is some competition enough?

Beginning with the 1992 Cable Act, the FCC allowed local franchise authorities to regulate local cable rates only if there was not a finding of effective competition.*  At the time, cable operators had a 95% share of the MVPD market.

Pointing to the now ubiquitous availability of satellite TV and evidence that 99.7% of U.S. homes have access to at least 3 MVPDS (and 35% with access to 4 MVPDs), the FCC, in June, adopted a rebuttable presumption that cable operators, both large and small, are subject to Competing Provider Effective Competition.  The rule, approved by a 3-to-2 margin, shifts to local governments the burden of demonstrating that effective competition does not exist in their communities in order for them to regulate local cable rates. 

Concerned about less oversight at the local level and the possibility that cable operators who had negotiated retransmission consent agreements may choose not to carry broadcasters on the basic service tier, the National Association of Broadcasters (NAB) and two other groups petitioned a federal court for a review of the new FCC rule.  Since its filing about a month ago, no action has been taken by the court.  Today, however, the American Cable Association (ACA) and National Cable & Telecommunications Association (NCTA) requested the court if they could intervene in support of the FCC's decision.

*4 categories of effective competition: 1) low penetration, 2) competitive provider, 3) municipal provider, and 4) LEC provider.